Part 3‑10—Financial transactions
Division 240—Arrangements treated as a sale and loan
Table of Subdivisions
Guide to Division 240
240‑A Application and scope of Division
240‑B The notional sale and notional loan
240‑C Amounts to be included in notional seller’s assessable income
240‑D Deductions allowable to notional buyer
240‑E Notional interest and arrangement payments
240‑F The end of the arrangement
240‑G Adjustments if total amount assessed to notional seller differs from amount of finance charge
240‑H Application of Division 16E to certain arrangements
240‑I Provisions applying to hire purchase agreements
240‑1 What this Division is about
For income tax purposes, some arrangements (such as hire purchase agreements) are recharacterised as a sale of property, combined with a loan, by the notional seller to the notional buyer, to finance the purchase price.
240‑3 How the recharacterisation affects the notional seller
Effect of notional sale
(1) The consideration for the notional sale is either the price stated as the cost or value of the property or its arm’s length value. If the notional seller is disposing of the property as trading stock, the normal consequences of disposing of trading stock follow. In particular, the notional seller will be assessed on the sale price.
(2) Where the property is not trading stock the notional seller’s assessable income will include any profit made by the notional seller on the notional sale or on the sale of the property after a notional re‑acquisition.
Effect of notional loan
(3) The notional seller’s assessable income will include notional interest over the period of the loan.
Other effects
(4) These effects displace the income tax consequences that would otherwise arise from the arrangement. For example, the actual payments to the notional seller are not included in its assessable income. Also, the notional seller loses the right to deduct amounts under Division 40 (about capital allowances).
240‑7 How the recharacterisation affects the notional buyer
Effect of notional purchase
(1) The cost of the acquisition is either the price stated as the cost or value of the property or its arm’s length value. If the notional buyer is acquiring the property as trading stock, the normal consequences of acquiring trading stock follow. In particular, the notional buyer can usually deduct the purchase price.
(2) If the property is not trading stock, the notional buyer may be able to deduct amounts for the expenditure under Division 40 (about capital allowances).
Effect of notional loan
(3) The notional buyer may be able to deduct notional interest payments over the period of the loan.
Other effects
(4) These effects displace the income tax consequences that would otherwise arise from the arrangement. For example, the notional buyer cannot deduct the actual payments to the notional seller.
Subdivision 240‑A—Application and scope of Division
Table of sections
Operative provisions
240‑10 Application of this Division
240‑15 Scope of Division
240‑10 Application of this Division
An *arrangement is treated as a notional sale and *notional loan if:
(a) the arrangement is listed in the table below; and
(b) the arrangement relates to the kind of property listed in the table; and
(c) any conditions listed in the table are satisfied.
Special provisions that apply to particular arrangements are also listed in the table.
This Division applies to: | ||||
| *Arrangements of this kind: | That relate to this kind of property: | If these conditions are satisfied: | Special provisions: |
1 | *Hire purchase agreement | Any goods | None | See Subdivision 240‑I |
This Division has effect for the purposes of this Act and for the purposes of the Income Tax Assessment Act 1936 other than:
(a) Parts 3‑1 and 3‑3 of this Act (capital gains tax); and
(b) Division 11A of Part III of the Income Tax Assessment Act 1936 (certain payments to non‑residents etc.).
Subdivision 240‑B—The notional sale and notional loan
Table of sections
Operative provisions
240‑17 Who is the notional seller and the notional buyer?
240‑20 Notional sale of property by notional seller and notional acquisition of property by notional buyer
240‑25 Notional loan by notional seller to notional buyer
240‑17 Who is the notional seller and the notional buyer?
(1) An entity is the notional seller if it is a party to the *arrangement and:
(a) actually owns the property; or
(b) is the owner of the property because of a previous operation of this Division.
(2) An entity is the notional buyer if it is a party to the *arrangement and, under the arrangement, has the *right to use the property.
Example: If the arrangement is a hire purchase agreement, the finance provider will be the notional seller and the hirer will be the notional buyer.
(1) The *notional seller is taken to have disposed of the property by way of sale to the *notional buyer, and the notional buyer is taken to have acquired it, at the start of the *arrangement.
(2) The *notional buyer is taken to own the property until:
(a) the *arrangement ends; or
(b) the notional buyer becomes the *notional seller under a later *arrangement to which this Division applies.
240‑25 Notional loan by notional seller to notional buyer
(1) On entering into the *arrangement, the *notional seller is taken to have made a loan (the notional loan) to the *notional buyer.
(2) The notional loan is for a period:
(a) starting at the start of the *arrangement; and
(b) ending on the day on which the arrangement is to cease to have effect or, if the arrangement is of indefinite duration, on the day on which it would be reasonable to conclude, having regard to the terms and conditions of the arrangement, that the arrangement will cease to have effect.
(3) The notional loan is of an amount (the notional loan principal) equal to the consideration for the sale of the property less any amount paid, or credited by the *notional seller as having been paid, by the *notional buyer to the notional seller, at or before the start of the *arrangement, for the cost of the property.
Note: Section 240‑80 affects the amount of the notional loan principal where the arrangement is an extension or renewal of another arrangement.
(4) The notional loan is subject to payment of a charge (the finance charge).
(5) The consideration for the sale of the property by the *notional seller, and the cost of the acquisition of the property by the *notional buyer, are each taken to have been:
(a) if an amount is stated to be the cost or value of the property for the purposes of the *arrangement and the notional seller and the notional buyer were dealing with each other at *arm’s length in connection with the arrangement—the amount so stated; or
(b) otherwise—the amount that could reasonably have been expected to have been paid by the notional buyer for the purchase of the property if:
(i) the notional seller had actually sold the property to the notional buyer at the start of the arrangement; and
(ii) the notional seller and the notional buyer were dealing with each other at arm’s length in connection with the sale.
(6) The *notional loan principal is taken to be repaid, and the *finance charge is taken to be paid, by the making of the payments under the *arrangement.
Subdivision 240‑C—Amounts to be included in notional seller’s assessable income
240‑30 What this Subdivision is about
This Subdivision provides for the inclusion in the notional seller’s assessable income of:
(a) amounts (notional interest) on account of the finance charge for the notional loan that the notional seller is taken to have made to the notional buyer; and
(b) any profit made by the notional seller:
(i) on the notional sale of the property to the notional buyer; or
(ii) on a sale of the property after any notional re‑acquisition of the property by the notional seller.
Table of sections
Operative provisions
240‑35 Amounts to be included in notional seller’s assessable income
240‑40 Arrangement payments not to be included in notional seller’s assessable income
240‑35 Amounts to be included in notional seller’s assessable income
Notional interest
(1) The *notional seller’s assessable income of an income year includes the *notional interest for *arrangement payment periods, and parts of arrangement payment periods, in the income year.
Profit on notional sale
(2) If the property is not *trading stock of the *notional seller and the consideration for the notional sale of the property exceeds the cost of the acquisition of the property by the notional seller, the excess is included in the notional seller’s assessable income of the income year of the notional sale.
Profit on actual sale after notional re‑acquisition
(3) If:
(a) the *notional seller is taken under this Division to have re‑acquired the property from the *notional buyer; and
(b) the notional seller afterwards sells the property; and
(c) the consideration for the sale exceeds the cost of the re‑acquisition;
the excess is included in the notional seller’s assessable income of the income year in which the sale occurred.
240‑40 Arrangement payments not to be included in notional seller’s assessable income
(1) The *arrangement payments that the *notional seller receives, or is entitled to receive, under the *arrangement:
(a) are not to be included in the *notional seller’s assessable income of any income year; but
(b) are not taken to be *exempt income of the notional seller.
(2) However, those *arrangement payments are taken into account in calculating *notional interest that is included in the *notional seller’s assessable income under section 240‑35.
(3) A loss or outgoing incurred by the *notional seller in deriving any such *arrangement payments is not taken to be a loss or outgoing incurred by the notional seller in relation to gaining or producing *exempt income.
Subdivision 240‑D—Deductions allowable to notional buyer
240‑45 What this Subdivision is about
This Subdivision provides that the notional buyer may, in certain circumstances, be entitled to deductions for the notional interest for the notional loan that the notional seller is taken to have made to the notional buyer.
Table of sections
Operative provisions
240‑50 Extent to which deductions are allowable to notional buyer
240‑55 Arrangement payments not to be allowable deductions
240‑50 Extent to which deductions are allowable to notional buyer
(1) The *notional buyer is only entitled to deduct *notional interest for an income year to the extent that the notional buyer would, apart from this Division, have been entitled to deduct *arrangement payments for that income year if no part of those payments were capital in nature.
(2) The *notional buyer is entitled to deduct *notional interest for *arrangement payment periods, and parts of arrangement payment periods, in the income year.
240‑55 Arrangement payments not to be allowable deductions
The *notional buyer is not entitled to deduct *arrangement payments that the *notional buyer makes under the *arrangement, but those payments are taken into account in calculating *notional interest that may be deducted under section 240‑50.
Subdivision 240‑E—Notional interest and arrangement payments
Table of sections
Operative provisions
240‑60 Notional interest
240‑65 Arrangement payments
240‑70 Arrangement payment periods
(1) The *notional interest for an *arrangement payment period is worked out as follows:
Calculating *notional interest
Step 1. Add the *notional interest from previous *arrangement payment periods to the *notional loan principal.
Step 2. Subtract any *arrangement payments that have already been made or that are due but that have not been made. The result is the outstanding notional loan principal as at the start of the *arrangement payment period.
Step 3. Work out the implicit interest rate. It is the rate of compound interest for the *arrangement payment period at which the *notional loan principal equals the sum of:
(a) the present value of the *arrangement payments payable by the *notional buyer under the *arrangement; and
(b) the present value of any *termination amounts.
Step 4. Multiply the outstanding *notional loan principal by the implicit interest rate. The result is the notional interest for the *arrangement payment period.
(2) If only part of an *arrangement payment period occurs during an income year, the *notional interest for that part of the arrangement payment period is so much of the notional interest for that arrangement payment period as may appropriately be related to that income year in accordance with generally accepted accounting principles.
(3) In calculating the implicit interest rate, if any of the relevant amounts are not known at the start of the *arrangement, a reasonable estimate of the amount is to be made and is to be used for the purposes of calculating the implicit interest rate for each income year of the *notional seller.
(4) If a reasonable estimate cannot be made at that time, an estimate of the amount is to be made at the end of each income year of the *notional seller for the purposes of calculating the implicit interest rate for each income year of the notional seller.
An arrangement payment is an amount that the *notional buyer is required to pay under the *arrangement but does not include:
(a) an amount in the nature of a penalty payable for failure to make a payment on time; or
(b) a *termination amount.
240‑70 Arrangement payment periods
(1) An *arrangement payment period is a period for which a payment under the *arrangement is allocated or expressed to be payable.
(2) However, if a period exceeds 6 months, the period is not an *arrangement payment period but each of the following parts of the period is a separate arrangement payment period:
(a) the part of the period beginning at the start of that period and ending 6 months later;
(b) each part of the period:
(i) beginning immediately after a part of the period that is an arrangement payment period under paragraph (a) or under a previous application of this paragraph; and
(ii) ending 6 months after the start of that later part or at the end of the period, whichever first occurs.
Subdivision 240‑F—The end of the arrangement
Table of sections
Operative provisions
240‑75 When is the end of the arrangement?
240‑78 Termination amounts
240‑80 What happens if the arrangement is extended or renewed
240‑85 What happens if an amount is paid by or on behalf of the notional buyer to acquire the property
240‑90 What happens if the notional buyer ceases to have the right to use the property
240‑75 When is the end of the arrangement?
(1) If the *arrangement is stated to cease to have effect at a particular time, it is taken for the purposes of this Division to end (even if it is extended or renewed) at the earlier of:
(a) that time; or
(b) the time at which the arrangement ceases to have effect (whether because the arrangement is terminated or for any other reason).
Note: Section 240‑80 deals with extensions and renewals.
(2) An *arrangement is taken to have ended if it is extended or renewed.
(3) If the *arrangement is of indefinite duration, it ends at the time at which the arrangement ceases to have effect even if the *arrangement is renewed.
Note: Section 240‑80 deals with extensions and renewals.
(4) An *arrangement is taken to have ended if it is reasonable to conclude, having regard to the terms and conditions of the *arrangement, that the arrangement has ceased to have effect.
(5) An *arrangement is also taken to have ended if the property has been lost or destroyed.
A termination amount is an amount payable because an *arrangement ends and includes:
(a) if, at the end of the arrangement, the *notional buyer acquires the property from the *notional seller—an amount payable to the notional seller for the acquisition; or
(b) if, at the end of the arrangement, the property is lost or destroyed—any amounts paid to the notional seller (whether by the notional buyer or another entity) as a result of the loss or destruction of the property; or
(c) otherwise—the value of the property at the end of the arrangement.
240‑80 What happens if the arrangement is extended or renewed
(1) This section sets out what happens if, after the end of the *arrangement, the *notional buyer and *notional seller extend or renew the *arrangement.
(2) This Division applies as if the original *arrangement has ended and the extended arrangement or renewed arrangement is a separate arrangement (the new arrangement).
(3) There is not, however, taken to be any disposal or acquisition as a result of the original arrangement ending or of the new arrangement starting and the *notional buyer does not cease to own the property.
(4) Also, the *notional loan principal for the new loan is:
(a) if the *arrangement as extended or renewed states an amount as the cost or value of the property for the purposes of the extension or renewal and the *notional seller and the *notional buyer were dealing with each other at *arm’s length in connection with the extension or renewal—the amount so stated; or
(b) otherwise—the amount that could reasonably have been expected to have been paid by the notional buyer for the purchase of the property if:
(i) the notional seller had actually sold the property to the notional buyer when the arrangement was extended or renewed; and
(ii) the notional seller and notional buyer were dealing with each other at arm’s length in connection with the sale.
(5) Subdivision 240‑G applies to the *notional loan for the original arrangement. For that purpose, the *notional loan principal for the new arrangement is taken to be a *termination amount paid to the *notional seller under the original arrangement.
If, at or after the end of the *arrangement, an amount is paid to the *notional seller by, or on behalf of, the *notional buyer to acquire the property, the following provisions have effect:
(a) the amount paid is not included in the notional seller’s assessable income;
(b) the notional buyer cannot deduct the payment;
(c) the notional buyer is taken to continue to own the property;
(d) the transfer to the notional buyer of legal title to the property is not taken to be a disposal of the property by the notional seller.
240‑90 What happens if the notional buyer ceases to have the right to use the property
(1) This section applies if, at the end of the *arrangement:
(a) the arrangement is not extended or renewed in the way mentioned in subsection 240‑80(1); and
(b) no amount is paid to the *notional seller by, or on behalf of, the *notional buyer to acquire the property; and
(c) the property is not lost or destroyed.
(2) The property is taken to have been disposed of by the *notional buyer by way of sale back to the *notional seller, and to have been acquired by the *notional seller, at the end of the *arrangement.
(3) The consideration for the sale of the property by the *notional buyer, and the cost of the acquisition of the property by the *notional seller, are each taken to be equal to the *market value of the property at the end of the *arrangement.
(4) Subsection (5) applies where the property is a *car and if it:
(a) had been bought from the *notional seller, when this Division first applied to an *arrangement in respect of the car, by the *notional buyer for a price equal to the *notional loan principal; and
(b) had been first used by the notional buyer for any purpose in the *financial year in which that time occurred;
the cost of the car, for the purpose of working out its decline in value for that person under Division 40, would have been limited by section 40‑230.
(a) the sum of:
(i) the amount that would have been the *adjustable value of the car at that time for the purposes of the application of that Division to the notional buyer if the notional buyer were not taken under this Division to have disposed of the car; and
(ii) any amount that is included in the notional buyer’s assessable income under section 40‑285 because the notional buyer is taken to have disposed of the car; or
(b) the cost of the acquisition of the car by the associate.
Subdivision 240‑G—Adjustments if total amount assessed to notional seller differs from amount of finance charge
240‑100 What this Subdivision is about
This Subdivision provides for adjustments if the sum of the amounts included in the notional seller’s assessable income are greater or less than the finance charge, worked out at the end of the arrangement, for the notional loan.
Table of sections
Operative provisions
240‑105 Adjustments for notional seller
240‑110 Adjustments for notional buyer
240‑105 Adjustments for notional seller
(1) This section applies at the end of the *arrangement.
(2) If the sum of:
(a) all amounts (other than *termination amounts) that were paid or payable to the *notional seller under the *arrangement; and
(b) any termination amounts paid or payable to the notional seller;
exceeds the amount worked out using the formula in subsection (4), the excess is included in the notional seller’s assessable income of the income year in which the arrangement ends.
Note: Subsection 240‑80(5) provides that the amount of a notional loan that is taken to be made by an extended or renewed arrangement is a termination amount paid under the previous arrangement.
(3) If the amount worked out using the formula in subsection (4) exceeds:
(a) all amounts (other than *termination amounts) that were paid or payable to the *notional seller under the *arrangement; and
(b) any termination amounts paid or payable to the notional seller;
the notional seller is entitled to deduct the excess in the income year in which the arrangement ends.
Note: Subsection 240‑80(5) provides that the amount of a notional loan that is taken to be made by an extended or renewed arrangement is a termination amount paid under the previous arrangement.
(4) The formula for the purposes of subsections (2) and (3) is:
where:
assessed notional interest means the *notional interest that has been or is to be included in the *notional seller’s assessable income of any income year.
240‑110 Adjustments for notional buyer
(1) If:
(a) an amount is included in the *notional seller’s assessable income of an income year under subsection 240‑105(2); or
(b) an amount would have been so included if the notional seller had been subject to tax on assessable income;
the *notional buyer is entitled to deduct a corresponding amount in the notional buyer’s income year.
(2) If:
(a) the *notional seller is entitled to deduct an amount for an income year under subsection 240‑105(3); or
(b) the notional seller would have been so entitled if the *notional seller had been subject to tax on assessable income;
a corresponding amount is included in the notional buyer’s assessable income for the notional buyer’s income year.
(3) The *notional buyer is entitled to a deduction, and is required to include an amount in his or her assessable income only to the extent (if any) that the notional buyer would, apart from this Division, have been entitled to deduct *arrangement payments if no part of those payments were capital in nature.
Subdivision H—Application of Division 16E to certain arrangements
240‑112 Division 16E applies to certain arrangements
(1) Division 16E of Part III of the Income Tax Assessment Act 1936 applies in relation to an arrangement (the assignment arrangement) between the notional seller and another person (the holder) to transfer the right to payments (the Division 240 payments) under an arrangement that is treated as a sale and loan by this Division (the sale and loan arrangement).
(2) In applying Division 16E, the following assumptions are to be made:
(a) the assignment arrangement is the qualifying security;
(b) the notional seller is the issuer;
(c) the qualifying security is issued when the assignment arrangement is entered into;
(d) the issue price is consideration provided to the notional seller under the assignment arrangement;
(e) the Division 240 payments are payments made by the notional seller under the assignment arrangement;
(f) no part of the payments represent periodic interest.
(3) This Subdivision does not apply if the assignment arrangement gives rise to a termination of the sale and loan arrangement for the purposes of this Division.
(4) To avoid doubt, Division 6A of Part III of the Income Tax Assessment Act 1936 does not apply to an assignment arrangement to which this Subdivision applies.
Subdivision 240‑I—Provisions applying to hire purchase agreements
Table of sections
Operative provisions
240‑115 Another person, or no person taken to own property in certain cases
240‑115 Another person, or no person taken to own property in certain cases
(1) This section sets out special modifications of the effect of this Division that apply in relation to a *hire purchase agreement unless:
(a) the notional buyer would have been the owner or the *quasi‑owner of the property if the *arrangement had been a sale of the property; and
(b) it is reasonably likely that the right, obligation or contingent obligation to acquire the property will be exercised by, or in respect of, the notional buyer.
Note: An example of a contingent obligation is a put option.
(2) The modifications also apply if the *notional buyer:
(a) disposes of his or her interest in the property; or
(b) enters into a lease covered by Division 42A of Schedule 2E to the Income Tax Assessment Act 1936 under which he or she leases the property to another person.
Modifications
(3) For the purpose of the *capital allowance provisions, if, apart from the operation of this Division, an entity other than the *notional seller would own the property that is the subject of an agreement covered by this section, that entity is taken to be the owner of the property.
(4) For the purpose of the *capital allowance provisions, if, apart from the operation of this Division, the *notional seller would own the property that is the subject of an agreement covered by this section, no entity is taken to be the owner of the property.
Division 243—Limited recourse debt
Table of Subdivisions
Guide to Division 243
243‑A Circumstances in which Division operates
243‑B Working out the excessive deductions
243‑C Amounts included in assessable income and deductions
243‑D Special provisions
243‑10 What this Division is about
This Division tells you when you must include an additional amount in your assessable income at the termination of a limited recourse debt arrangement. It also tells you what the additional amount is.
Basically, the Division applies where the capital allowance deductions that have been obtained for expenditure that is funded by the debt and the deductions are excessive having regard to the amount of the debt that was repaid.
The reason for the adjustment is to ensure that, where you have not been fully at risk in relation to an amount of expenditure, you do not get a net deduction if you fail to pay that amount.
Subdivision 243‑A—Circumstances in which Division operates
Table of sections
Operative provisions
243‑15 When does this Division apply?
243‑20 What is limited recourse debt?
243‑25 When is a debt arrangement terminated?
243‑30 What is the financed property and the debt property?
243‑15 When does this Division apply?
(1) This Division applies if:
(a) *limited recourse debt has been used to wholly or partly finance or refinance expenditure; and
(b) at the time that the debt *arrangement is terminated, the debt has not been paid in full by the debtor; and
(c) the debtor can deduct an amount as a *capital allowance for the income year in which the termination occurs, or has deducted or can deduct an amount for an earlier income year, in respect of the expenditure or the *financed property.
Note: This Division does not apply to certain limited recourse debts that are used to refinance limited recourse debt to which this Division has applied (see subsection 243‑50(4)).
(2) However, unless the net *capital allowance deductions have been excessive having regard to the amount of the debt that remains unpaid (see section 243‑35), no amount is included in the debtor’s assessable income under this Division although future deductions may be reduced.
(3) In working out if the debt has been paid in full, and in working out the unpaid amount of the debt, the following amounts are to be treated as if they were not payments in respect of the debt:
(a) any reduction in the debt as a result of the *financed property being surrendered or returned to the creditor at the termination of the debt;
(b) any payment to reduce the debt that is funded directly or indirectly by *non‑arm’s length limited recourse debt or by proceeds from the disposal of the debtor’s interest in the financed property.
However, any amounts accrued that are interest, *notional interest or in the nature of interest are taken not to be unpaid.
(4) In working out if the debt has been paid in full, and in working out the unpaid amount of the debt, payments are to be attributed first to the payment of any accrued amounts that are interest, *notional interest or in the nature of interest.
(5) A *notional loan is taken to be debt that has been used to wholly or partly finance or refinance expenditure.
Note: Notional loans arise under Division 240.
243‑20 What is limited recourse debt?
(1) A limited recourse debt is an obligation imposed by law on an entity (the debtor) to pay an amount to another entity (the creditor) where the rights of the creditor as against the debtor in the event of default in payment of the debt or of interest are limited wholly or predominantly to any or all of the following:
(a) rights (including the right to money payable) in relation to any or all of the following:
(i) the *debt property or the use of the debt property;
(ii) goods produced, supplied, carried, transmitted or delivered, or services provided, by means of the debt property;
(iii) the loss or disposal of the whole or a part of the debt property or of the debtor’s interest in the debt property;
(b) rights in respect of a mortgage or other security over the debt property or other property;
(c) rights that arise out of any *arrangement relating to the financial obligations of an end‑user of the *financed property towards the debtor, and are financial obligations in relation to the financed property.
(2) An obligation imposed by law on an entity (the debtor) to pay an amount to another entity (the creditor) is also a limited recourse debt if it is reasonable to conclude that the rights of the creditor as against the debtor in the event of default in payment of the debt or of interest are capable of being limited in the way mentioned in subsection (1). In reaching this conclusion, have regard to:
(a) the assets of the debtor (other than assets that are indemnities or guarantees provided in relation to the debt);
(b) any *arrangement to which the debtor is a party;
(c) whether all of the assets of the debtor would be available for the purpose of the discharge of the debt (other than assets that are security for other debts of the debtor or any other entity);
(d) whether the debtor and creditor are dealing at *arm’s length in relation to the debt.
(3) An obligation imposed by law on an entity (the debtor) to pay an amount to another entity (the creditor) is also a limited recourse debt if there is no *debt property and it is reasonable to conclude that the rights of the creditor as against the debtor in the event of default in payment of the debt or of interest are capable of being limited. In reaching this conclusion, have regard to:
(a) the assets of the debtor (other than assets that are indemnities or guarantees provided in relation to the debt);
(b) any *arrangement to which the debtor is a party;
(c) whether all of the assets of the debtor would be available for the purpose of the discharge of the debt (other than assets that are security for other debts of the debtor or any other entity);
(d) whether the debtor and creditor are dealing at *arm’s length in relation to the debt.
(4) A *notional loan under a *hire purchase agreement is also a limited recourse debt.
Note: Notional loans arise under Division 240.
(5) However, an obligation that is covered by subsection (1) is not a limited recourse debt if the creditor’s recourse is not in practice limited due to the creditor’s rights in respect of a mortgage or other security over property of the debtor (other than the financed property) the value of which exceeds, or is likely to exceed, the amount of the debt.
(6) Also, an obligation that is covered by subsection (1), (2) or (3) is not a limited recourse debt if, having regard to all relevant circumstances, it would be unreasonable for the obligation to be treated as limited recourse debt.
(7) A *limited recourse debt is a non‑arm’s length limited recourse debt if the debtor and creditor do not deal with each other at arm’s length in relation to the debt.
243‑25 When is a debt arrangement terminated?
(1) A debt arrangement is taken to have terminated if:
(a) it is actually terminated; or
(b) the debtor’s obligation to repay the debt is waived, novated or otherwise varied so as to reduce, transfer or extinguish the debt; or
(c) an agreement is entered into to waive, novate or otherwise vary the debtor’s obligation to repay the debt so as to reduce, transfer or extinguish the debt; or
(d) the creditor ceases to have an entitlement to recover the debt from the debtor (other than as a result of an arm’s length assignment of some or all of the creditor’s rights under the debt arrangement); or
(e) the debtor ceases to be the owner or the *quasi‑owner of some or all of the *debt property because that property is surrendered to the creditor because of the debtor’s failure to pay the whole or a part of the debt; or
(f) the debtor ceases to be the owner of a beneficial interest in some or all of the debt property because the interest is surrendered to the creditor because of the debtor’s failure to pay the whole or a part of the debt; or
(g) the debt becomes a bad debt.
(2) However, a debt arrangement that is a *notional loan is not taken to have terminated merely because it has been renewed or extended.
Note: Notional loans arise under Division 240. Under that Division, they are taken to have ended if they are renewed or extended.
(3) Where a debt is terminated under paragraph (1)(b) or (c) as a result of the debt being reduced, the remaining debt is taken to be a new debt to which section 243‑15 applies.
243‑30 What is the financed property and the debt property?
(1) Property is the financed property if the expenditure referred to in paragraph 243‑15(1)(a) is on the property, is on the acquisition of the property, results in the creation of the property or is otherwise connected with the property.
(2) If the debt agreement is a *notional loan, the property that is the subject of the agreement is the financed property.
Note: Notional loans arise under Division 240.
(3) Property is the debt property if:
(a) it is the *financed property; or
(b) the property is provided as security for the debt.
Subdivision 243‑B—Working out the excessive deductions
Table of sections
Operative provisions
243‑35 Working out the excessive deductions
243‑35 Working out the excessive deductions
(1) The *capital allowance deductions have been excessive having regard to the amount of the debt that remains unpaid if the amount worked out under subsection (2) exceeds the amount worked out under subsection (4).
(2) This is how to work out the total net *capital allowance deductions:
Working out the total net capital allowance deductions
Step 1. Add up all of the debtor’s *capital allowance deductions in respect of the expenditure or the *financed property (including deductions because of balancing adjustments) for the income year in which the termination occurs or an earlier income year.
Step 2. Deduct from that any amount that is included in the assessable income of the debtor of any income year by virtue of a provision of this Act (other than this Division) as a result of the disposal of the *financed property the effect of which is to reverse a deduction covered by Step 1.
Step 3. Deduct from the result an amount equal to the sum of any amounts included in the entity’s assessable income as a result of an earlier application of this Division to the debt.
Step 4. Add to the result an amount equal to the sum of any deductions to which the entity is entitled under section 243‑45 (repayments of the original debt after termination) or 243‑50 (repayments of the replacement debt) because of payments in respect of the debt.
(3) The reference in step 2 of the method statement in subsection (2) to an amount that is included in the assessable income of a taxpayer as a result of the disposal of the *financed property includes a reference to an amount that is included under section 26AG of the Income Tax Assessment Act 1936 as a result of the disposal of the financed property.
Note: Division 20 deals with amounts included to reverse the effect of past deductions.
(4) This is how to work out the total net capital allowance deductions that would otherwise be allowable taking into account the amount of the debt that is unpaid:
Working out the total net capital allowance deductions that would otherwise be allowable
Work out the amount that would be worked out under subsection (2) if the deductions and the amounts included in assessable income had been calculated using the following assumptions:
(1) The original expenditure in respect of which deductions were calculated was reduced by the amount of the debt that was unpaid by the debtor when the debt was terminated. (In calculating the amount unpaid the following are to be disregarded:
(a) any reduction in the amount as a result of the *financed property being surrendered or returned to the creditor at the termination of the debt;
(b) any reduction in the amount to the extent that it is funded directly or indirectly by *non‑arm’s length limited recourse debt or by the consideration for the disposal of the debtor’s interest in the financed property.)
(2) Deductions for income years after the income year in which the termination occurred were also taken into account.
(3) The original expenditure in respect of which deductions were calculated was increased by any amount that is paid by the debtor as consideration for another person assuming a liability under the debt. (This assumption does not apply to the extent that the consideration is funded directly or indirectly by *non‑arm’s length limited recourse debt or by the consideration for the disposal of the debtor’s interest in the *financed property.)
(4) Step 2 were omitted from subsection (2).
Subdivision 243‑C—Amounts included in assessable income and deductions
Table of sections
Operative provisions
243‑40 Amount included in debtor’s assessable income
243‑45 Deduction for later payments in respect of debt
243‑50 Deduction for payments for replacement debt
243‑55 Effect of Division on later capital allowance deductions
243‑57 Effect of Division on later capital allowance balancing adjustments
243‑58 Adjustment where debt only partially used for expenditure
243‑40 Amount included in debtor’s assessable income
The debtor’s assessable income for the income year in which the termination occurs is to include the excess referred to in subsection 243‑35(1).
Note: Section 243‑60 applies in relation to certain partnership debts.
243‑45 Deduction for later payments in respect of debt
(1) This section applies if:
(a) an amount was included in the debtor’s assessable income under section 243‑40 or a deduction was reduced under section 243‑55; and
(b) the debtor makes a payment to the creditor, after the termination of the debt arrangement, in respect of the debt (other than an amount to the extent to which it is a payment of interest, of *notional interest or in the nature of interest).
(2) This is how to work out the amount of the deduction:
Working out the amount of the deduction
Step 1. Work out the amount that would be worked out under subsection 243‑35(2) if the debt were terminated immediately before the payment.
Step 2. Work out the amount that would have been worked out under subsection 243‑35(4) at that time if the payment had been taken into account.
Step 3. The amount of the deduction is the amount (if any) by which the amount worked out under Step 2 exceeds the amount worked out under Step 1.
(3) The amount can be deducted for the income year in which the payment is made.
Limit on deductions
(4) The total amounts deducted under this section in respect of a debt, and under section 243‑50 in respect of a replacement debt, cannot exceed the sum of:
(a) any amounts included in the debtor’s assessable income under this Division in respect of the original debt; and
(b) any amount by which deductions in respect of the original debt were reduced under section 243‑55.
243‑50 Deduction for payments for replacement debt
Payments where debt refinanced
(1) This section applies if:
(a) an amount was included in the debtor’s assessable income under section 243‑40 or a deduction was reduced under section 243‑55; and
(b) an amount funded by a *non‑arm’s length limited recourse debt (the replacement debt) was disregarded in calculations under subsection 243‑35(4); and
(c) the debtor makes a payment, after the termination of the original debt arrangement, in respect of the replacement debt (other than to the extent to which it is a payment of interest, of *notional interest or in the nature of interest).
(2) This is how to work out the amount of the deduction:
Working out the amount of the deduction
Step 1. Work out the amount that would be worked out under subsection 243‑35(2) if the replacement debt were terminated immediately before the payment.
Step 2. Work out the amount that would have been worked out under subsection 243‑35(4) at that time if the payment had been made in respect of the original debt and it had been taken into account.
Step 3. The amount of the deduction is the amount (if any) by which the amount worked out under Step 2 exceeds the amount worked out under Step 1.
(3) The amount can be deducted for the income year in which the payment is made.
Division not to apply to termination of replacement debt
(4) This Division does not apply to termination of the replacement debt referred to in paragraph (1)(b).
Limit on deductions
(5) The total amounts deducted under section 243‑45 in respect of the original debt, or under this section in respect of the replacement debt, cannot exceed the sum of:
(a) any amounts included in the debtor’s assessable income under this Division in respect of the original debt; and
(b) any amount by which deductions in respect of the original debt were reduced under section 243‑55.
243‑55 Effect of Division on later capital allowance deductions
(1) This section applies where this Division (other than section 243‑65) has applied in relation to a debt and the debtor is entitled to a *capital allowance deduction in respect of the expenditure or the *financed property in relation to a time or period after the termination of the debt.
(2) The *capital allowance deduction is reduced if the amount that would have been worked out under subsection 243‑35(2) would have exceeded the amount worked out under subsection 243‑35(4) if the following assumptions were applied in both subsections:
Assumptions to be applied
(1) That the debt was terminated at the time, or at the end of the period, referred to in subsection (1) of this section.
(2) That the amount unpaid at the time, or at the end of the period, is reduced by any amounts paid under a replacement debt.
(3) The debtor’s *capital allowance deductions in respect of the expenditure or the *financed property were increased by the amount of the capital allowance deduction referred to in subsection (1) of this section.
(3) The deduction is to be reduced by the amount of the excess.
243‑57 Effect of Division on later capital allowance balancing adjustments
(1) This section applies where this Division (other than section 243‑65) has applied in relation to a debt and an amount is later included in the assessable income of an entity by virtue of a provision of this Act (other than this Division) as a result of the disposal of the *financed property the effect of which is to reverse a deduction covered by Step 1 in subsection 243‑35(2).
(2) Any amount that would be included in the debtor’s assessable income is reduced if the amount that would have been worked out under subsection 243‑35(4) would have exceeded the amount worked out under subsection 243‑35(2) if the following assumptions were applied in both subsections:
Assumptions to be applied
(1) That the debt was terminated at the time of the disposal of the *financed property, referred to in subsection (1) of this section.
(2) The amount in Step 2 in subsection 243‑35(2) were increased by the amount that would otherwise be included in the debtor’s assessable income.
(3) The amount worked out under subsection 243‑35(4) were reduced by any amount by which:
(a) the amount arising as a result of the disposal that is taken into account for the purposes of the provision mentioned in subsection (1);
exceeds:
(b) the unpaid amount of the debt immediately before the time of the disposal of the *financed property, referred to in subsection (1).
(3) The amount is to be reduced by the amount of the excess.
243‑58 Adjustment where debt only partially used for expenditure
If the debt is only partially used to finance the expenditure, or the property, in respect of which the *capital allowance deductions referred to in Step 1 in subsection 243‑35(2) are allowed, the amount of any deduction, any reduction in a deduction or any amount included in assessable income is to be so much as is reasonable taking into account the proportion of the debt that is used for that purpose.
Subdivision 243‑D—Special provisions
Table of sections
Operative provisions
243‑60 Application of Division to partnerships
243‑65 Application where partner reduces liability
243‑70 Application of Division to companies ceasing to be 100% subsidiary
243‑75 Application of Division where debt forgiveness rules also apply
243‑60 Application of Division to partnerships
This Division applies to a partnership in respect of the partnership’s debts and in respect of debts of a partner, and references to a debtor include a reference to a partnership.
243‑65 Application where partner reduces liability
(1) This section applies to a debt in relation to a partner in a partnership if:
(a) in connection with an *arrangement, the partner’s liability to pay the debt is reduced or eliminated and the partner’s interest in the partnership ceases or is varied or transferred; and
(b) an excess would have been worked out under subsection 243‑35(1) if, at the time when the debt is reduced or eliminated, the debt had been terminated and remained unpaid and this section had not applied.
(2) If this section applies to a debt in relation to a partner in a partnership, an amount is to be included in his or her assessable income.
(3) This is how to work out the amount to be included:
Working out the amount included
Step 1. Work out which income years the partner was a member of the partnership and the partnership was entitled to a *capital allowance deduction in respect of the expenditure or the *financed property (including deductions because of balancing adjustments).
Step 2. For each of those income years, work out the proportion of net income of the partnership or the partnership loss (as the case requires) that was included in the assessable income of the partner or which the partner could deduct.
Step 3. For each of those income years, multiply the *capital allowance deductions in respect of the expenditure or the *financed property (including deductions because of balancing adjustments) of the partnership by the corresponding proportion worked out under Step 2. Sum all of the amounts.
Step 4. Divide the sum by the total of the *capital allowance deductions in respect of the expenditure or the *financed property (including deductions because of balancing adjustments) of the partnership for all of those income years.
Step 5. Work out the amount that would have been included in the partnership’s assessable income under section 243‑40 if the debt had been terminated and remained unpaid and this section had not applied.
Step 6. Multiply the amount worked out in Step 5 by the factor worked out in Step 4. The result is the amount to be included in the partner’s assessable income.
243‑70 Application of Division to companies ceasing to be 100% subsidiary
(1) This section applies to a company if:
(a) the company ceases to be a *100% subsidiary in relation to at least one other company; and
(b) at that time, the company is the debtor for a *limited recourse debt that has not been paid in full by the company; and
(c) the creditor’s rights under the debt are transferred or assigned to another entity.
(2) If this section applies, this Division applies as if the debt were terminated, and refinanced with *non‑arm’s length limited recourse debt, at the time the company ceased to be a *100% subsidiary of that other company.
243‑75 Application of Division where debt forgiveness rules also apply
(1) This section is to remove doubt about how this Division and Schedule 2C to the Income Tax Assessment Act 1936 apply where both apply to the same debt.
(2) Where both apply:
(a) this Division is to be applied first and is to be applied disregarding any operation of that Schedule; and
(b) any amounts included in assessable income under this Division are taken into account under paragraph 245‑85(1)(a) of that Schedule.
Division 247—Capital protected borrowings
247‑1 What this Division is about
Capital protection provided under a relevant capital protected borrowing to the extent that it is not provided by an explicit put option is treated (for the borrower) as if it were a put option.
An amount attributable to capital protection under any relevant capital protected borrowing is treated (for the borrower) as a payment for a put option.
Table of sections
Operative provisions
247‑5 Object of Division
247‑10 What capital protected borrowing and capital protection are
247‑15 Application of this Division
247‑20 Treating capital protection as a put option
247‑25 Number of put options
247‑30 Exercise or expiry of option
The object of this Division is to ensure that amounts for *capital protection under all relevant *capital protected borrowings are treated (for the borrower) under this Act as a payment for a put option.
247‑10 What capital protected borrowing and capital protection are
(1) An *arrangement under which a *borrowing is made, or credit is provided, is a capital protected borrowing if the borrower is wholly or partly protected against a fall in the *market value of a thing (the protected thing) to the extent that:
(a) the borrower uses the amount borrowed or credit provided to acquire the protected thing; or
(b) the borrower uses the protected thing as security for the borrowing or provision of credit.
(2) That protection is called capital protection.
247‑15 Application of this Division
(1) This Division applies to a *capital protected borrowing only if the protected thing is a beneficial interest in:
(a) a *share, a unit in a unit trust or a stapled security; or
(b) an entity that holds a beneficial interest in a share, unit in a unit trust or stapled security either directly, or indirectly through one or more interposed entities.
(2) This Division applies only to borrowers under *capital protected borrowings.
(3) This Division does not apply to a *capital protected borrowing under which a *share or stapled security is acquired under an *employee share scheme.
(4) This Division does not apply to a *capital protected borrowing entered into before 1 July 2007 (except to the extent that it is extended on or after that day) unless the *share, unit in a unit trust or stapled security is listed for quotation in the official list of an *approved stock exchange.
(5) This Division does not apply to a *capital protected borrowing entered into on or after 1 July 2007 if:
(a) the protected thing is a beneficial interest in:
(i) a *share, unit or stapled security that is not listed for quotation in the official list of an *approved stock exchange; or
(ii) an entity that holds a beneficial interest in a share, unit in a unit trust or stapled security either directly, or indirectly through one or more interposed entities, that is not so listed; and
(b) one of these conditions is satisfied:
(i) for a non‑listed share—the company is not a *widely held company;
(ii) for a non‑listed unit—the trust is not a widely held unit trust as defined in section 272‑105 in Schedule 2F to the Income Tax Assessment Act 1936;
(iii) for a non‑listed stapled security—any company involved is not a widely held company and any trust involved is not such a widely held unit trust.
247‑20 Treating capital protection as a put option
(1) This section applies to a borrower if:
(a) the borrower has an excess using the method statement in subsection (3) for a *capital protected borrowing entered into on or after 1 July 2007; or
(b) the borrower has an amount that is reasonably attributable to the *capital protection as mentioned in subsection (2) for a capital protected borrowing, or an extension of a capital protected borrowing, entered into at or after 9.30 am, by legal time in the Australian Capital Territory, on 16 April 2003 and before 1 July 2007.
(2) For paragraph (1)(b), the amount that is reasonably attributable to the *capital protection is worked out under Division 247 of the Income Tax (Transitional Provisions) Act 1997.
(3) This is the method statement.
Method statement
Step 1. Work out the total amount incurred by the borrower under or in respect of the *capital protected borrowing for the income year, ignoring amounts that are not in substance for *capital protection or interest.
Step 2. Work out the total interest that would have been incurred for the income year on a *borrowing or provision of credit of the same amount as under the *capital protected borrowing at the rate applicable under subsection (4) or (5).
Step 3. If the step 1 amount exceeds the step 2 amount, the excess is reasonably attributable to the *capital protection for the income year.
Example: Amounts that would be ignored under step 1 include amounts that are in substance the repayment of a loan or credit, the payment of an application fee or brokerage commission and the payment of stamp duty or other tax.
(4) If the *capital protected borrowing is at a fixed rate for all or part of the term of the *borrowing, use the Reserve Bank of Australia’s Indicator Rate for Personal Unsecured Loans—Variable Rate (the benchmark rate) at the time the first of the amounts referred to in step 1 of the method statement in subsection (3) was incurred during the term of the borrowing or the relevant part of the term.
(5) If the *capital protected borrowing is at a variable rate for all or part of the term of the *borrowing, use the average of the benchmark rates published by the Reserve Bank of Australia during the term of the borrowing or the relevant part of the term.
(6) If this section applies to a borrower, this Act applies as if:
(a) the borrower’s excess from the method statement in subsection (3); or
(b) the amount that is reasonably attributable to *capital protection as mentioned in paragraph (1)(b);
(reduced by any amount the borrower incurred under or in respect of the *capital protected borrowing for an explicit put option) were incurred only for a put option granted by the lender or by another entity under the *arrangement.
(1) If a *capital protected borrowing specifies more than one occasion on which the *capital protection can be invoked, this Act applies as if there were a separate put option for each of those occasions. So much of the amount to which subsection 247‑20(6) applies as is reasonably attributable to each option is taken to have been incurred for that option.
(2) However, if a borrower may invoke the *capital protection under a *capital protected borrowing at any time up to the end of a period, or only at the end of a period, for which there is capital protection, this Act applies as if there were a single put option for that period.
247‑30 Exercise or expiry of option
(1) If the *capital protection under a *capital protected borrowing is invoked:
(a) the borrower is taken to have exercised the put option; and
(b) any interest in a *share, unit in a unit trust or stapled security that is acquired by the lender or another entity under the *arrangement as a result of that capital protection being invoked is taken to have been disposed of by the borrower as a result of the exercise of the option.
(2) If the *capital protection under a *capital protected borrowing is not invoked on or before the last occasion on which it could have been, the put option is taken to have expired.
Note: If a borrower under a capital protected borrowing holds the protected things on capital account, the exercise or expiry of the put option may give rise to a capital gain or capital loss: see sections 104‑25 (CGT event C2) and 134‑1 (exercise of options).
Division 250—Assets put to tax preferred use
Table of Subdivisions
Guide to Division 250
250‑A Objects
250‑B When this Division applies to you and an asset
250‑C Denial of, or reduction in, capital allowance deductions
250‑D Deemed loan treatment of financial benefits provided for tax preferred use
250‑E Taxation of deemed loan
250‑F Treatment of asset when Division ceases to apply to the asset
250‑G Objections against determinations and decisions by the Commissioner
250‑1 What this Division is about
This Division denies or reduces certain capital allowance deductions that would otherwise be available to you in relation to an asset if the asset is put to a tax preferred use in certain circumstances.
If the capital allowance deductions are denied or reduced, certain financial benefits in relation to the tax preferred use of the asset are assessed only to the extent of a notional gain component. This component is worked out on the basis of treating the arrangements under which the asset is put to a tax preferred use, and financial benefits are provided in relation to that tax preferred use, as a loan. Subdivision 250‑E then applies to determine the amounts that are to be assessed.
Table of sections
250‑5 Main objects
The main objects of this Division are:
(a) to deny or reduce your *capital allowance deductions in respect of an asset if the asset is put to a *tax preferred use and you have insufficient economic interest in the asset; and
(b) if your capital allowance deductions are denied or reduced, to treat the *arrangement for the tax preferred use of the asset as a loan that is taxed as a financial arrangement (on a compounding accruals basis).
Subdivision 250‑B—When this Division applies to you and an asset
Table of sections
Overall test
250‑10 When this Division applies to you and an asset
250‑15 General test
250‑20 First exclusion—small business entities
250‑25 Second exclusion—financial benefits under minimum value limit
250‑30 Third exclusion—certain short term or low value arrangements
250‑35 Exceptions to section 250‑30
250‑40 Fourth exclusion—sum of present values of financial benefits less that amount otherwise assessable
250‑45 Fifth exclusion—Commissioner determination
Tax preferred use of asset
250‑50 End user of an asset
250‑55 Tax preferred end user
250‑60 Tax preferred use of an asset
250‑65 Arrangement period for tax preferred use
250‑70 New tax preferred use at end of arrangement period if tax preferred use continues
250‑75 What constitutes a separate asset for the purposes of this Division
250‑80 Treatment of particular arrangements in the same way as leases
Financial benefits in relation to tax preferred use
250‑85 Financial benefits in relation to tax preferred use of an asset
250‑90 Financial benefit provided directly or indirectly
250‑95 Expected financial benefits in relation to an asset put to tax preferred use
250‑100 Present value of financial benefit that has already been provided
Discount rate to be used in working out present values
250‑105 Discount rate to be used in working out present values
Predominant economic interest
250‑110 Predominant economic interest
250‑115 Limited recourse debt test
250‑120 Right to acquire asset test
250‑125 Effectively non‑cancellable, long term arrangement test
250‑130 Meaning of effectively non‑cancellable arrangement
250‑135 Level of expected financial benefits test
250‑140 When to retest predominant economic interest under section 250‑135
250‑10 When this Division applies to you and an asset
This Division applies to you and an asset at a particular time if:
(a) the general test in section 250‑15 is satisfied in relation to you and the asset; and
(b) none of the exclusions in sections 250‑20, 250‑25, 250‑30, 250‑40 and 250‑45 apply.
This Division applies to you and an asset at a particular time if:
(a) the asset is being *put to a tax preferred use; and
(b) the *arrangement period for the *tax preferred use of the asset is greater than 12 months; and
(c) *financial benefits in relation to the tax preferred use of the asset have been, will be or can reasonably be expected to be, *provided to you (or a *connected entity) by:
(i) a *tax preferred end user (or a connected entity); or
(ii) any *tax preferred entity (or a connected entity); or
(iii) any entity that is not an Australian resident; and
(d) disregarding this Division, you would be entitled to a *capital allowance in relation to:
(i) a decline in the value of the asset; or
(ii) expenditure in relation to the asset; and
(e) you lack a *predominant economic interest in the asset at that time.
250‑20 First exclusion—small business entities
This Division does not apply to you and an asset if:
(a) you are a *small business entity for the income year in which the *arrangement period for the *tax preferred use of the asset starts; and
(b) you choose to deduct amounts under Subdivision 328‑D for the asset for that income year.
250‑25 Second exclusion—financial benefits under minimum value limit
(1) This Division does not apply to you and an asset that is being *put to a tax preferred use under a particular *arrangement if, at the start of the *arrangement period, the total of the nominal values of all the *financial benefits that have been, or will be or can reasonably be expected to be, provided to you (or a *connected entity):
(a) by *members of the tax preferred sector; and
(b) in relation to the *tax preferred use of the asset or any other asset that is being, or is to be, put to a tax preferred use under the arrangement;
does not exceed $5 million.
(2) The amount referred to in subsection (1) is indexed annually.
Note: Subdivision 960‑M shows you how to index amounts.
250‑30 Third exclusion—certain short term or low value arrangements
Certain short term or low value arrangements generally excluded
(1) This Division does not apply to you and an asset that is being *put to a tax preferred use under a particular *arrangement if:
(a) the *arrangement period for the *tax preferred use of the asset does not exceed:
(i) 5 years if the asset is real property and the tax preferred use of the asset is a lease; or
(ii) 3 years in any other case; or
(b) at the start of the arrangement period, the total of the nominal values of all the *financial benefits that have been, will be or can reasonably be expected to be, provided to you (or a *connected entity):
(i) by *members of the tax preferred sector; and
(ii) in relation to the tax preferred use of the asset or any other asset that is being, or is to be, put to a tax preferred use under the arrangement;
does not exceed:
(iii) $50 million if the asset is real property and the tax preferred use of the asset is a lease; or
(iv) $30 million in any other case; or
(c) at the start of the arrangement period, the total of the values of all the assets that are put to a tax preferred use under the arrangement does not exceed:
(i) $40 million if the asset is real property and the tax preferred use of the asset is a lease; or
(ii) $20 million in any other case.
This subsection has effect subject to section 250‑35.
(2) The amounts referred to in paragraphs (1)(b) and (c) are indexed annually.
Note: Subdivision 960‑M shows you how to index amounts.
250‑35 Exceptions to section 250‑30
Debt interests
(1) Section 250‑30 does not apply if the *arrangement (either alone or together with any arrangement in relation to the *tax preferred use of the asset or the provision of *financial benefits in relation to the tax preferred use of the asset) is a *debt interest.
(2) In applying subsection (1), disregard subsection 974‑130(4).
Member of tax preferred sector having certain rights in relation to the asset
(3) Section 250‑30 does not apply if:
(a) a *member of the tax preferred sector has:
(i) a right, obligation or contingent obligation to purchase or acquire the asset or a legal or equitable interest in the asset; or
(ii) a right to require the transfer of the asset or a legal or equitable interest in the asset; or
(iii) a residual or reversionary interest in the asset that will arise or become exercisable at or after the end of the *arrangement period; and
(b) the consideration for the purchase, acquisition or transfer of the right, obligation or interest is not fixed as the *market value of the asset at the time of the purchase, acquisition or transfer.
To avoid doubt, this subsection does not apply to the asset merely because your interest in the asset is one that ceases to exist after the passage of a particular period of time.
Member of tax preferred sector providing financing
(4) Section 250‑30 does not apply if a *member of the tax preferred sector provides financing, or support for financing, in relation to your interest in the asset (including by way of a loan, a guarantee, an indemnity, a security, hedging or undertaking to provide *financial benefits in the event of the termination of an *arrangement).
Finance leases, non‑cancellable operating leases, service concessions and similar arrangements
(5) Section 250‑30 does not apply if an *arrangement in relation to the *tax preferred use of the asset, or the provision of *financial benefits in relation to the tax preferred use of the asset, is or involves:
(a) a finance lease; or
(b) a non‑cancellable operating lease; or
(c) a service concession or similar arrangement;
that generally accepted accounting principles, as in force at the start of the *arrangement period, require to be included as an asset or a liability in your balance sheet.
Financial benefits irregular, not based on comparable market‑based rates or not reflecting value of tax preferred use of asset
(6) Section 250‑30 does not apply if the *financial benefits that have been, or are to be provided, to you (or a *connected entity) by *members of the tax preferred sector in relation to the *tax preferred use of the asset:
(a) are not provided on a regular periodic basis (and at least annually); or
(b) are not based on comparable market‑based rates; or
(c) do not reflect the value of the tax preferred use of the asset.
Special rules if tax preferred use is a lease or hire of the asset
(7) If the *tax preferred use of the asset is a lease or hire of the asset (or the use of the asset under a lease or hire arrangement), section 250‑30 does not apply if:
(a) the asset is so specialised that the *end user could not carry out one or more of its functions effectively without the asset; and
(b) you would be unlikely to be able to re‑lease, re‑hire or resell the asset to another person who is not a *member of the tax preferred end user group.
Note: For particular arrangements that are treated as leases, see section 250‑80.
Special rules if tax preferred use is not a lease or hire of the asset
(8) If the *tax preferred use of the asset is not the lease or hire of the asset (or the use of the asset under a lease or hire arrangement), section 250‑30 does not apply if:
(a) a *member of the tax preferred sector has a right, if particular circumstances occur, to manage, or to assume control over, the asset (other than temporarily for the purpose of ensuring public health or safety, protecting the environment or continuing the supply of an essential service); or
(b) the asset is so specialised that it is unlikely that it could effectively be put to any use other than the tax preferred use; or
(c) neither you (nor a *connected entity) has effective day to day control and physical possession of the asset.
Note: For particular arrangements that are treated as leases, see section 250‑80.
(1) This Division does not apply to you and an asset that is being *put to a tax preferred use under a particular *arrangement if, when that *tax preferred use of the asset starts, the Division 250 assessable amount is less than the alternative assessable amount.
(2) For the purposes of subsection (1), the Division 250 assessable amount is the sum of the present values of all the amounts that would be likely to be included in your assessable income under this Division in relation to the *tax preferred use of the asset if this Division applied to you and the asset.
(3) This is how to work out the alternative assessable amount for the purposes of subsection (1):
Method statement
Step 1. Add up the present values of the amounts that would be included in your assessable income in relation to the *financial benefits *provided in relation to the tax preferred use of the asset during the *arrangement period if this Division did not apply to you and the asset.
Step 2. Add up the present values of the amounts that you would be able to deduct in relation to the asset, or expenditure in relation to the asset, under Division 40 or Division 43 in relation to the *arrangement period if this Division did not apply to you and the asset.
Step 3. Deduct the amount obtained in Step 2 from the amount obtained in Step 1. The result is the alternative assessable amount.
(4) To avoid doubt, the amounts referred to in subsections (2) and (3) are all the amounts that would be likely to be included in your assessable income, or deducted, for all the income years during the whole, or a part, of which the asset is *put to the tax preferred use.
(5) The point in time to be used in determining, for the purposes of this section:
(a) the present value of an amount that is included in your assessable income for an income year; or
(b) the present value of an amount that you would be able to deduct for an income year;
is the end of the income year.
250‑45 Fifth exclusion—Commissioner determination
This Division does not apply to you and an asset at a particular time if:
(a) you request the Commissioner to make a determination under this subsection; and
(b) the Commissioner determines that it is unreasonable that the Division should apply to you and the asset at that time, having regard to:
(i) the circumstances because of which this Division would apply to you and the asset; and
(ii) any other relevant circumstances.
(1) An entity (other than you) is an end user of an asset if the entity (or a *connected entity):
(a) uses, or effectively controls the use of, the asset; or
(b) will use, or effectively control the use of, the asset; or
(c) is able to use, or effectively control the use of, the asset; or
(d) will be able to use, or effectively control the use of, the asset.
(2) The control referred to in subsection (1) may be direct or indirect.
(3) For the purposes of subsection (1), disregard any temporary control of the asset that is for the purpose of ensuring public health or safety, protecting the environment or continuing the supply of an essential service.
(4) To avoid doubt, an entity is taken to be an end user of an asset if the entity (or a *connected entity) holds rights as a lessee under a lease of the asset.
Note: For particular arrangements that are treated as leases, see section 250‑80.
An *end user of an asset is a tax preferred end user if:
(a) the end user (or a *connected entity) is a *tax preferred entity; or
(b) the end user is an entity that is not an Australian resident.
250‑60 Tax preferred use of an asset
(1) An asset is put to a tax preferred use at a particular time if:
(a) an *end user (or a *connected entity) holds, at that time, rights as lessee under a lease of the asset; and
(b) either or both of the following subparagraphs is satisfied at that time:
(i) the asset is, or is to be, used by or on behalf of an end user who is a *tax preferred end user because of paragraph 250‑55(a) (tax preferred entity);
(ii) the asset is, or is to be, used wholly or principally outside Australia and an end user of the asset is a tax preferred end user because of paragraph 250‑55(b) (non‑resident).
If this subsection applies, the tax preferred use of the asset is the lease referred to in paragraph (a).
Note: For particular arrangements that are treated as leases, see section 250‑80.
(2) An asset is also put to a tax preferred use at a particular time if:
(a) at that time the asset is, or is to be, used (whether or not by you) wholly or partly in connection with:
(i) the production, supply, carriage, transmission or delivery of goods; or
(ii) the provision of services or facilities; and
(b) either or both of the following subparagraphs is satisfied at that time:
(i) some or all of the goods, services or facilities are, or are to be, produced for or supplied, carried, transmitted or delivered to or for an *end user who is a *tax preferred end user because of paragraph 250‑55(a) (tax preferred entity) but is not an *exempt foreign government agency;
(ii) the asset is, or is to be, used wholly or principally outside Australia and an end user of the asset is a tax preferred end user because of paragraph 250‑55(b) (non‑resident).
If this subsection applies, the tax preferred use of the asset is the production, supply, carriage, transmission, delivery or provision referred to in paragraph (a).
(3) To avoid doubt, the facilities referred to in subsection (2) include:
(a) hospital or medical facilities; or
(b) prison facilities; or
(c) educational facilities; or
(d) *land transport facilities; or
(e) other transport facilities; or
(f) the supply of water, gas or electricity; or
(g) housing or accommodation; or
(h) premises from which to operate a *business or other undertaking.
(4) If the asset is being *put to a tax preferred use:
(a) the members of the tax preferred end user group are:
(i) the *tax preferred end user; and
(ii) the *connected entities of the tax preferred end user; and
(b) the members of the tax preferred sector are:
(i) the tax preferred end user (and connected entities); and
(ii) any *tax preferred entity (or a connected entity); and
(iii) any entity that is not an Australian resident.
250‑65 Arrangement period for tax preferred use
Start of the arrangement period
(1) The arrangement period for a particular *tax preferred use of an asset starts when that tax preferred use of the asset starts.
End of the arrangement period
(2) Subject to subsection (3), the arrangement period for a particular *tax preferred use of an asset is taken to end on the day that is the date on which the tax preferred use of the asset may reasonably be expected, or is likely, to end.
(3) The arrangement period for the *tax preferred use of the asset ends when this Division ceases to apply to you and the asset if that happens before the day referred to in subsection (2).
(4) In determining when a particular *tax preferred use of an asset is likely to end:
(a) regard must be had to:
(i) the terms of, and any other circumstances relating to, any *arrangement dealing with that tax preferred use of the asset; and
(ii) the terms of, and any other circumstances relating to, any arrangement dealing with the *provision of *financial benefits in relation to that tax preferred use of the asset; and
(b) it must be assumed that any right that an entity has to renew or extend such an arrangement will not be exercised (unless it is reasonable to assume that the right will be exercised because of the commercial consequences for the entity (or a *connected entity) of not exercising the right).
Tax preferred uses of asset by entity and connected entity
(5) For the purposes of this section:
(a) the *tax preferred use of an asset by an entity; and
(b) the tax preferred use of the asset by a *connected entity of that entity;
are taken to constitute a single tax preferred use of the asset.
250‑70 New tax preferred use at end of arrangement period if tax preferred use continues
If:
(a) this Division applies to you and an asset because the asset is *put to a tax preferred use; and
(b) the *arrangement period for the *tax preferred use of the asset ends on a particular date (the termination date); and
(c) the asset continues to be put to the tax preferred use after the termination date;
the tax preferred use of the asset after the termination date is taken to be a separate and distinct tax preferred use of the asset from the tax preferred use of the asset before the termination date.
Note: This means, among other things, that there is a new arrangement period for the tax preferred use after the termination date and that the arrangement is retested under section 250‑15 against circumstances as they stand immediately after the termination date.
250‑75 What constitutes a separate asset for the purposes of this Division
(1) This Division applies to:
(a) an improvement to land; or
(b) a fixture on land;
whether the improvement or fixture is removable or not, as if it were an asset separate from the land.
(2) Whether a particular composite item is itself an asset or whether its components are separate assets is a question of fact and degree which can only be determined in the light of all the circumstances of the particular case.
Example 1: A car is made up of many separate components, but usually the car is an asset rather than each component.
Example 2: A floating restaurant consists of many separate components (like the ship itself, stoves, fridges, furniture, crockery and cutlery), but usually these components are treated as separate assets.
(3) This Division applies to a renewal or extension of an asset that is a right as if the renewal or extension were a continuation of the original right.
(4) This Division applies to an asset (the underlying asset) in which:
(a) you have an interest; and
(b) one or more other entities also have an interest;
as if your interest in the underlying asset were itself the underlying asset.
250‑80 Treatment of particular arrangements in the same way as leases
This Division applies to an *arrangement that:
(a) in substance or effect, depends on the use of a specific asset that is:
(i) real property; or
(ii) goods or a personal chattel (other than money or a money equivalent); and
(b) gives a right to control the use of the asset (other than temporarily for the purpose of ensuring public health or safety, protecting the environment or continuing the supply of an essential service); and
(c) is not a lease;
in the same way as it applies to a lease.
Note: Even if this section applies to treat an arrangement in relation to an asset as a lease, the requirements in section 250‑50 still need to be satisfied before an entity can be an end user of the asset.
Financial benefits in relation to tax preferred use
250‑85 Financial benefits in relation to tax preferred use of an asset
(1) For the purposes of this Division, the *financial benefits provided in relation to a tax preferred use of an asset include (but are not limited to):
(a) a financial benefit provided in relation to:
(i) bringing the asset into a state, condition or location in which it can be *put to the tax preferred use; or
(ii) the start of the *tax preferred use of the asset; and
(b) a financial benefit provided in relation to the end of the tax preferred use of the asset; and
(c) a financial benefit provided in relation to the termination or expiration of an *arrangement that deals with:
(i) the tax preferred use of the asset; or
(ii) the provision of financial benefits in relation to the tax preferred use of the asset; and
(d) a financial benefit provided in relation to the purchase or acquisition of the asset by, or transfer of the asset to, the *tax preferred end user (or a *connected entity).
(2) Without limiting paragraph (1)(b), if the asset has a *guaranteed residual value:
(a) the amount of the guaranteed residual value is taken to be a *financial benefit provided in relation to the tax preferred use of the asset; and
(b) that financial benefit is taken to be provided when the relevant payment is made in relation to the guaranteed residual value.
(3) The asset has a guaranteed residual value if there is an *arrangement that provides to the effect that if:
(a) on or after the end of the *arrangement period, you (or a *connected entity) sell or otherwise dispose of the asset to any person; and
(b) you (or a connected entity) receives in respect of the sale or disposal:
(i) no consideration; or
(ii) consideration that is less than an amount (the guaranteed amount) specified in, or ascertainable under, the provision;
a *member of the tax preferred sector will pay to you (or a connected entity), or to someone else for your benefit (or for the benefit of a connected entity), an amount equal to:
(c) the guaranteed amount if subparagraph (b)(i) applies; or
(d) the amount by which the guaranteed amount exceeds the consideration if subparagraph (b)(ii) applies.
The amount of the guaranteed residual value is taken to be the guaranteed amount.
(4) If:
(a) an asset is *put to a tax preferred use; and
(b) an entity is an *end user of the asset because the entity manages the asset or the use to which the asset is put;
any *financial benefit that the entity (or a *connected entity) provides that is calculated by reference to the receipts, revenue or income generated by the use of the asset is also taken to be a financial benefit provided in relation to the tax preferred use of the asset.
(5) For the purposes of this Division (other than this subsection), a *financial benefit provided by a *member of the tax preferred sector is taken not to be provided in relation to the tax preferred use of an asset to the extent to which the financial benefit merely passes on, or represents:
(a) financial benefits provided in relation to the use of the asset; or
(b) something derived from the use of the asset;
by someone who is not a member of the tax preferred sector.
(6) For the purposes of this Division, disregard a *financial benefit *provided in relation to the tax preferred use of the asset to the extent to which it consists solely of routine maintenance of the asset.
(7) For the purposes of this Division, if a *financial benefit is provided in relation to the use of a number of assets, a separate financial benefit of an amount or value that is reasonably attributable to each asset is taken to be provided in relation to each asset.
(8) To avoid doubt, a *financial benefit may be provided in relation to a tax preferred use of an asset even though it is provided before the *tax preferred use of the asset starts.
(9) For the purposes of this Division:
(a) a *financial benefit that is not an amount:
(i) is taken to become due and payable when the entity providing the financial benefit becomes liable to provide the financial benefit; and
(ii) is taken to be paid when it is provided; and
(b) a financial benefit that is paid without becoming due and payable is taken to have become due and payable on the day on which it was paid.
250‑90 Financial benefit provided directly or indirectly
For the purposes of this Division, a person (the provider) is taken to provide a *financial benefit to a person (the recipient) in relation to a *tax preferred use of an asset whether the financial benefit is provided to the recipient:
(a) directly; or
(b) indirectly (including indirectly through an entity that is not a *connected entity of the recipient and is not a connected entity of the provider).
250‑95 Expected financial benefits in relation to an asset put to tax preferred use
For the purposes this Division, the expected financial benefits at a particular time in relation to an asset that is *put to a tax preferred use are the *financial benefits that, at that time:
(a) have been; or
(b) will, assuming normal operating conditions, be; or
(c) can, assuming normal operating conditions, reasonably be expected to be;
*provided in relation to the tax preferred use of the asset by a *member of the tax preferred sector to someone who is not a member of the tax preferred sector.
Note: Paragraphs 250‑85(1)(b), (c) and (d) provide for certain benefits provided in relation to the end of the tax preferred use of the asset or in relation to the purchase, disposal or transfer of the asset to be treated as financial benefits provided in relation to the tax preferred use of the asset.
250‑100 Present value of financial benefit that has already been provided
For the purposes of this Division, the present value of a *financial benefit at a particular time is the nominal amount or value of the financial benefit if the financial benefit has been provided before that time.
Discount rate to be used in working out present values
250‑105 Discount rate to be used in working out present values
(1) For the purposes of section 250‑40, the discount rate to be used in working out the present value of a future amount is:
(a) the average, expressed as a decimal fraction, of the assessed secondary market yields in respect of 10‑year non‑rebate Treasury bonds published by the Reserve Bank during the *financial year in which the relevant *arrangement period starts; or
(b) if no assessed secondary market yield in respect of bonds of that kind was published by the Reserve Bank during the year—the decimal fraction determined by the Treasurer for the purposes of the definition of long‑term bond rate in section 2 of the Petroleum Resource Rent Tax Assessment Act 1987 in relation to the financial year in which the relevant arrangement period starts.
(2) For the purposes of section 250‑135 and Subdivisions 250‑C and 250‑D, the discount rate to be used in working out the present value of a future amount is a rate that reflects a constant periodic rate of return (worked out on a compounding basis) on the investment in:
(a) the asset referred to in subparagraph 250‑15(d)(i) if that subparagraph applies; or
(b) the expenditure referred to in paragraph 250‑15(d)(ii) if that subparagraph applies;
that is implicit in the *arrangements under which the asset is *put to a tax preferred use and *financial benefits are *provided in relation to that tax preferred use.
250‑110 Predominant economic interest
You lack a predominant economic interest in an asset at a particular time only if one or more of the following sections apply to you and the asset at that time:
(a) section 250‑115 (limited recourse debt test);
(b) section 250‑120 (right to acquire asset test);
(c) section 250‑125 (effectively non‑cancellable, long term arrangement test);
(d) section 250‑135 (level of expected financial benefits test).
250‑115 Limited recourse debt test
(1) You lack a predominant economic interest in an asset at a particular time if more than the allowable percentage of the cost of your acquiring or constructing the asset is financed (directly or indirectly) by a *limited recourse debt or debts.
(2) For the purposes of subsection (1):
(a) the amount of a *limited recourse debt is to be reduced by the value of any * debt property (other than the *financed property) that is provided as security for the debt; and
(b) if the limited recourse debt finances the acquisition or construction of 2 or more assets, only the amount of the debt that is reasonably attributable to the asset referred to in subsection (1) is to be taken into account.
(3) For the purposes of subsection (1), the allowable percentage is:
(a) 80% if the asset is taken to be *put to a tax preferred use because of subparagraph 250‑60(1)(b)(i) or (2)(b)(i) (end use by *tax preferred entities); or
(b) 55% if the asset is taken to be put to a tax preferred use because of subparagraph 250‑60(1)(b)(ii) or (2)(b)(ii) (end use by non‑residents).
(4) This section does not apply to the asset if:
(a) you are a *corporate tax entity; and
(b) the *tax preferred use of the asset is not the lease or hire of the asset (and is not the use of the asset under a lease or hire arrangement); and
(c) the asset is *put to the tax preferred use wholly or principally in Australia; and
(d) no *member of the tax preferred sector provides financing, or support for financing, in relation to your interest in the asset (including by way of a loan, a guarantee, an indemnity, a security, hedging or undertaking to provide *financial benefits in the event of the termination of an *arrangement).
(5) Paragraph (4)(b) does not apply if:
(a) the asset is real property (or an interest in real property); and
(b) the *tax preferred use of the asset is a lease; and
(c) the space within the property that is occupied by tenants who are *members of the tax preferred sector is less than half of the total space within the property that is either occupied by tenants or available to be occupied by tenants.
(6) This section also does not apply to the asset if:
(a) you hold the asset as a trustee; and
(b) the asset is real property (or an interest in real property); and
(c) the *tax preferred use of the asset is a lease; and
(d) the space within the property that is occupied by tenants who are *members of the tax preferred sector is less than half of the total space within the property that is either occupied by tenants or available to be occupied by tenants; and
(e) the asset is *put to the tax preferred use wholly or principally in Australia; and
(f) no member of the tax preferred sector provides financing, or support for financing, in relation to your interest in the asset (including by way of a loan, a guarantee, an indemnity, a security, hedging or undertaking to provide *financial benefits in the event of the termination of an *arrangement).
250‑120 Right to acquire asset test
(1) You lack a predominant economic interest in an asset at a particular time if, at that time:
(a) the asset is to be transferred to a *member of the tax preferred sector after the end of the *arrangement period; and
(b) the consideration for the transfer is not fixed as the *market value of the asset at the time of the transfer.
(2) You also lack a predominant economic interest in an asset at a particular time if, at that time:
(a) a *member of the tax preferred end user group has, or will have:
(i) a right, obligation or contingent obligation to purchase or acquire the asset or a legal or equitable interest in the asset; or
(ii) a right to require the transfer of the asset or a legal or equitable interest in the asset; and
(b) the consideration for the purchase, acquisition or transfer is not fixed as the *market value of the asset at the time of the purchase, acquisition or transfer.
To avoid doubt, this section does not apply to the asset merely because your interest in the asset is one that ceases to exist after the passage of a particular period of time.
250‑125 Effectively non‑cancellable, long term arrangement test
(1) You lack a predominant economic interest in an asset at a particular time if:
(a) any *arrangement that relates to:
(i) the *tax preferred use of the asset; or
(ii) the *financial benefits to be *provided by the *members of the tax preferred sector in relation to the tax preferred use of the asset;
is *effectively non‑cancellable (see section 250‑130); and
(b) the *arrangement period for the tax preferred use of the asset is:
(i) greater than 30 years; or
(ii) if the arrangement period is less than or equal to 30 years—75% or more of that part of the asset’s *effective life that remains when the tax preferred use of the asset starts.
(2) Disregard section 40‑102 in working out the asset’s *effective life for the purposes of subparagraph (1)(b)(ii).
250‑130 Meaning of effectively non‑cancellable arrangement
(1) An *arrangement that relates to *financial benefits to be *provided by a *member of the tax preferred sector in relation to the tax preferred use of an asset is effectively non‑cancellable if:
(a) the arrangement can be cancelled only with:
(i) your permission; or
(ii) the permission of a *connected entity of yours; or
(iii) an agent or entity acting on your behalf (or on behalf of a connected entity of yours); or
(b) the arrangement can be cancelled without the permission of an entity referred to in paragraph (a) but, if the arrangement were cancelled, the member of the tax preferred sector or another member of the tax preferred sector:
(i) would be required to enter into a new arrangement for the *provision of financial benefits in relation to the tax preferred use of the asset; or
(ii) would incur a penalty and the magnitude of the penalty would be such as to discourage cancellation.
(2) For these purposes, if a *member of the tax preferred sector defaults under an *arrangement and the arrangement is cancelled, the arrangement is to be taken to have been cancelled without the permission of an entity referred to in paragraph (1)(a).
250‑135 Level of expected financial benefits test
Effective guarantee or indemnity for value of asset
(1) You lack a predominant economic interest in an asset at a particular time if the asset has a *guaranteed residual value at that time.
Likely financial benefits exceeding 70% limit
(2) You also lack a predominant economic interest in an asset at a particular time if, at that time:
(a) the *arrangement under which the asset is *put to the tax preferred use (either alone or together with any other arrangement in relation to the *tax preferred use of the asset or the *provision of *financial benefits in relation to the tax preferred use of the asset) is a *debt interest; or
(b) the sum of the present values of the *expected financial benefits that *members of the tax preferred sector have provided, or are or are reasonably likely to provide, to you (or a *connected entity) in relation to the tax preferred use of the asset exceeds 70% of:
(i) the *market value of the asset if subparagraph 250‑15(d)(i) applies; or
(ii) so much of the market value of the asset as is attributable to the expenditure referred to subparagraph 250‑15(d)(ii) if that subparagraph applies.
250‑140 When to retest predominant economic interest under section 250‑135
Purpose for applying section
(1) This section applies for the purposes of working out whether this Division applies to you and to an asset that is *put to a tax preferred use.
No need to keep retesting if section 250‑135 does not apply at start of tax preferred use of asset
(2) If section 250‑135 does not apply to you and the asset at the time when the *tax preferred use of the asset starts, that section is taken, subject to subsection (4), to continue not to apply to you and the asset.
Note: This subsection means that if section 250‑135 does not apply to the arrangement when the tax preferred use of the asset starts, the arrangement does not need to be retested against section 250‑135 until a change of the kind referred to in subsection (4) occurs.
No need to keep retesting if section 250‑135 does not apply when you do something to increase value of expected financial benefits
(3) If:
(a) you (or a *connected entity), or a *member of the tax preferred sector, do something, or omit to do something, at a particular time that increases the value of the *expected financial benefits in relation to the *tax preferred use of the asset; and
(b) section 250‑135 does not apply to the asset at that time;
that section is taken, subject to subsection (4), to continue not to apply to you and the asset.
Note: This subsection means that if the arrangement is retested against section 250‑135 at a particular time and section 250‑135 does not apply to the arrangement on that retesting, the arrangement does not need to be again retested against section 250‑135 until a change of the kind referred to in subsection (4) occurs.
Retesting when you do something to increase the value of expected financial benefits
(4) Subsection (2) or (3) ceases to apply to you and the asset if you (or a *connected entity), or a *member of the tax preferred sector, do something, or omit to do something, that increases the value of the *expected financial benefits in relation to the *tax preferred use of the asset.
Certain financial benefits ignored when retesting
(5) For the purposes of reapplying section 250‑135 to the asset, disregard *financial benefits provided before subsection (2) or (3) of this section ceased to apply to the asset.
Note: If:
(a) subsection (2) or (3) ceases to apply to the asset at a particular time under this subsection; and
(b) the asset is retested at that time against section 250‑135; and
(c) on the retesting, that section is found to apply to the asset at that time;
subsection (3) will start to apply to the asset again from that time because paragraph (3)(b) will have been satisfied.
Clarification that retesting only required if you do something to increase value of expected benefits
(6) To avoid doubt, subsection (2) or (3) does not cease to apply merely because the value of the *expected financial benefits in relation to the asset increase because of something other than action taken, or an omission made, by you (or a *connected entity) or a *member of the tax preferred sector.
Note: This subsection means that retesting under subsection (4) is not triggered by an increase in the value of expected financial benefits that happens because of external circumstances (circumstances external to activities and omissions of yours, your connected entities and members of the tax preferred sector).
Subdivision 250‑C—Denial of, or reduction in, capital allowance deductions
Table of sections
250‑145 Denial of capital allowance deductions
250‑150 Apportionment rule
250‑145 Denial of capital allowance deductions
(1) If this Division applies to you and an asset at a particular time, any condition that needs to be satisfied for you to be able to deduct an amount under a *capital allowance provision in relation to:
(a) a decline in the value of the asset; or
(b) expenditure in relation to the asset;
is taken not to be satisfied at that time.
(2) This section has effect subject to section 250‑150.
(1) This section applies if:
(a) this Division applies to you and an asset that is *put to a tax preferred use; and
(b) it is reasonable to expect that, during the *arrangement period for the *tax preferred use of the asset, particular *financial benefits will be provided to you (or a *connected entity); and
(c) it is reasonable to expect that those financial benefits:
(i) will be provided in relation to a use of the asset that is not that tax preferred use and is not a private use; or
(ii) will be *provided in relation to that tax preferred use of the asset but will not be attributable, directly or indirectly, to financial benefits that are provided by *members of the tax preferred sector; and
(d) the amount or value of those financial benefits is known or can reasonably be estimated; and
(e) you choose to have this section apply to the asset.
In applying paragraph (c), disregard financial benefits that are provided under an *arrangement that is a *debt interest.
(2) A choice under paragraph (1)(e) in relation to an asset:
(a) must be made before the due date for you to lodge your *income tax return for the income year in which the *arrangement period for the *tax preferred use of the asset starts; and
(b) must be made for the whole of the arrangement period for the tax preferred use of the asset; and
(c) must extend to all assets that are, or are to be, *put to a tax preferred use under the *arrangement under which the asset is put to that use; and
(d) is irrevocable.
The choice may extend to an asset referred to in paragraph (c) even if it is likely that paragraphs (1)(b) and (c) will not apply to that asset.
(3) If this section applies, section 250‑145 applies to you and the asset only to the extent of the *disallowed capital allowance percentage.
(4) Subject to subsection (6), the disallowed capital allowance percentage is the following ratio (expressed as a percentage):
(5) The Commissioner may, before the due date for you to lodge your *income tax return for the income year to which the *arrangement period for the *tax preferred use of the asset starts, approve an alternative method for working out the *disallowed capital allowance percentage for you and the asset.
(6) If the Commissioner approves an alternative method under subsection (5), the disallowed capital allowance percentage is the percentage worked out in accordance with that alternative method.
Subdivision 250‑D—Deemed loan treatment of financial benefits provided for tax preferred use
Table of sections
250‑155 Arrangement treated as loan
250‑160 Financial benefits that are subject to deemed loan treatment
250‑165 Financial arrangement
250‑170 Financial arrangement (equity interest or right or obligation in relation to equity interest)
250‑175 Rights, obligations and arrangements (grouping and disaggregation rules)
250‑180 End value of asset
250‑185 Financial benefits subject to deemed loan treatment not assessed
250‑155 Arrangement treated as loan
Loan with characteristics provided for in this section taken to exist
(1) If this Division applies to you and an asset at a particular time in an income year, a *financial arrangement in the form of a loan (with the characteristics provided for in this section) is taken to exist at that time for the purposes of working out your taxable income for that income year.
Note: See Subdivision 250‑E for the taxation treatment of the financial arrangement.
Lender
(2) You are taken to be the lender in relation to the loan.
Amount lent and unpaid at the start of the arrangement period
(3) The amount worked out under subsection (4) is taken to be the amount that you have lent, and that the borrower has not repaid, at the start of the *arrangement period.
(4) The amount is worked out by taking:
(a) the amount that, at the start of the *arrangement period, is:
(i) the *adjustable value of the asset if subparagraph 250‑15(d)(i) applies; or
(ii) the amount worked out under subsection (5) if subparagraph 250‑15(d)(ii) applies; or
(b) if section 250‑150 applies—the amount that, at the start of the arrangement period, is the *disallowed capital allowance percentage of:
(i) the adjustable value of the asset if subparagraph 250‑15(d)(i) applies; or
(ii) the amount worked out under subsection (5) if subparagraph 250‑15(d)(ii) applies;
and deducting the sum of all *financial benefits that are *subject to deemed loan treatment and that have become due and payable before the start of the arrangement period.
(5) If subparagraph 250‑15(d)(ii) applies, the amount worked out under this subsection for the purposes of subsection (4) is:
Item | If the expenditure referred to in that subparagraph is ... | the amount is ... |
1 | capital expenditure under Division 40 | the amount of the capital expenditure in respect of which a deduction has not been allowed (disregarding this Division) under the relevant Subdivision of Division 40 |
2 | capital expenditure under Division 43 | the *undeducted construction expenditure in relation to the capital expenditure |
Amounts paid to you by borrower under the loan
(6) Any *financial benefit that:
(a) a person provides; and
(b) is *subject to deemed loan treatment;
is taken to be an amount that the borrower pays you under the loan.
Note 1: Section 250‑160 tells you which financial benefits are subject to the deemed loan treatment.
Note 2: These benefits may be ones that are provided either to you or to a connected entity.
Period of the loan
(7) The *arrangement period is taken to be the period of the loan.
Applying Subdivision 250‑E to the loan
(8) For the purposes of applying Subdivision 250‑E to the loan:
(a) you are taken to have an overall gain from the loan and that overall gain is taken to be sufficiently certain at the time when you start to have the loan; and
(b) the amount of that overall gain is taken to be the sum of the *financial benefits that are *subject to the deemed loan treatment less the amount worked out under subsection (4); and
(c) you are taken:
(i) to start to have the loan at the start of the *arrangement period; and
(ii) to cease to have the loan at the end of the arrangement period; and
(d) any right that you (or a connected entity) have to a financial benefit that is subject to deemed loan treatment is taken to be a right that you have under the loan; and
(e) if a *connected entity transfers to another person a right to a financial benefit subject to deemed loan treatment:
(i) you are taken to transfer the right to that other person; and
(ii) any consideration that the connected entity receives in relation to the transfer is taken to be consideration that you receive in relation to the transfer; and
(f) if a right that a connected entity has to a financial benefit subject to deemed loan treatment ceases and the connected entity receives consideration in relation to that cessation—you are taken to receive that consideration in relation to the cessation; and
(g) you are taken to start to have the loan, or to cease to have the loan, as consideration for something if you start to have the rights to the financial benefits that are subject to deemed loan treatment, or cease to have those rights, as consideration for that thing; and
(h) in applying sections 250‑265 to 250‑275:
(i) the amount that you are taken, under subsections (3), (4) and (5), to have lent are the only financial benefits that you provide under the loan; and
(ii) the financial benefits you have received under the loan are taken to include financial benefits that are subject to deemed loan treatment that a person is, at the end of the arrangement period, liable to provide to you.
(9) If, under subsection 250‑160(2), a particular percentage of a reasonable estimate of the *end value of the asset was taken to be a *financial benefit that is *subject to the deemed loan treatment, subsection 250‑275(1) applies to the loan at the end of the *arrangement period as if you had received under the loan a financial benefit equal to the relevant percentage of the end value of the asset.
250‑160 Financial benefits that are subject to deemed loan treatment
General rule
(1) Subject to subsections (3) and (4), a *financial benefit is subject to deemed loan treatment if:
(a) the financial benefit:
(i) has been; or
(ii) will, assuming normal operating conditions, be; or
(iii) can, assuming normal operating conditions, reasonably be expected to be;
provided to you (or a *connected entity); and
(b) the financial benefit has been, will be or can reasonably be expected to be *provided directly or indirectly by a *member of the tax preferred sector in relation to the *tax preferred use of the asset; and
(c) the right to receive, or the obligation to provide, the financial benefit is *cash settlable; and
(d) the financial benefit has not been, will not be or can be expected not to be provided by one of your connected entities.
Note: Paragraph (d) stops a financial benefit passing between you and any of your connected entities from being counted twice.
End value also taken to be financial benefit subject to deemed loan treatment
(2) The relevant percentage of a reasonable estimate of the *end value of the asset is also taken to be a *financial benefit that is subject to deemed loan treatment if:
(a) the asset is not to be purchased or acquired by, or transferred to, a *member of the tax preferred sector at the end of the *arrangement period under a legally enforceable *arrangement; or
(b) the asset:
(i) is, or is to become, a *privatised asset; or
(ii) would be, or would become, a privatised asset if it were a *depreciating asset; or
(iii) would be a privatised asset if the asset were a depreciating asset and paragraphs 58‑5(2)(a) and 58‑5(4)(a) were not limited to acquisitions of depreciating assets that occurred on or after 1 July 2001.
The relevant percentage is the *disallowed capital allowance percentage if section 250‑150 applies. Otherwise it is 100%.
Note: See section 250‑180 for how to work out the end value of the asset.
Financial benefits only subject to deemed loan treatment to the extent to which they represent a return on investment
(3) The *financial benefit is subject to deemed loan treatment only to the extent to which it reasonably represents a return of, or on, an investment in the asset (as distinct, for example, from representing consideration for the provision of services or the recovery of production costs), having regard to:
(a) the *market value of the asset; and
(b) the discount rate applicable under subsection 250‑105(2); and
(c) your costs in relation to funding your interest in the asset; and
(d) any other relevant matter.
The regulations may provide rules to be applied in determining the extent to which a financial benefit reasonably represents a return of or on an investment in the asset.
Only financial benefits provided after Division starts applying to you and the asset
(4) If the *tax preferred use of the asset starts before this Division starts applying to you and the asset, only *financial benefits provided after this Division starts applying to you and the asset are subject to deemed loan treatment.
(1) You have a financial arrangement if you have, under an *arrangement:
(a) a *cash settlable legal or equitable right to receive a *financial benefit; or
(b) a cash settlable legal or equitable obligation to provide a financial benefit; or
(c) a combination of one or more such rights and/or one or more such obligations;
unless:
(d) you also have under the arrangement one or more legal or equitable rights to receive something and/or one or more legal or equitable obligations to provide something; and
(e) for one or more of the rights and/or obligations covered by paragraph (d):
(i) the thing that you have the right to receive, or the obligation to provide, is not a financial benefit; or
(ii) the right or obligation is not cash settlable; and
(f) the one or more rights and/or obligations covered by paragraph (e) are not insignificant in comparison with the right, obligation or combination covered by paragraph (a), (b) or (c).
The right, obligation or combination covered by paragraph (a), (b) or (c) constitutes the financial arrangement.
(2) A right you have to receive, or an obligation you have to provide, a *financial benefit is cash settlable if, and only if:
(a) the benefit is money or a *money equivalent; or
(b) in the case of a right—you intend to satisfy or settle it by receiving money, or a money equivalent, or by starting to have, or ceasing to have, another *financial arrangement; or
(c) in the case of an obligation—you intend to satisfy or settle it by providing money, or a money equivalent, or by starting to have, or ceasing to have, another financial arrangement; or
(d) you have a practice of satisfying or settling similar rights or obligations as mentioned in paragraph (b) or (c) (whether or not you intend to satisfy or settle the right or obligation in that way); or
(e) you deal with the right or obligation, or with similar rights or obligations, in order to generate a profit from short‑term fluctuations in price, from a dealer’s margin, or from both; or
(f) none of paragraphs (a) to (e) applies but:
(i) the financial benefit is readily convertible into money or a money equivalent or there is a market for the financial benefit that has a high degree of liquidity; and
(ii) you do not have, as your sole or dominant purpose for entering into the *arrangement under which you are to receive or provide the financial benefit, the purpose of receiving or delivering the benefit as part of your expected purchase, sale or usage requirements in the ordinary course of *business; or
(g) you are able to settle the right or obligation as mentioned in paragraph (b) or (c) (whether or not you intend to satisfy or settle the right or obligation in that way) and you do not have, as your sole or dominant purpose for entering into the arrangement under which you are to receive or provide the financial benefit, the purpose of receiving or delivering the financial benefit as part of your expected purchase, sale or usage requirements in the ordinary course of business.
Note: The following are examples of dealing of the kind covered by paragraph (e):
(b) acquiring the right or obligation, or similar rights or obligations, and managing the resulting risk by entering into offsetting arrangements that provide a profit margin.
(1) You also have a financial arrangement if you have an *equity interest. The equity interest constitutes the financial arrangement.
(2) You also have a financial arrangement if:
(a) you have, under an *arrangement:
(i) a legal or equitable right to receive something that is a *financial arrangement under this section; or
(ii) a legal or equitable obligation to provide something that is a financial arrangement under this section; or
(iii) a combination of one or more such rights and/or obligations; and
(b) the right, obligation or combination does not constitute a financial arrangement under section 250‑165.
The right, obligation or combination referred to in paragraph (a) constitutes the financial arrangement.
250‑175 Rights, obligations and arrangements (grouping and disaggregation rules)
Single right or obligation or multiple rights or obligations?
(1) If you have a right to receive 2 or more *financial benefits, you are taken, for the purposes of this Division, to have a separate right to receive each of those financial benefits.
(2) If you have an obligation to provide 2 or more *financial benefits, you are taken, for the purposes of this Division, to have a separate obligation to provide each of those financial benefits.
(3) Subsections (1) and (2) apply for the avoidance of doubt.
Matters relevant to determining what rights and/or obligations comprise particular arrangements
(4) For the purposes of this Division, whether a number of rights and/or obligations are themselves an *arrangement or are 2 or more separate arrangements is a question of fact and degree that you determine having regard to the following:
(a) the nature of the rights and/or obligations;
(b) their terms and conditions (including those relating to any payment or other consideration for them);
(c) the circumstances surrounding their creation and their proposed exercise or performance (including what can reasonably be seen as the purposes of one or more of the persons involved);
(d) whether they can be dealt with separately or must be dealt with together;
(e) normal commercial understandings and practices in relation to them (including whether they are regarded commercially as separate things or as a group or series as whole);
(f) the objects of this Division.
In applying this subsection, have regard to the matters referred to in paragraphs (a) to (f) both in relation to the rights and/or obligations separately and in relation to the rights and/or obligations in combination with each other.
Example 1: Your rights and obligations under a typical convertible note, including the right to convert the note into a share or shares, would comprise one arrangement.
Example 2: Your rights and obligations under a typical price‑linked or index‑linked bond with option or forward components would comprise one arrangement.
Note 1: If you raised funds by means of a contract that you would not have entered into without entering into another contract, and neither contract could be assigned to a third party without the other also being assigned, this would tend to indicate that your rights and obligations under the 2 contracts together comprise one arrangement.
Note 2: If the commercial effect of your individual rights and/or obligations in a group or series cannot be understood without reference to the group or series as a whole, this would tend to indicate that all of your rights and/or obligations in the group or series together comprise one arrangement.
(1) The end value of an asset is worked out in accordance with this section.
(2) If the asset has a *guaranteed residual value, the end value of the asset is:
(a) the amount of the guaranteed residual amount if subparagraph 250‑15(d)(i) applies; or
(b) so much of the amount referred to in paragraph (a) as is attributable to the expenditure referred to in subparagraph 250‑15(d)(ii) if that subparagraph applies.
(3) If the asset does not have a *guaranteed residual value and is a *depreciating asset, the end value of the asset is:
(a) if subparagraph 250‑15(d)(i) applies—the amount that would have been the *adjustable value of the asset at the end of the *arrangement period if:
(i) this Division had not applied to you and the asset; and
(ii) the decline in the asset’s value were worked out on the basis of the asset’s *effective life and using the *prime cost method; or
(b) if subparagraph 250‑15(d)(ii) applies—so much of the amount referred to in paragraph (a) as is attributable to the expenditure referred to in that subparagraph.
(4) Disregard section 40‑102 in working out the asset’s *effective life for the purposes of subparagraph (3)(a)(ii).
(5) If neither subsection (2) nor subsection (3) applies and an estimate of the value of the asset is recognised for accounting purposes, the end value of the asset is:
(a) the value of the relevant asset at the end of the *arrangement period that would be recognised for accounting purposes if subparagraph 250‑15(d)(i) applies; or
(b) so much of the value of referred to in paragraph (a) as is attributable to the expenditure referred to subparagraph 250‑15(d)(ii) if that subparagraph applies.
The end value must not, however, exceed the amount worked out under subsections 250‑155(4) and (5) (amount taken to have been lent).
(6) If none of subsections (2), (3) and (5) apply to the asset, the end value of the asset is:
(a) a reasonable estimate of the *market value of the asset at the end of the *arrangement period if subparagraph 250‑15(d)(i) applies; or
(b) so much of the estimate referred to in paragraph (a) as is attributable to the expenditure referred to in subparagraph 250‑15(d)(ii) if that subparagraph applies.
The end value must not, however, exceed the amount worked out under subsections 250‑155(4) and (5) (amount taken to have been lent).
250‑185 Financial benefits subject to deemed loan treatment not assessed
A *financial benefit is not included in your assessable income if the financial benefit:
(a) is *provided to you in relation to the tax preferred use of the asset; and
(b) is provided directly or indirectly by a *member of the tax preferred sector; and
(c) is *subject to deemed loan treatment.
The financial benefit is not assessable income and is not *exempt income.
Subdivision 250‑E—Taxation of deemed loan
Table of sections
Guide to Subdivision 250‑E
250‑190 What this Subdivision is about
Application and objects of Subdivision
250‑195 Application of Subdivision
250‑200 Objects of this Subdivision
Tax treatment of gains and losses from financial arrangements
250‑205 Gains are assessable and losses deductible
250‑210 Gain or loss to be taken into account only once under this Act
Method to be applied to take account of gain or loss
250‑215 Methods for taking gain or loss into account
General rules
250‑220 Consistency in working out gains or losses (integrity measure)
250‑225 Rights and obligations include contingent rights and obligations
The accruals method
250‑230 Application of accruals method
250‑235 Overview of the accruals method
250‑240 Applying accruals method to work out period over which gain or loss is to be spread
250‑245 How gain or loss is spread
250‑250 Allocating gain or loss to income years
250‑255 When to re‑estimate
250‑260 Re‑estimation if balancing adjustment on partial disposal
Balancing adjustment
250‑265 When balancing adjustment made
250‑270 Exception for subsidiary member leaving consolidated group
250‑275 Balancing adjustment
Other provisions
250‑280 Financial arrangement received or provided as consideration
250‑190 What this Subdivision is about
This Subdivision is about the tax treatment of gains and losses from the financial arrangement that you are taken to have under section 250‑155.
You recognise gains and losses from the financial arrangement, as appropriate, over the life of the financial arrangement and ignore distinctions between income and capital. You use a compounding accruals method to recognise the gain or loss.
A change in circumstances may cause a re‑estimation of gains and losses that the accruals method is being applied to.
A balancing adjustment is made if you transfer particular rights or obligations or particular rights or obligations cease.
Application and objects of Subdivision
250‑195 Application of Subdivision
This Subdivision applies for the purposes of working out the amount of the gain or loss that is to be included in your assessable income or allowed as a deduction in relation to the *financial arrangement that is taken to exist under section 250‑155.
250‑200 Objects of this Subdivision
The objects of this Subdivision are:
(a) to properly recognise gains and losses from the *financial arrangement by allocating them to appropriate periods of time; and
(b) to minimise tax deferral.
Tax treatment of gains and losses from financial arrangements
250‑205 Gains are assessable and losses deductible
Gains
(1) Your assessable income includes a gain you make from the *financial arrangement.
Losses
(2) You can deduct a loss you make from the *financial arrangement, but only to the extent that:
(a) you make it in gaining or producing your assessable income; or
(b) you necessarily make it in carrying on a *business for the purpose of gaining or producing your assessable income.
250‑210 Gain or loss to be taken into account only once under this Act
Purpose of this section
(1) The purpose of this section is to ensure that your gains that are assessable under this Subdivision, and your losses that are deductible under this Subdivision, are taken into account only once under this Act in working out your taxable income.
Gain or loss
(2) If a gain or loss is, or is to be, included in your assessable income or allowable as a deduction to you for an income year under this Subdivision, the gain or loss is not to be (to any extent):
(a) included in your assessable income; or
(b) allowable as a deduction to you;
under any other provisions of this Act for the same or any other income year.
Associated financial benefits
(3) If the amount or value of a *financial benefit is taken into account in working out whether you make, or the amount of, a gain or loss that is, or is to be, included in your assessable income or allowable as a deduction for you for an income year under this Subdivision, the benefit is not to be (to any extent):
(a) included in your assessable income; or
(b) allowable as a deduction to you;
under any other provision of this Act for the same or any other income year.
Method to be applied to take account of gain or loss
250‑215 Methods for taking gain or loss into account
The methods that can be applied to take account of a gain or loss you make from the *financial arrangement you have are:
(a) the accruals method provided for in sections 250‑235 to 250‑255; or
(b) a balancing adjustment provided for in sections 250‑265 to 250‑275.
A gain or loss is not taken into account under the method referred to in paragraph (a) to the extent to which the gain or loss is taken into account under sections 250‑265 to 250‑275.
250‑220 Consistency in working out gains or losses (integrity measure)
Object of section
(1) The object of this section is to stop you obtaining an inappropriate tax benefit from not working out your gains and losses in a consistent manner.
Consistent treatment for particular financial arrangement
(2) If:
(a) this Subdivision provides that a particular method applies to gains or losses you make from the *financial arrangement; and
(b) that method allows you to choose the particular manner in which you apply that method;
you must use that manner consistently for the arrangement for all income years.
Consistent treatment for financial arrangements of essentially the same nature
(3) If:
(a) this Subdivision provides that a particular method applies to gains or losses you make from 2 or more *financial arrangements; and
(b) that method allows you to choose the particular manner in which you apply that method;
you must use that same manner consistently for all of those financial arrangements that are essentially of the same nature.
250‑225 Rights and obligations include contingent rights and obligations
To avoid doubt:
(a) a right is treated as a right for the purposes of this Division even it is subject to a contingency; and
(b) an obligation is treated as an obligation for the purpose of this Division even if it is subject to a contingency.
250‑230 Application of accruals method
The accruals method provided for in sections 250‑235 to 250‑255 applies to a gain or loss you make from the *financial arrangement if:
(a) the gain or loss is an overall gain or loss from the arrangement; and
(b) the gain or loss is sufficiently certain at the time when you start to have the arrangement.
250‑235 Overview of the accruals method
If the accruals method applies to a gain or loss you make from the *financial arrangement:
(a) you use section 250‑240 to work out the period over which the gain or loss is to be spread; and
(b) you use section 250‑245 to work out how to allocate the gain or loss to particular intervals within the period over which the gain or loss is to be spread; and
(c) if an interval to which part of the gain or loss is allocated straddles 2 income years, you use section 250‑250 to work out how to allocate that part of the gain or loss allocated between those 2 income years.
250‑240 Applying accruals method to work out period over which gain or loss is to be spread
If you have a sufficiently certain overall gain or loss from the *financial arrangement, the period over which the gain or loss is to be spread is the period that:
(a) starts when you start to have the arrangement; and
(b) ends when you will cease to have the arrangement.
In applying paragraph (b), you must assume that you will continue to have the arrangement for the rest of its life.
250‑245 How gain or loss is spread
How to spread gain or loss
(1) This section tells you how to spread a gain or loss to which the accruals method applies.
Compounding accruals or approximation
(2) The gain or loss is to be spread using:
(a) compounding accruals (with the intervals to which parts of the gain or loss are allocated complying with subsection (3)); or
(b) a method whose results approximate those obtained using the method referred to in paragraph (a) (having regard to the length of the period over which the gain or loss is to be spread).
Intervals to which parts of gain or loss allocated
(3) The intervals to which parts of the gain or loss are allocated must:
(a) not exceed 12 months; and
(b) all be of the same length.
Paragraph (b) does not apply to the first and last intervals. These may be shorter than the other intervals.
Assumption of continuing hold arrangement for the rest of its life
(4) The gain or loss is to be spread assuming that you will continue to have the *financial arrangement for the rest of its life.
250‑250 Allocating gain or loss to income years
(1) You are taken, for the purposes of section 250‑205, to make, for an income year, a gain or loss equal to a part of a gain or loss if:
(a) that part of the gain or loss is allocated to an interval under section 250‑245; and
(b) that interval falls wholly within that income year.
(2) If:
(a) a part of a gain or loss is allocated to an interval under section 250‑245; and
(b) that interval straddles 2 income years;
you are taken, for purposes of section 250‑205, to make a gain or loss equal to so much of that part of the gain or loss as is allocated between those income years on a reasonable basis.
(3) If:
(a) a *consolidated group or *MEC group has a *financial arrangement; and
(b) a subsidiary member of the group ceases to be a member of the group at a particular time (the exit time); and
(c) immediately after the exit time, the subsidiary member has the financial arrangement;
an income year of the group is taken, for the purposes of applying this section to the group and the financial arrangement, to end at the exit time.
When re‑estimation necessary
(1) You re‑estimate a gain or loss from the *financial arrangement under subsection (4) if circumstances arise that materially affect:
(a) the amount or value; or
(b) the timing;
of *financial benefits that were taken into account in working out the amount of the gain or loss. You must re‑estimate the gain or loss as soon as reasonably practicable after you become aware of the circumstances referred to in paragraph (b).
(2) Without limiting subsection (1), the following are circumstances of the kind referred to in paragraph (1)(b):
(a) a material change in market conditions that are relevant to the amount or value of the *financial benefits to be received or provided under the *financial arrangement;
(b) cash flows that were previously estimated becoming known and the difference between the cash flows that become known and the cash flows that were previously estimated is not insignificant;
(c) a right to, or a part of a right to, a financial benefit under the arrangement is written off as a bad debt.
(3) You do not re‑estimate a gain or loss from a *financial arrangement under subsection (4) merely because of any one or more of the following:
(a) a change in the credit rating, or the creditworthiness, of a party or parties to the financial arrangement;
(b) the impairment (within the meaning of the *accounting standards) of the arrangement or a debt that forms part of the arrangement.
Nature of re‑estimation
(4) Making a re‑estimation in relation to a gain or loss under this subsection involves:
(a) a fresh determination of the amount of the gain or loss; and
(b) a reapplication of the accruals method to the redetermined gain or loss to make a fresh allocation of the part of the redetermined gain or loss that has not already been allocated to intervals ending before the re‑estimation is made to intervals ending after the re‑estimation is made.
Basis for re‑estimation
(5) You may make the fresh allocation of the gain or loss under subsection (4) on either of the following bases:
(a) by maintaining the rate of return being used and adjusting the amount to which you apply the rate of return to the present value of the estimated future cash flows discounted at the maintained rate of return;
(b) adjusting the rate of return and maintaining the amount to which you apply the rate of return.
The object to be achieved by both bases is allow you to bring the remainder of the gain or loss based on the new estimates properly to account over the remainder of the period over which you spread the gain or loss.
(6) If you adopt a particular basis under subsection (5) for a gain or loss from the *financial arrangement, you must use the same basis for all the re‑estimations you make under this section in relation to your gains and losses from all your financial arrangements.
Balancing adjustment if rate of return maintained
(7) If you make a fresh allocation of the gain or loss on the basis referred to in paragraph (5)(a), you must make the following balancing adjustment:
(a) if you re‑estimate a gain and the amount to which you apply the rate of return increases—you make a gain from the *financial arrangement, for the income year in which you make the re‑estimation, equal to the amount of the increase;
(b) if you re‑estimate a gain and the amount to which you apply the rate of return decreases—you make a loss from the arrangement, for the income year in which you make the re‑estimation, equal to the amount of the decrease;
(c) if you re‑estimate a loss and the amount to which you apply the rate of return increases—you make a loss from the arrangement, for the income year in which you make the re‑estimation, equal to the amount of the increase;
(d) if you re‑estimate a loss and the amount to which you apply the rate of return decreases—you make a gain from the arrangement, the income year in which you make the re‑estimation, equal to the amount of the decrease.
250‑260 Re‑estimation if balancing adjustment on partial disposal
Re‑estimation if balancing adjustment on partial disposal
(1) You also re‑estimate a gain or loss from a *financial arrangement under subsection (2) if a balancing adjustment is made in relation to the financial arrangement under sections 250‑265 to 250‑275 because you transfer to another person:
(a) a proportionate share of all of your rights and/or obligations under a *financial arrangement; or
(b) a right or obligation that you have under a financial arrangement to a specifically identified *financial benefit; or
(c) a proportionate share of a right or obligation that you have under a financial arrangement to a specifically identified financial benefit.
You must re‑estimate the gain or loss as soon as reasonably practicable after the transfer occurs.
Nature of re‑estimation
(2) Making a re‑estimation in relation to a gain or loss under this subsection involves:
(a) a fresh determination of the amount of the gain or loss disregarding:
(i) *financial benefits; and
(ii) amounts of the gain or loss that have already been allocated to intervals ending before the re‑estimation is made;
to the extent to which they are reasonably attributable to the proportionate share, or the right or obligation, referred to in paragraph (1)(b); and
(b) a reapplication of the accruals method to the redetermined gain or loss to make a fresh allocation of the part of that gain or loss that has not already been allocated to intervals ending before the re‑estimation is made to intervals ending after the re‑estimation is made.
Basis for re‑estimation
(3) You make the fresh allocation of the gain or loss under subsection (2) by maintaining the rate of return being used and adjusting the amount to which you apply the rate of return to the present value of the estimated future cash flows discounted at the maintained rate of return. The object to be achieved by the fresh allocation is allow you to bring the remainder of the redetermined gain or loss properly to account over the remainder of the period over which you spread the gain or loss.
250‑265 When balancing adjustment made
When balancing adjustment made
(1) A balancing adjustment is made under section 250‑275 if:
(a) you transfer to another person all of your rights and/or obligations under the *financial arrangement; or
(b) all of your rights and/or obligations under the financial arrangement otherwise substantially cease; or
(c) you transfer to another person:
(i) a proportionate share of all of your rights and/or obligations under the financial arrangement; or
(ii) a right or obligation that you have under the financial arrangement to a specifically identified *financial benefit; or
(iii) a proportionate share of a right or obligation that you have under the financial arrangement to a specifically identified financial benefit.
Modifications for arrangements that are assets
(2) The following modifications are made if the *financial arrangement is an asset of yours at the time the event referred to in subsection (1) occurs:
(a) paragraphs (1)(a) and (c) do not apply unless the effect of the transfer is to transfer to the other person substantially all the risks and rewards of ownership of the interest transferred;
(b) for the purposes of applying section 250‑275 to the arrangement, you are treated as transferring a right under the arrangement to another person if:
(i) you retain the right but assume a new obligation; and
(ii) your assumption of the new obligation has the same effect, in substance, as transferring the right to another person; and
(iii) the new obligation arises only to the extent to which the right to *financial benefits under the financial arrangement is satisfied; and
(iv) you cannot sell or pledge the right (other than as security in relation to the new obligation); and
(v) you must, under the new obligation, provide financial benefits you receive in relation to the right to the person to whom you owe the new obligation without delay.
250‑270 Exception for subsidiary member leaving consolidated group
A balancing adjustment is not made under section 250‑275 in relation to a subsidiary member of a*consolidated group or a *MEC group that has the *financial arrangement ceasing to be a member of the group.
Complete cessation or transfer
(1) Use the following method statement to make the balancing adjustment if paragraph 250‑265(1)(a) or (b) applies:
Method statement for balancing adjustment
Step 1. Add up the following:
(a) the total of all the *financial benefits provided to you under the *financial arrangement;
(b) the amount or value of any other consideration you receive in relation to the transfer or cessation referred to in subsection 250‑265(1);
(c) the total of the amounts that have been allowed to you as deductions, because of circumstances that have occurred before the transfer or cessation, for losses from the arrangement;
(d) the total of the other amounts that would have been allowed to you as deductions, because of circumstances that have occurred before the transfer or cessation, for losses from the arrangement if all your losses from the arrangement were allowable as deductions.
Step 2. Add up the following:
(a) the total of all the *financial benefits you have provided under the *financial arrangement;
(b) the amount or value of any other consideration you provide in relation to the transfer or cessation referred to in subsection 250‑265(1);
(c) the total of the amounts that have been included in your assessable income, because of circumstances that have occurred before the transfer or cessation, as gains from the arrangement;
(d) the total of the other amounts that would have been included in your assessable income, because of circumstances that have occurred before the transfer or cessation, as gains from the arrangement if all your gains from the arrangement were assessable.
Step 3. Compare the amount obtained under Step 1 (the Step 1 amount) with the amount obtained under Step 2 (the Step 2 amount). If the Step 1 amount exceeds the Step 2 amount, an amount equal to the excess is taken, as a balancing adjustment, to be a gain you make from the *financial arrangement for the purposes of this Subdivision. If the Step 2 amount exceeds the Step 1 amount, an amount equal to the excess is taken, as a balancing adjustment, to be a loss that you make from the arrangement. If the Step 1 amount and the Step 2 amount are equal, no balancing adjustment is made.
Proportionate transfer of all rights and/or obligations under financial arrangement
(2) If subparagraph 250‑265(1)(c)(i) applies, you make the balancing adjustment by applying the method statement in subsection (1) but reduce:
(a) the amounts referred to in paragraphs (a), (c) and (d) in step 1; and
(b) the amounts referred to in paragraphs (a), (c) and (d) in step 2;
by applying the proportion referred to in subparagraph 250‑265(1)(c)(i) to them.
Transfer of specifically identified right or obligation under financial arrangement
(3) If subparagraph 250‑265(1)(c)(ii) applies, you make the balancing adjustment by applying the method statement in subsection (1) as if the references to:
(a) the amounts referred to in paragraphs (a), (c) and (d) in step 1; and
(b) the amounts referred to in paragraphs (a), (c) and (d) in step 2;
were references to those amounts to the extent to which they are reasonably attributable to the right or obligation referred to in subparagraph 250‑265(1)(c)(ii).
Proportionate transfer of specifically identified right or obligation under financial arrangement
(4) If subparagraph 250‑265(1)(c)(iii) applies, you make the balancing adjustment by applying the method statement:
(a) as if the references to:
(i) the amounts referred to in paragraphs (a), (c) and (d) in step 1; and
(ii) the amounts referred to in paragraphs (a), (c) and (d) in step 2;
were references to those amounts to the extent to which they are reasonably attributable to the right or obligation referred to in subparagraph 250‑265(1)(c)(iii); and
(b) by reducing those amounts by applying the proportion referred to in subparagraph 250‑265(1)(c)(iii) to them.
Attribution must reflect appropriate and commercially accepted valuation principles
(5) Any attribution made under subsection (3) or paragraph (4)(a) must reflect appropriate and commercially accepted valuation principles that properly take into account:
(a) the nature of the rights and obligations under the *financial arrangement; and
(b) the risks associated with each *financial benefit, right and obligation under the arrangement; and
(c) the time value of money.
Income year for which gain or loss is made
(6) The gain or loss you are taken to make under subsection (1), (2), (3) or (4) is a gain or loss for the income year in which the event referred to in subsection 250‑265(1) occurs.
250‑280 Financial arrangement received or provided as consideration
(1) If:
(a) this Subdivision applies in relation to your gains and losses from the *financial arrangement; and
(b) you start to have the financial arrangement (or a part of the financial arrangement) as consideration (or as part of the consideration) for:
(i) something (the thing provided) that you provided, or are to provide, to someone else; or
(ii) something (the thing acquired) that someone else has provided, or is to provide, to you; and
(c) the thing provided or the thing acquired is not money;
the amount of the benefit (or that part of the benefit) that you obtained for the thing provided, or gave for the thing acquired, is taken, for the purposes of applying this Act to you, to be the *market value of the financial arrangement (or that part of the financial arrangement) at the time when you start to have the financial arrangement.
Note 1: This amount may be relevant, for example, for the purposes of applying the provisions of this Act dealing with capital gains, capital allowances or trading stock to the thing provided or the thing acquired.
Note 2: The market value is to be used instead of the nominal value of the financial benefits to be provided under the financial arrangement.
(2) If subsection (1) applies, you are taken to have received, or provided, as consideration for starting to have the *financial arrangement (or the part of the financial arrangement), *financial benefits whose value is equal to the market value of the financial arrangement (or that part of the financial arrangement) at the time when you started to have the financial arrangement.
(3) If, but for this subsection:
(a) subsection (2) would apply to your starting to have a *financial arrangement; and
(b) subsection (1) or (4) would also apply to your starting to have the financial arrangement;
subsection (2) applies to your starting to have the financial arrangement and subsection (1) or (4) does not.
(4) If:
(a) this Subdivision applies in relation to your gains and losses from the *financial arrangement; and
(b) you cease to have the financial arrangement (or a part of the financial arrangement) as consideration (or as part of the consideration) for:
(i) something (the thing acquired) that someone else provides, or is to provide, to you; or
(ii) something (the thing provided) that you provided, or are to provide, to someone else; and
(c) the thing acquired or the thing provided is not money;
the amount of the benefit (or that part of the benefit) that you provided for the thing acquired, or obtained for the thing provided, is taken, for the purposes of applying this Act to you, to be the *market value of the financial arrangement (or that part of the financial arrangement) at the time when you cease to have the financial arrangement (or that part of the financial arrangement).
Note 1: This amount may be relevant, for example, for the purposes of applying the provisions of this Act dealing with capital gains, capital allowances or trading stock to the thing acquired or the thing provided.
Note 2: The market value is to be used instead of the nominal value of the financial benefits to be provided under the financial arrangement.
(5) If subsection (4) applies, you are taken to have provided, or received, as consideration for ceasing to have the *financial arrangement (or the part of the financial arrangement), *financial benefits whose value is equal to the market value of the financial arrangement (or that part of the financial arrangement) at the time when you ceased to have the financial arrangement.
(6) If, but for this subsection:
(a) subsection (5) would apply to your ceasing to have a *financial arrangement; and
(b) subsection (1) or (4) would also apply to your ceasing to have the financial arrangement;
subsection (5) applies to your ceasing to have the financial arrangement and subsection (1) or (4) does not.
(7) Without limiting subsections (1) and (4), the thing provided, or the thing acquired, need not be a tangible thing and may take the form of services, conferring a right, incurring an obligation or extinguishing or varying a right or obligation.
Subdivision 250‑F—Treatment of asset when Division ceases to apply to the asset
Table of sections
250‑285 Treatment of asset after Division ceases to apply to the asset
250‑290 Balancing adjustment under Subdivision 40‑D in some circumstances
250‑285 Treatment of asset after Division ceases to apply to the asset
(1) For the purposes of Division 40, if:
(a) this Division applies to you and an asset; and
(b) the *arrangement period for the *tax preferred use of the asset ends at a particular time; and
(c) the asset would have had an *adjustable value at that time, for the purposes of Division 40, if this Division had never applied to the asset;
the adjustable value of the asset, immediately after the end of the arrangement period, is taken to be equal to the amount worked out using the following method statement:
Method statement
Step 1. Work out whether section 250‑150 applies.
Step 2. If section 250‑150 does not apply, the amount is the *end value of the asset at the end of the arrangement period.
Step 3. If section 250‑150 does apply, the amount is worked out by:
(a) multiplying the *end value of the asset at the end of the *arrangement period by the *disallowed capital percentage; and
(b) then multiplying the adjustable value of the asset at the end of the arrangement period (worked out under section 40‑85) by 100% minus the disallowed capital percentage); and
(c) then adding the amount obtained under paragraph (a) and the amount obtained under paragraph (b).
(2) If:
(a) this Division applies to you and an asset; and
(b) the *arrangement period for the *tax preferred use of the asset ends; and
(c) a net amount is included in your assessable income in relation to the *financial benefits that are *subject to the deemed loan treatment (taking into account the adjustments under Subdivision 250‑E in relation to the financial benefits that are subject to the deemed loan treatment);
the *cost base, and the *reduced cost base, of the asset are each taken to be reduced at the end of the arrangement period by an amount equal to the difference between:
(d) the total amounts or values of the financial benefits that were subject to deemed loan treatment; and
(e) the net amount referred to in paragraph (c).
Note: See subsection (6) in relation to the application of paragraph (d).
(3) If:
(a) this Division applies to you and an asset; and
(b) the *arrangement period for the *tax preferred use of the asset ends; and
(c) a net amount is allowed to you as a deduction in relation to the *financial benefits that are *subject to the deemed loan treatment (taking into account the adjustments under Subdivision 250‑E in relation to the financial benefits that are subject to the deemed loan treatment);
the *cost base, and the *reduced cost base, of the asset are each taken to be reduced at the end of the arrangement period by an amount equal to the sum of:
(d) the total amounts or values of the financial benefits that were subject to deemed loan treatment; and
(e) the net amount referred to in paragraph (c).
Note: See subsection (6) in relation to the application of paragraph (d).
(4) If:
(a) this Division applies to you and an asset; and
(b) the *arrangement period for the *tax preferred use of the asset ends; and
(c) a net amount is included in your assessable income in relation to the *financial benefits that are *subject to the deemed loan treatment (taking into account the adjustments under Subdivision 250‑E in relation to the financial benefits that are subject to the deemed loan treatment);
then, in determining the profit or loss on the sale of the asset, a deduction equal to the difference between the following is taken to have been allowed for expenditure by you in connection with the asset:
(d) the total amounts or values of the financial benefits that were subject to deemed loan treatment; and
(e) the net amount referred to in paragraph (c).
Note: See subsection (6) in relation to the application of paragraph (d).
(5) If:
(a) this Division applies to you and an asset; and
(b) the *arrangement period for the *tax preferred use of the asset ends; and
(c) a net amount is allowed to you as a deduction in relation to the *financial benefits that are *subject to the deemed loan treatment (taking into account the adjustments under Subdivision 250‑E in relation to the financial benefits that are subject to the deemed loan treatment);
then, in determining the profit or loss on the sale of the asset, a deduction equal to the sum of the following is taken to have been allowed for expenditure by you in connection with the asset:
(d) the total amounts or values of the financial benefits that were subject to deemed loan treatment; and
(e) the net amount referred to in paragraph (c).
Note: See subsection (6) in relation to the application of paragraph (d).
(6) In applying paragraphs (2)(d), (3)(d), (4)(d) and (5)(d), disregard subsection 250‑160(2) (reasonable estimate of end value treated as financial benefit subject to deemed loan treatment).
250‑290 Balancing adjustment under Subdivision 40‑D in some circumstances
(1) This section applies if:
(a) this Division applies to you and an asset; and
(b) the *arrangement period for the *tax preferred use of the asset ends because a particular event happens; and
(c) the event would have been a *balancing adjustment event for the asset for the purposes of Subdivision 40‑D if this Division had not applied to you and the asset when the event happened.
(2) A balancing adjustment is made under Subdivision 40‑D as if:
(a) the event were a *balancing adjustment event for the asset; and
(b) the *adjustable value of the asset, just before the event happened, were the adjustable value worked out under subsection 250‑285(1); and
(c) sections 40‑290 and 40‑292 did not apply.
Subdivision 250‑G—Objections against determinations and decisions by the Commissioner
Table of sections
250‑295 Objections against determinations and decisions by the Commissioner
250‑295 Objections against determinations and decisions by the Commissioner
(1) This section applies to a determination by the Commissioner under section 250‑45.
(2) This section also applies to a decision by the Commissioner under subsection 250‑150(5).
(3) A person who is dissatisfied with a determination or decision to which this section applies may object against the determination or decision in the manner set out in Part IVC of the Taxation Administration Act 1953.
Division 280—Guide to the superannuation provisions
Table of sections
280‑1 Effect of this Division
280‑5 Overview
Contributions phase
280‑10 Contributions phase—deductibility
280‑15 Contributions phase—limits on superannuation tax concessions
Investment phase
280‑20 Investment phase
Benefits phase
280‑25 Benefits phase—different types of superannuation benefit
280‑30 Benefits phase—taxation varies with age of recipient and type of benefit
280‑35 Benefits phase—roll‑overs
The regulatory scheme outside this Act
280‑40 Other relevant legislative schemes
(1) This Division is a *Guide.
(2) Tax concessions in this Part are intended to encourage Australians to save in order to make provision for their retirement, recognising that superannuation investments, and the income from them, are quarantined for retirement.
(1) There are 3 phases in the tax treatment of superannuation, as follows:
(a) the contributions phase;
(b) the investment phase;
(c) the benefits phase.
(2) In the contributions phase, contributions are made to a superannuation plan in respect of a member of the plan.
(3) In the investment phase, these contributions are invested by the superannuation provider.
(4) In the benefits phase, these contributions, plus earnings from investing them, are usually paid as benefits to the member when he or she retires after reaching preservation age. In the event of death, the benefits are usually paid to the member’s dependants.
(5) There is also a regulatory scheme outside this Act that is relevant to the taxation treatment of superannuation. For example, other Acts set out prudential and operating standards for superannuation providers.
280‑10 Contributions phase—deductibility
Contributions that can be deducted
(1) Employers can usually deduct contributions they make in respect of their employees. Individuals can usually deduct contributions they make in respect of themselves if less than 10% of their total assessable income (plus reportable fringe benefits) for the income year is attributable to employment or similar activities.
Other contributions cannot be deducted
(2) Other contributions cannot be deducted. These include personal contributions made by individuals whose employment income is 10% or more of their total income, and contributions made by others in respect of them (such as contributions by a spouse or family member, or Government co‑contributions).
280‑15 Contributions phase—limits on superannuation tax concessions
(1) There is a limit to contributions that can be made in respect of an individual in a year that receive favourable tax treatment. This limit takes the form of a tax on excessive contributions, and neutralises the favourable tax treatment arising from the excessive contributions.
(2) If concessional contributions exceed an indexed cap, the individual concerned is taxed on the excess. This tax liability can be met by releasing money from his or her superannuation interests.
(3) If non‑concessional contributions (including any excess for the purposes of the first cap) exceed a second indexed cap, the individual is taxed on the excess. The second cap is equivalent to three times the first cap. The payment of this tax liability must be accompanied by releasing money equivalent to the liability from his or her superannuation interests.
(1) Contributions that can be deducted are assessable income of the superannuation provider. Contributions that cannot be deducted are not assessable income of the superannuation provider. (There are some exceptions.)
(2) Earnings on the investment of amounts in a superannuation plan are assessable income of the superannuation provider.
(3) The superannuation provider’s taxable income is generally taxed at the concessional rate of 15%.
(4) However, superannuation providers pay no tax on earnings from the assets that support the payment of benefits in the form of income streams, once the income streams have commenced.
280‑25 Benefits phase—different types of superannuation benefit
Superannuation benefits can be drawn down as lump sums, income streams (such as pensions or annuities), or combinations of both. Different tax treatment may apply depending on whether a lump sum or income stream is paid.
280‑30 Benefits phase—taxation varies with age of recipient and type of benefit
(1) The taxation of superannuation benefits depends primarily on the age of the member.
(2) If the member is aged 60 or over, superannuation benefits (both lump sums and income streams) are tax free if the benefits have already been subject to tax in the fund (that is, where the benefits comprise a taxed element). This covers the great majority of superannuation members.
(3) Where a superannuation benefit contains an amount that has not been subject to tax in the fund (an untaxed element), this element is subject to tax for those aged 60 or over, though at concessional rates. This is relevant generally to those people (for example, public servants), who are members of a superannuation fund established by the Australian Government or a state government.
(4) If the member is less than 60, superannuation benefits may receive concessional taxation treatment, though the treatment is less concessional than for those aged 60 and over.
(5) Superannuation benefits may also include a “tax free component”; this component of the benefit is always paid tax free.
(6) Additional tax concessions may apply when superannuation benefits are paid after a member’s death.
280‑35 Benefits phase—roll‑overs
A member can “roll over” their superannuation benefits from one complying superannuation plan to another, or between different interests in the same plan. This is usually done to keep the benefits invested in the superannuation system, or to convert a lump sum to a superannuation income stream. No tax is generally payable until the benefits are finally drawn down.
The regulatory scheme outside this Act
280‑40 Other relevant legislative schemes
(1) The Superannuation Industry (Supervision) Act 1993 and the Retirement Savings Accounts Act 1997 regulate the prudential and operating standards for superannuation providers. Concessional tax treatment is generally available only if providers comply with these standards.
(2) Other legislative schemes relevant to superannuation include the following:
(a) the Superannuation Guarantee (Administration) Act 1992, which requires that employers provide a minimum level of superannuation contributions for each of their eligible employees;
(b) the Superannuation (Government Co‑contribution for Low Income Earners) Act 2003, which provides for Government co‑contributions to low income earners’ superannuation;
(c) the Small Superannuation Accounts Act 1995, which provides a facility to accept payments of superannuation guarantee shortfalls;
(d) the Superannuation (Unclaimed Money and Lost Members) Act 1999, which provides for the payment of unclaimed superannuation money, and the maintenance of a register of lost members.
Division 285—General concepts relating to superannuation
(1) Any of the following payments covered by this Part can be or include a transfer of property:
(a) a contribution;
(b) a *superannuation lump sum.
(2) The amount of the payment is or includes the *market value of the property.
(3) The *market value is reduced by the value of any consideration given for the transfer of the property.
Division 290—Contributions to superannuation funds
Table of Subdivisions
Guide to Division 290
290‑A General rules
290‑B Deduction of employer contributions and other employment‑connected contributions
290‑C Deducting personal contributions
290‑D Tax offsets for spouse contributions
290‑1 What this Division is about
This Division sets out the rules for deductions and tax offsets for superannuation contributions.
Subdivision 290‑A—General rules
Table of sections
290‑5 Non‑application to roll‑over superannuation benefits etc.
290‑10 No deductions other than under this Division
290‑5 Non‑application to roll‑over superannuation benefits etc.
This Division does not apply to a contribution that is any of the following:
(a) a *roll‑over superannuation benefit;
(b) a *superannuation lump sum that is paid from a *foreign superannuation fund;
(c) an amount transferred to a *complying superannuation fund or an *RSA from a scheme for the payment of benefits in the nature of superannuation upon retirement or death that:
(i) is not, and never has been, an *Australian superannuation fund or a *foreign superannuation fund; and
(ii) was not established in Australia; and
(iii) is not centrally managed or controlled in Australia.
290‑10 No deductions other than under this Division
(1) You cannot deduct under this Act an amount you pay as a contribution to a *complying superannuation fund or *RSA, except as provided by this Division.
(2) You cannot deduct under this Act an amount you pay as a contribution to a *non‑complying superannuation fund, except as provided by this Division.
Note: Under Subdivision 290‑B (Deduction of employer contributions and other employment‑connected contributions), you may be able to deduct contributions you make to a non‑complying fund that you believe to be a complying fund.
Subdivision 290‑B—Deduction of employer contributions and other employment‑connected contributions
Table of sections
Deducting employer contributions
290‑60 Employer contributions deductible
290‑65 Application to employees etc.
Conditions for deducting an employer contribution
290‑70 Employment activity conditions
290‑75 Complying fund conditions
290‑80 Age related conditions
Other employment‑connected deductions
290‑85 Contributions for former employees etc.
290‑90 Controlling interest deductions
290‑95 Amounts offset against superannuation guarantee charge
Returned contributions
290‑100 Returned contributions assessable
Deducting employer contributions
290‑60 Employer contributions deductible
(1) You can deduct a contribution you make to a *superannuation fund, or an *RSA, for the purpose of providing *superannuation benefits for another person who is your employee when the contribution is made (regardless whether the benefits are payable to a *SIS dependant of the employee if the employee dies before or after becoming entitled to receive the benefits).
Note: Other provisions of this Act and the Income Tax Assessment Act 1936 may reduce, increase or deny the deduction in certain circumstances. For example, see sections 85‑25 and 86‑75 of this Act.
(2) However, the conditions in sections 290‑70, 290‑75 and 290‑80 must also be satisfied for you to deduct the contribution.
(3) You can deduct the contribution only for the income year in which you made the contribution.
(4) You cannot deduct the contribution if it is an amount paid by you, as mentioned in regulations under the Family Law Act 1975, to a regulated superannuation fund (within the meaning of that Act), or to an *RSA, to be held for the benefit of your *non‑member spouse in satisfaction of his or her entitlement in respect of the *superannuation interest concerned.
290‑65 Application to employees etc.
(1) At a time when an individual is an employee of an entity within the expanded meaning of employee given by section 12 of the Superannuation Guarantee (Administration) Act 1992, this Subdivision applies as if the individual were an employee of the entity.
(2) For the purposes of this Subdivision:
(a) in relation to a contribution by a partnership in respect of an employee of the partnership—treat the employee as an employee of the partnership; and
(b) in relation to a contribution by a partner in a partnership in respect of an employee of the partnership—treat the employee as an employee of the partner.
Conditions for deducting an employer contribution
290‑70 Employment activity conditions
To deduct the contribution, the employee must be:
(aa) your employee (within the expanded meaning of employee given by section 12 of the Superannuation Guarantee (Administration) Act 1992); or
(a) engaged in producing your assessable income; or
(b) an Australian resident who is engaged in your business.
290‑75 Complying fund conditions
(1) If the contribution was made to a *superannuation fund, at least one of these conditions must be satisfied:
(a) the fund was a *complying superannuation fund for the income year of the fund in which you made the contribution;
(b) at the time you made the contribution, you had reasonable grounds to believe that the fund was a complying superannuation fund for that income year;
(c) at or before the time you made the contribution, you obtained a written statement (given by or on behalf of the trustee of the fund) that the fund:
(i) was a resident regulated superannuation fund (within the meaning of the Superannuation Industry (Supervision) Act 1993); and
(ii) was not subject to a direction under section 63 of that Act (which prevents a fund from accepting employer contributions).
(2) However, the condition in paragraph (1)(b) or (c) cannot be satisfied if, when the contribution was made:
(a) you were:
(i) the trustee or the manager of the fund; or
(ii) an *associate of the trustee or the manager of the fund; and
(b) you had reasonable grounds to believe that:
(i) the fund was not a resident regulated superannuation fund (within the meaning of the Superannuation Industry (Supervision) Act 1993); or
(ii) the fund was operating in contravention of a regulatory provision (within the meaning of section 38A of that Act).
(3) For the purposes of subparagraph (2)(b)(ii), a contravention of the Superannuation Industry (Supervision) Act 1993 or regulations made under it is to be ignored unless the contravention is:
(a) an offence; or
(b) a contravention of a civil penalty provision of that Act or those regulations.
(4) For the purposes of subparagraph (2)(b)(ii), it is sufficient if a contravention is established on the balance of probabilities.
(1) To deduct the contribution, either:
(a) you must have made the contribution on or before the day that is 28 days after the end of the month in which the employee turns 75; or
(b) you must have been required to make the contribution by an industrial award, determination or notional agreement preserving State awards (within the meaning given by Schedule 8 to the Workplace Relations Act 1996) that is in force under an *Australian law.
(2) If only paragraph (1)(b) applies, you can deduct only the amount of the contribution that is required by the industrial award, determination or notional agreement preserving State awards.
Note: An industrial agreement, such as an Australian Workplace Agreement, Collective Agreement or preserved State agreement under the Workplace Relations Act 1996, or a similar agreement made under a State law, is not an award or determination.
Other employment‑connected deductions
290‑85 Contributions for former employees etc.
(1) Section 290‑60 applies as modified by this section if a contribution you make in respect of another person:
(a) reduces your charge percentage under sections 22 or 23 of the Superannuation Guarantee (Administration) Act 1992 in respect of the other person because of section 15B of that Act; or
(b) is a one‑off payment in lieu of salary or wages that relate to a period of service during which the other person was your employee; or
(c) is a payment in lieu of salary or wages that relate to a period of service during which the other person was your employee, and is made within 2 months after the person stopped being your employee.
(1A) Section 290‑60 also applies as modified by this section if:
(a) you make a contribution in respect of another person at a time; and
(b) the other person had been employed by a company or other entity before that time; and
(c) section 290‑90 would apply in relation to the contribution if the other person were employed by the company or entity at that time; and
(d) the contribution:
(i) reduces the company’s or entity’s charge percentage under section 22 or 23 of the Superannuation Guarantee (Administration) Act 1992 in respect of the other person because of section 15B of that Act; or
(ii) is a one‑off payment in lieu of salary or wages that relate to a period of service during which the other person was the company’s or entity’s employee; or
(iii) is a payment in lieu of salary or wages that relate to a period of service during which the other person was the company’s or entity’s employee, and is made within 2 months after the person stopped being the company’s or entity’s employee.
(2) Treat the other person as your employee for the purposes of subsection 290‑60(1).
(3) Despite subsection 290‑60(2):
(a) if subsection (1) applies—the condition in section 290‑70 must be satisfied at the most recent time when the other person was your employee (apart from subsection (2) of this section); or
(b) if subsection (1A) applies:
(i) the condition in section 290‑70 need not be satisfied; and
(ii) instead, the condition in subsection 290‑90(4) must be satisfied at the most recent time when the other person was the company’s or entity’s employee.
290‑90 Controlling interest deductions
(1) Section 290‑60 applies as modified by this section if you make a contribution in respect of another person at a time, and at that time:
(a) the other person is an employee of a company in which you have a controlling interest; or
(b) you are connected to the other person in the circumstances set out in subsection (5); or
(c) you are a company connected to the other person in the circumstances described in subsection (6).
(2) Treat the other person as your employee at that time for the purposes of subsection 290‑60(1).
Note 1: A deduction may be denied by section 85‑25 if the employee is your associate.
Note 2: Section 86‑60 (read together with section 86‑75) limits the extent to which superannuation contributions by personal service entities are allowable deductions.
(3) Despite subsection 290‑60(2), for you to deduct the contribution the condition in subsection (4) needs to be satisfied instead of the condition in section 290‑70.
(4) The other person must be:
(aa) an employee (within the expanded meaning of employee given by section 12 of the Superannuation Guarantee (Administration) Act 1992) of the other person’s employer; or
(a) engaged in producing the assessable income of the other person’s employer; or
(b) an Australian resident engaged in the business of the other person’s employer.
(5) For the purposes of paragraph (1)(b), the circumstances are:
(a) you are the beneficial owner of shares in a company of which the other person is an employee, but you do not have a controlling interest in the company; and
(b) you are at *arm’s length with the other person in relation to the contribution; and
(c) neither the other person, nor a *relative of the other person:
(i) has set apart an amount as a fund, or has made a contribution to a fund, for the purpose of providing *superannuation benefits for you or a relative of yours; or
(ii) has made an *arrangement under which the other person or relative will or may do so.
Company controlling interest deductions
(6) For the purposes of paragraph (1)(c), the circumstances are:
(a) the other person is an employee of an entity that has a controlling interest in the company; or
(b) an entity that has a controlling interest in the company also has a controlling interest in a company of which the other person is an employee.
290‑95 Amounts offset against superannuation guarantee charge
You cannot deduct a contribution under this Act if you elect under subsection 23A(1) of the Superannuation Guarantee (Administration) Act 1992 that the contribution be offset against your liability to pay superannuation guarantee charge.
Note: You cannot deduct a charge imposed by the Superannuation Guarantee Charge Act 1992: see section 26‑95.
290‑100 Returned contributions assessable
(1) Your assessable income includes a payment, or the value of a benefit, you receive in the income year so far as it reasonably represents the direct or indirect return of:
(a) a contribution for which you or another entity have deducted or can deduct an amount for any income year; or
(b) earnings on a contribution of that kind.
Note: An example of an indirect return of a contribution is if the fund to which it was made transfers to another fund assets that include the contribution, and the other fund returns the contribution to the person who made it.
(2) Subsection (1) does not apply if you receive the payment, or the value of the benefit, as a *superannuation benefit.
Subdivision 290‑C—Deducting personal contributions
Table of sections
290‑150 Personal contributions deductible
Conditions for deducting a personal contribution
290‑155 Complying superannuation fund condition
290‑160 Maximum earnings as employee condition
290‑165 Age‑related conditions
290‑170 Notice of intent to deduct conditions
290‑175 Deduction limited by amount specified in notice
290‑180 Notice may be varied but not revoked or withdrawn
290‑150 Personal contributions deductible
(1) You can deduct a contribution you make to a *superannuation fund, or an *RSA, for the purpose of providing *superannuation benefits for yourself (regardless whether the benefits are payable to your *SIS dependants if you die before or after becoming entitled to receive the benefits).
Note: Other provisions of this Act and the Income Tax Assessment Act 1936 may reduce, increase or deny the deduction in certain circumstances. For example, see section 26‑55 of this Act.
(2) However, the conditions in sections 290‑155, 290‑160 (if applicable), 290‑165 and 290‑170 must also be satisfied for you to deduct the contribution.
(3) You can deduct the contribution only for the income year in which you made the contribution.
(4) If the contribution is attributable in whole or part to a *capital gain from a *CGT event:
(a) if you disregarded all or part of the capital gain from the CGT event under subsection 152‑305(1) and you were under 55 just before you made the choice mentioned in that subsection—you cannot deduct the contribution to the extent that it is attributable to the capital gain; or
(b) if a company or trust disregarded all or part of the capital gain from the CGT event under subsection 152‑305(2) and you were under 55 just before the contribution was made—you cannot deduct the contribution to the extent that it is attributable to the capital gain.
Conditions for deducting a personal contribution
290‑155 Complying superannuation fund condition
If the contribution is made to a *superannuation fund, it must be a *complying superannuation fund for the income year of the fund in which you made the contribution.
290‑160 Maximum earnings as employee condition
(1) This section applies if:
(a) in the income year in which you make the contribution, you engage in any of these activities:
(i) holding an office or appointment;
(ii) performing functions or duties;
(iii) engaging in work;
(iv) doing acts or things; and
(b) the activities result in you being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (assuming that subsection 12(11) of that Act had not been enacted).
(2) To deduct the contribution, less than 10% of the total of the following must be attributable to the activities:
(a) your assessable income for the income year;
(b) your *reportable fringe benefits total for the income year.
290‑165 Age‑related conditions
(1) If you were under the age of 18 at the end of the income year in which you made the contribution, you must have *derived income in the income year:
(a) from the carrying on of a *business; or
(b) attributable to activities covered by subsection 290‑160(1).
(2) In any other case, you must have made the contribution on or before the day that is 28 days after the end of the month in which you turn 75.
290‑170 Notice of intent to deduct conditions
Deductibility of contributions
(1) To deduct the contribution, or a part of the contribution:
(a) you must give to the trustee of the fund or the *RSA provider a valid notice, in the *approved form, of your intention to claim the deduction; and
(b) the notice must be given before:
(i) if you have lodged your *income tax return for the income year in which the contribution was made on a day before the end of the next income year—the end of that day; or
(ii) otherwise—the end of the next income year; and
(c) the trustee or provider must have given you an acknowledgment of receipt of the notice.
Validity of notices
(2) The notice is not valid if at least one of these conditions is satisfied:
(a) the notice is not in respect of the contribution;
(b) the notice includes all or a part of an amount covered by a previous notice;
(c) when you gave the notice:
(i) you were not a member of the fund or the holder of the *RSA; or
(ii) the trustee or *RSA provider no longer holds the contribution; or
(iii) the trustee or RSA provider has begun to pay a *superannuation income stream based in whole or part on the contribution;
(d) before you gave the notice:
(i) you had made a contributions‑splitting application (within the meaning given by the regulations) in relation to the contribution; and
(ii) the trustee or RSA provider had not rejected the application.
Acknowledgment of notice
(3) The trustee or provider must, without delay, give you an acknowledgment of a valid notice, subject to subsection (4).
(4) The trustee or provider may refuse to give you an acknowledgment of receipt of a valid notice if the *value of the *superannuation interest into which the contribution is made, at the end of the day on which the trustee or *RSA provider received the notice, is less than the tax that would be payable in respect of your contribution (or part of the contribution) if the trustee or provider were to acknowledge receipt of the notice.
290‑175 Deduction limited by amount specified in notice
You cannot deduct more for the contribution (or a part of the contribution) than the amount stated in the notice.
290‑180 Notice may be varied but not revoked or withdrawn
(1) You cannot revoke or withdraw a valid notice in relation to the contribution (or a part of the contribution).
(2) You can vary a valid notice, but only so as to reduce the amount stated in relation to the contribution (including to nil). You do so by giving notice to the trustee or the *RSA provider in the *approved form.
(3) However, you cannot vary a valid notice after:
(a) if you have lodged your *income tax return for the income year in which the contribution was made on a day before the end of the next income year—the end of that day; or
(b) otherwise—the end of the next income year.
(3A) The variation is not effective if, when you make it:
(a) you were not a member of the fund or the holder of the *RSA; or
(b) the trustee or *RSA provider no longer holds the contribution; or
(c) the trustee or RSA provider has begun to pay a *superannuation income stream based in whole or part on the contribution.
(4) Subsection (3) does not apply to a variation if:
(a) you claimed a deduction for the contribution (or a part of the contribution); and
(b) the deduction is not allowable (in whole or in part); and
(c) the variation reduces the amount stated in relation to the contribution by the amount not allowable as a deduction.
Subdivision 290‑D—Tax offsets for spouse contributions
Table of sections
290‑230 Offset for spouse contribution
290‑235 Limit on amount of tax offsets
290‑240 Tax file number
290‑230 Offset for spouse contribution
(1) You are entitled to a *tax offset for an income year for a contribution you make in the income year to a *superannuation fund, or an *RSA, for the purpose of providing *superannuation benefits for your *spouse (regardless whether the benefits are payable to your spouse’s *SIS dependants if your spouse dies before or after becoming entitled to receive the benefits).
(2) You are entitled to the *tax offset only if:
(a) he or she was your *spouse when you made the contribution; and
(b) both you and your spouse were Australian residents when you made the contribution; and
(c) the total of your spouse’s assessable income and *reportable fringe benefits total for the income year is less than $13,800; and
(d) you have not deducted and cannot deduct an amount for the contribution under section 290‑60 (employer contributions); and
(e) if the contribution is made to a *superannuation fund—it is a *complying superannuation fund for the income year of the fund in which you make the contribution.
(3) You are not entitled to the *tax offset if, when you make the contribution, you are living separately and apart from your *spouse on a permanent basis.
(4) You are not entitled to the *tax offset for an amount paid by you, as mentioned in regulations under the Family Law Act 1975, to a regulated superannuation fund (within the meaning of that Act), or to an *RSA, to be held for the benefit of your *non‑member spouse in satisfaction of his or her entitlement in respect of the *superannuation interest concerned.
290‑235 Limit on amount of tax offsets
(1) The total of the amounts of *tax offset to which you are entitled for contributions you make for an income year cannot exceed 18% of the lesser of the following:
(a) $3,000 reduced by the amount (if any) by which the total mentioned in paragraph 290‑230(2)(c) for the income year exceeds $10,800;
(b) the sum of the *spouse contributions you make in the income year.
(2) The maximum *tax offset to which you are entitled for an income year is $540, even if you are entitled to a tax offset for more than 1 *spouse.
If you are entitled to the *tax offset for the contribution, you may, with your *spouse’s consent, quote your spouse’s *tax file number to the trustee (or *RSA provider) of the *superannuation fund (or *RSA) to which the contribution is made.
Division 292—Excess contributions tax
Table of Subdivisions
Guide to Division 292
292‑A Object of this Division
292‑B Excess concessional contributions tax
292‑C Excess non‑concessional contributions tax
292‑D Modifications for defined benefit interests
292‑E Excess contributions tax assessments
292‑F Amending excess contributions tax assessments
292‑G Collection and recovery
292‑H Other provisions
292‑1 What this Division is about
This Division limits the superannuation contributions made in a financial year for a person that receive concessionally taxed treatment.
Subdivision 292‑A—Object of this Division
Table of sections
292‑5 Object of this Division
The object of this Division is to ensure that the amount of concessionally taxed *superannuation benefits that a person receives results from superannuation contributions that have been made gradually over the course of the person’s life.
Subdivision 292‑B—Excess concessional contributions tax
292‑10 What this Subdivision is about
This Subdivision defines concessional contributions and excess concessional contributions, and sets liability to pay excess concessional contributions tax.
Table of sections
Operative provisions
292‑15 Liability for excess concessional contributions tax
292‑20 Your excess concessional contributions for a financial year
292‑25 Your concessional contributions for a financial year
292‑15 Liability for excess concessional contributions tax
You are liable to pay *excess concessional contributions tax imposed by the Superannuation (Excess Concessional Contributions Tax) Act 2007 if you have *excess concessional contributions for a *financial year.
Note: The amount of the tax is set out in that Act.
292‑20 Your excess concessional contributions for a financial year
(1) You have excess concessional contributions for a *financial year if the amount of your *concessional contributions for the year exceeds your *concessional contributions cap for the year. The amount of the excess concessional contributions is the amount of the excess.
(2) Your concessional contributions cap for the 2007‑2008 *financial year is $50,000. This amount is indexed annually.
Note: Subdivision 960‑M shows how to index amounts. However, annual indexation does not necessarily increase the amount of the cap: see section 960‑285.
Note 2: For transitional rules about the period from 1 July 2007 to 30 June 2012, see section 292‑20 of the Income Tax (Transitional Provisions) Act 1997.
292‑25 Your concessional contributions for a financial year
(1) The amount of your concessional contributions for a *financial year is the sum of:
(a) each contribution covered under subsection (2); and
(b) each amount covered under subsection (3).
Note: For rules about defined benefit interests, see Subdivision 292‑D.
(2) A contribution is covered under this subsection if:
(a) it is made in the *financial year to a *complying superannuation plan in respect of you; and
(b) it is included in the assessable income of the *superannuation provider in relation to the plan; and
(c) it is not any of the following:
(i) an amount mentioned in subsection 295‑200(2);
(ii) an amount mentioned in item 2 of the table in subsection 295‑190(1);
(iii) a contribution made to a *constitutionally protected fund.
(3) An amount in a *complying superannuation plan is covered under this subsection if it is allocated by the *superannuation provider in relation to the plan for you for the year in accordance with conditions specified in the regulations.
(4) Disregard Subdivision 295‑D for the purposes of paragraph (2)(b).
Subdivision 292‑C—Excess non‑concessional contributions tax
292‑75 What this Subdivision is about
This Subdivision defines non‑concessional contributions and excess non‑concessional contributions, and sets liability to pay excess non‑concessional contributions tax.
Table of sections
Operative provisions
292‑80 Liability for excess non‑concessional contributions tax
292‑85 Your excess non‑concessional contributions for a financial year
292‑90 Your non‑concessional contributions for a financial year
292‑95 Contributions arising from structured settlements or orders for personal injuries
292‑100 Contribution relating to some CGT small business concessions
292‑105 CGT cap amount
292‑80 Liability for excess non‑concessional contributions tax
You are liable to pay *excess non‑concessional contributions tax imposed by the Superannuation (Excess Non‑concessional Contributions Tax) Act 2007 if you have *excess non‑concessional contributions for a *financial year.
Note: The amount of the tax is set out in that Act.
292‑85 Your excess non‑concessional contributions for a financial year
(1) You have excess non‑concessional contributions for a *financial year if the amount of your *non‑concessional contributions for the year exceeds your *non‑concessional contributions cap for the year. The amount of the excess non‑concessional contributions is the amount of the excess.
(2) Your non‑concessional contributions cap for the year is the amount that is 3 times your *concessional contributions cap for the year.
(3) However, subsection (4) applies instead of subsection (2) in determining your non‑concessional contributions cap for a *financial year (the first year) if:
(a) your *non‑concessional contributions for the first year exceed the amount mentioned in subsection (2) for that year; and
(b) you are under 65 years at any time in the first year; and
(c) a previous operation of subsection (4) does not determine your non‑concessional contributions cap for the first year.
(4) Work out your non‑concessional contributions cap for the first year and for the following 2 *financial years (the second year and third year) as follows:
(a) your cap for the first year is 3 times the amount mentioned in subsection (2) for the first year;
(b) your cap for the second year is:
(i) if your *non‑concessional contributions for the first year fall short of your cap for the first year (worked out under paragraph (a))—the shortfall; or
(ii) otherwise—nil;
(c) your cap for the third year is:
(i) if your *non‑concessional contributions for the second year fall short of your cap for the second year (worked out under paragraph (b))—the shortfall; or
(ii) otherwise—nil.
292‑90 Your non‑concessional contributions for a financial year
(1) The amount of your non‑concessional contributions for a *financial year is the sum of:
(a) each contribution covered under subsection (2); and
(aa) each amount covered under subsection (4); and
(b) the amount of your *excess concessional contributions (if any) for the financial year.
(2) A contribution is covered under this subsection if:
(a) it is made in the *financial year to a *complying superannuation plan in respect of you; and
(b) it is not included in the assessable income of the *superannuation provider in relation to the *superannuation plan; and
(c) it is not any of the following:
(i) a Government co‑contribution made under the Superannuation (Government Co‑contribution for Low Income Earners) Act 2003;
(ii) a contribution covered under section 292‑95 (payments that relate to structured settlements or orders for personal injuries);
(iii) a contribution covered under section 292‑100 (certain CGT‑related payments), to the extent that it does not exceed your *CGT cap amount when it is made;
(iv) a contribution made to a *constitutionally protected fund (other than a contribution included in the *contributions segment of your *superannuation interest in the fund);
(v) contributions not included in the assessable income of the superannuation provider in relation to the superannuation plan because of a choice made under section 295‑180;
(vi) a contribution that is a *roll‑over superannuation benefit.
(3) Disregard Subdivision 295‑D for the purposes of paragraph (2)(b).
(4) An amount is covered under this subsection if it is any of the following:
(a) an amount in a *complying superannuation plan that is allocated by the *superannuation provider in relation to that plan for you for the year in accordance with conditions specified in the regulations;
(b) the amount of any contribution made to that plan in respect of you in the year that is covered by a valid and acknowledged notice under section 290‑170, to the extent that it is not allowable as a deduction for the person making the contribution;
(c) the sum of each contribution made to that plan in respect of you at a time on or after 10 May 2006 when that plan was not a complying superannuation plan (other than a contribution covered under this paragraph in relation to a previous financial year).
292‑95 Contributions arising from structured settlements or orders for personal injuries
(1) A contribution is covered under this section if:
(a) the contribution arises from:
(i) the settlement of a claim that satisfies the conditions in subsection (3); or
(ii) the settlement of a claim in relation to a personal injury suffered by you under a law of the Commonwealth or of a State or Territory relating to workers compensation; or
(iii) the order of a court that satisfies the conditions in subsection (4); and
(b) the contribution is made within 90 days after the later of the following:
(i) the day of receipt of the payment from which the contribution is made; or
(ii) in relation to subparagraph (a)(i) or (iii)—the day mentioned in subsection (2); and
(c) 2 legally qualified medical practitioners have certified that, because of the personal injury, it is unlikely that you can ever be *gainfully employed in a capacity for which you are reasonably qualified because of education, experience or training; and
(d) no later than the time the contribution is made to a *superannuation plan, you or your *legal personal representative notify the *superannuation provider in relation to the plan, in the *approved form, that this section is to apply to the contribution.
(2) For the purposes of subparagraph (1)(b)(ii), the day is:
(a) for a settlement mentioned in subparagraph (a)(i):
(i) the day on which the agreement mentioned in paragraph (3)(c) was entered into; or
(ii) if that agreement depends, for its effectiveness, on being approved (however described) by an order of a court, or on being embodied in a consent order made by a court—the day on which that order was made; or
(b) for an order mentioned in subparagraph (1)(a)(iii)—the day on which the order was made.
(3) For the purposes of subparagraph (1)(a)(i), the conditions are as follows:
(a) the claim:
(i) is for compensation or damages for, or in respect of, personal injury suffered by you; and
(ii) is made by you or your *legal personal representative;
(b) the claim is based on the commission of a wrong, or on a right created by statute;
(c) the settlement takes the form of a written agreement between the parties to the claim (whether or not that agreement is approved by an order of a court, or is embodied in a consent order made by a court).
(4) For the purposes of subparagraph (1)(a)(iii), the conditions are as follows:
(a) the order is made in respect of a claim that:
(i) is for compensation or damages for, or in respect of, personal injury suffered by you; and
(ii) is made by you or your *legal personal representative;
(b) the claim is based on the commission of a wrong, or on a right created by statute;
(c) the order is not an order approving or endorsing an agreement as mentioned in paragraph (3)(c).
(5) If a claim is both:
(a) for compensation or damages for personal injury suffered by you; and
(b) for some other remedy (for example, compensation or damages for loss of, or damage to, property);
subsections (3) and (4) apply to the claim, but only to the extent that it relates to the compensation or damages referred to in paragraph (a), and only to amounts that, in the settlement agreement, or in the order, are identified as being solely in payment of that compensation or those damages.
292‑100 Contribution relating to some CGT small business concessions
(1) A contribution is covered under this section if:
(a) the contribution is made by you to a *complying superannuation plan in respect of you in a *financial year; and
(b) the requirement in subsection (2), (4), (7) or (8) is met; and
(c) you choose, in accordance with subsection (9), to apply this section to an amount that is all or part of the contribution.
(2) The requirement in this subsection is met if:
(a) the contribution is equal to all or part of the *capital proceeds from a *CGT event for which you can disregard any *capital gain under section 152‑105 (or would be able to do so, assuming that a capital gain arose from the event); and
(b) the contribution is made on or before the later of the following days:
(i) the day you are required to lodge your tax return for the income year in which the CGT event happened;
(ii) 30 days after the day you receive the capital proceeds.
(3) For the purposes of paragraph (2)(a), ignore the requirement in paragraph 152‑105(b) if you are permanently incapacitated at the time of the *CGT event but were not permanently incapacitated at the time the relevant *CGT asset was acquired.
(4) The requirement in this subsection is met if:
(a) just before a *CGT event, you were a *CGT concession stakeholder of an entity that could, under section 152‑110, disregard any *capital gain arising from the CGT event (or would be able to do so, assuming that a capital gain arose from the event); and
(b) the entity makes a payment to you within 2 years after the CGT event; and
(c) the contribution is equal to all or part of your stakeholder’s participation percentage (within the meaning of subsection 152‑125(2)) of the *capital proceeds from the CGT event (but not exceeding the amount of the payment mentioned in paragraph (b)); and
(d) the contribution is made within 30 days after the payment mentioned in paragraph (b).
(5) In determining whether the conditions in subsection (2) or (4) are satisfied for a *CGT event in relation to a *pre‑CGT asset, treat the asset as a *post‑CGT asset.
(6) For the purposes of paragraph (4)(a), ignore the requirement in paragraph 152‑110(1)(b) if a *significant individual was permanently incapacitated at the time of the *CGT event but was not permanently incapacitated when the relevant *CGT asset was acquired.
(7) The requirement in this subsection is met if:
(a) the contribution is equal to all or part of the *capital gain from a *CGT event that you disregarded under subsection 152‑305(1); and
(b) the contribution is made on or before the later of the following days:
(i) the day you are required to lodge your tax return for the income year in which the CGT event happened;
(ii) 30 days after the day you receive the *capital proceeds from the CGT event.
(8) The requirement in this subsection is met if:
(a) just before a *CGT event, you were a *CGT concession stakeholder of an entity that could, under subsection 152‑305(2), disregard all or part of a *capital gain arising from the CGT event; and
(b) the entity makes a payment to you that satisfies the conditions in section 152‑325; and
(c) the contribution is equal to all or part of the capital gain arising from the CGT event (but not exceeding the amount of the payment mentioned in paragraph (b)); and
(d) the contribution is made within 30 days after the payment mentioned in paragraph (b).
(9) To make a choice for the purposes of paragraph (1)(c), you must:
(a) make the choice in the *approved form; and
(b) give it to the *superannuation provider in relation to the *complying superannuation plan on or before the time when the contribution is made.
(1) Your CGT cap amount at the start of the 2007‑2008 *financial year is $1,000,000.
Note: For transitional rules about contributions made in the period from 10 May 2006 to 30 June 2007, see section 292‑80 of the Income Tax (Transitional Provisions) Act 1997.
Reductions and increases
(2) If a contribution covered by section 292‑100 is made in respect of you at a time, reduce your CGT cap amount just after that time:
(a) if the contribution falls short of your *CGT cap amount at that time—by the amount of the contribution; or
(b) otherwise—to nil.
(3) At the start of each *financial year after the 2007‑2008 financial year, increase your CGT cap amount by the amount (if any) by which the index amount for that financial year exceeds the index amount for the previous financial year.
(4) For the purposes of subsection (3), the index amount for the 2007‑2008 *financial year is $1,000,000. The index amount is then indexed annually.
Note: Subdivision 960‑M shows how to index amounts. However, annual indexation does not necessarily increase the index amount: see section 960‑285.
Subdivision 292‑D—Modifications for defined benefit interests
292‑155 What this Subdivision is about
This Subdivision modifies the meaning of concessional contributions relating to defined benefits interests.
Table of sections
Operative provisions
292‑160 Application
292‑165 Concessional contributions—special rules for defined benefit interests
292‑170 Notional taxed contributions
292‑175 Defined benefit interest
(1) This Subdivision applies if, in a *financial year, you have:
(a) a *superannuation interest that is or includes a *defined benefit interest; or
(b) more than one superannuation interest that is or includes a defined benefit interest.
(2) However, this Subdivision does not apply in relation to a *superannuation interest in a *constitutionally protected fund.
292‑165 Concessional contributions—special rules for defined benefit interests
Despite section 292‑25, the amount of your concessional contributions for the *financial year is the sum of:
(a) the contributions covered by subsection 292‑25(2), and the amounts covered by subsection 292‑25(3), to the extent to which they do not relate to the *defined benefit interest or interests; and
(b) your *notional taxed contributions for the financial year in respect of the defined benefit interest or interests.
292‑170 Notional taxed contributions
(1) Your notional taxed contributions for a *financial year in respect of a *defined benefit interest has the meaning given by the regulations.
(2) Regulations made for the purposes of subsection (1) may provide for a method of determining the amount of the notional taxed contributions.
(3) Regulations made for the purposes of subsection (1) may define the *notional taxed contributions, and the amount of notional taxed contributions, in different ways depending on any of the following matters:
(a) the person who has the *superannuation interest that is or includes the *defined benefit interest;
(b) the *superannuation plan in which the superannuation interest exists;
(c) the *superannuation provider in relation to the superannuation plan;
(d) any other matter.
(4) Regulations made for the purposes of subsection (1) may specify circumstances in which the amount of *notional taxed contributions for a *financial year is nil.
(5) Subsections (2), (3) and (4) do not limit the regulations that may be made for the purposes of this section.
(6) Despite subsection (1), your notional taxed contributions for the *financial year in respect of the *defined benefit interest are equal to your *concessional contributions cap for the financial year if:
(a) this Subdivision applies in relation to you because you have a defined benefit interest in a financial year; and
(b) apart from this subsection, the notional taxed contributions for the financial year in respect of the defined benefit interest exceed your concessional contributions cap for the financial year; and
(c) either:
(i) you held the defined benefit interest in a *superannuation fund on 5 September 2006; or
(ii) all the requirements in subsection (7) are satisfied; and
(d) the conditions (if any) specified in the regulations are satisfied.
(7) For the purposes of subparagraph (6)(c)(ii), the requirements are as follows:
(a) you held a *defined benefit interest (the original interest) in a *superannuation fund (the original fund) on 5 September 2006;
(b) the defined benefit interest mentioned in paragraph (6)(a) (the current interest) is in a different superannuation fund (the current fund);
(c) the entire *value of the original interest:
(i) was transferred directly to the current interest after 5 September 2006; or
(ii) was transferred to another superannuation interest after 5 September 2006, and was later transferred to the current interest (whether directly or through a series of transfers between superannuation interests);
(d) your rights to accrue future benefits under the current interest are equivalent to your rights to accrue future benefits under the original interest;
(e) either:
(i) the notional taxed contributions mentioned in paragraph (6)(b) do not exceed what they would have been if the transfer mentioned in paragraph (c) had not taken place; or
(ii) the conditions (if any) specified in the regulations are satisfied;
(f) the conditions (if any) specified in the regulations are satisfied.
292‑175 Defined benefit interest
(1) An individual’s *superannuation interest is a defined benefit interest to the extent that it defines the individual’s entitlement to *superannuation benefits payable from the interest by reference to one or more of the following matters:
(a) the individual’s salary, or allowance in the nature of salary, at a particular date or averaged over a period;
(b) another individual’s salary, or allowance in the nature of salary, at a particular date or averaged over a period;
(c) a specified amount;
(d) specified conversion factors.
(2) However, an individual’s *superannuation interest is not a defined benefit interest if it defines that entitlement solely by reference to one or more of the following:
(a) *disability superannuation benefits;
(b) *superannuation death benefits;
(c) payments of amounts mentioned in paragraph 307‑10(a) (temporary disability payments).
Subdivision 292‑E—Excess contributions tax assessments
292‑225 What this Subdivision is about
The Commissioner may make an assessment of a person’s liability to pay excess contributions tax, and the excess contributions on which that liability is based.
Table of sections
Operative provisions
292‑230 Commissioner must make an excess contributions tax assessment
292‑235 Part‑year assessment
292‑240 Validity of assessment
292‑245 Objections
292‑250 Evidence
292‑230 Commissioner must make an excess contributions tax assessment
(1) The Commissioner must make an assessment (an excess contributions tax assessment) of:
(a) if a person has *excess concessional contributions for a *financial year—the amount of the excess concessional contributions; and
(b) the amount (if any) of *excess concessional contributions tax which the person is liable to pay in relation to the financial year.
(2) The Commissioner must make an assessment (also an excess contributions tax assessment) of:
(a) if a person has *excess non‑concessional contributions for a financial year—the amount of the excess non‑concessional contributions; and
(b) the amount (if any) of *excess non‑concessional contributions tax which the person is liable to pay in relation to the financial year.
(3) The Commissioner must give the person notice in writing of an *excess contributions tax assessment as soon as practicable after making the assessment.
(4) The notice may be included in a notice of any other assessment under this Act (including an assessment under this section).
(1) The Commissioner may, at any time during a *financial year (the actual financial year), make an assessment of the matters mentioned in subsection 292‑230(1) for a person for a particular period within that year as if the beginning and end of that period were the beginning and end of a financial year.
(2) This Division applies, for the purposes of that assessment, as if:
(a) the start and end of the period were the start and end of a *financial year; and
(b) the assessment were an excess contributions tax assessment for that financial year.
(3) If the Commissioner makes an assessment under subsection (1), he or she must make an assessment under section 292‑230 in relation to the actual financial year as soon as possible after the end of that year.
(4) However, the Commissioner does not need to make an assessment mentioned in subsection (3) if he or she is satisfied that the assessment would not differ in a material way from the assessment under subsection (1).
292‑240 Validity of assessment
The validity of an *excess contributions tax assessment is not affected because any of the provisions of this Act have not been complied with.
If a person is dissatisfied with an *excess contributions tax assessment made in relation to the person, the person may object against the assessment in the manner set out in Part IVC of the Taxation Administration Act 1953.
Section 177 of the Income Tax Assessment Act 1936 applies as if a reference in that section to an assessment or a notice of assessment included a reference to an *excess contributions tax assessment or a notice of an excess contributions tax assessment, as required.
Subdivision 292‑F—Amending excess contributions tax assessments
292‑300 What this Subdivision is about
The Commissioner may amend excess contributions tax assessments within certain time limits.
Table of sections
Operative provisions
292‑305 Amendments within 4 years of the original assessment
292‑310 Amended assessments are treated as excess contributions tax assessments
292‑315 Later amendments—on request
292‑320 Later amendments—fraud or evasion
292‑325 Further amendment of an amended particular
292‑330 Amendment on review etc.
292‑305 Amendments within 4 years of the original assessment
(1) The Commissioner may amend an *excess contributions tax assessment for a person for a *financial year at any time during the period of 4 years after the *original excess contributions tax assessment day for the person for that year.
(2) The original excess contributions tax assessment day for a person for a *financial year is the day on which the Commissioner gives the first *excess contributions tax assessment to the person for the financial year.
292‑310 Amended assessments are treated as excess contributions tax assessments
(1) Once an amended *excess contributions tax assessment for a person for a *financial year is made, it is taken to be an excess contributions tax assessment for the person for the year.
(2) If the Commissioner amends a person’s *excess contributions tax assessment, the Commissioner must give the person notice in writing of the amendment as soon as practicable after making the amendment.
(3) The notice may be included in a notice of any other assessment under this Act.
292‑315 Later amendments—on request
The Commissioner may amend an *excess contributions tax assessment for a person for a *financial year after the end of the period of 4 years after the *original excess contributions tax assessment day for the person for the year if, within that 4 year period:
(a) the person applies for the amendment in the *approved form; and
(b) the person gives the Commissioner all the information necessary for making the amendment.
292‑320 Later amendments—fraud or evasion
(1) If:
(a) a person (or a *superannuation provider covered under subsection (2)) does not make a full and true disclosure to the Commissioner of the information necessary for an *excess contributions tax assessment for the person for a *financial year; and
(b) in making the assessment, the Commissioner makes an under‑assessment; and
(c) the Commissioner is of the opinion that the under‑assessment is due to fraud or evasion;
the Commissioner may amend the assessment at any time.
(2) A *superannuation provider is covered under this subsection if any of the following conditions are satisfied:
(a) contributions have been made to a *superannuation plan of the provider on behalf of the person in the *financial year;
(b) an amount is included in the person’s *concessional contributions for the financial year under subsection 292‑25(3) because the superannuation provider allocated it to the person;
(c) *notional taxed contributions are included in the person’s concessional contributions for the financial year under section 292‑165 because of the person’s *defined benefit interest in a superannuation plan of the provider.
292‑325 Further amendment of an amended particular
If:
(a) an *excess contributions tax assessment has been amended (the earlier amendment) in any particular; and
(b) the Commissioner is of the opinion that it would be just to further amend the assessment in that particular;
the Commissioner may do so within a period of 4 years after the earlier amendment.
292‑330 Amendment on review etc.
Nothing in this Subdivision prevents the amendment of an *excess contributions tax assessment:
(a) to give effect to a decision on a review or appeal; or
(b) as a result of an objection or pending an appeal or review.
Note: A person may make a complaint to the Superannuation Complaints Tribunal under section 15CA of the Superannuation (Resolution of Complaints) Act 1993 if the person is dissatisfied with a statement given to the Commissioner by a superannuation provider under section 390‑5 in Schedule 1 to the Taxation Administration Act 1953.
Subdivision 292‑G—Collection and recovery
292‑380 What this Subdivision is about
Excess contributions tax is due and payable at the end of 21 days after notice of assessment and the general interest charge applies to unpaid amounts. Money may be released from a superannuation plan to pay the tax.
Table of sections
Operative provisions
292‑385 Due date for payment of excess contributions tax
292‑390 General interest charge
292‑395 Refunds of amounts overpaid
292‑400 Security for payment of tax
292‑405 Release authority
292‑410 Giving a release authority to a superannuation provider
292‑415 Superannuation provider given release authority must pay amount
292‑385 Due date for payment of excess contributions tax
*Excess contributions tax assessed for a person for a *financial year is due and payable at the end of 21 days after the Commissioner gives the person notice of the *excess contributions tax assessment.
292‑390 General interest charge
If *excess contributions tax or *shortfall interest charge payable by a person remains unpaid after the time by which it is due and payable, the person is liable to pay the *general interest charge on the unpaid amount for each day in the period that:
(a) starts at the beginning of the day on which the excess contributions tax or shortfall interest charge was due to be paid; and
(b) ends at the end of the last day on which, at the end of the day, any of the following remains unpaid:
(i) the excess contributions tax or shortfall interest charge;
(ii) general interest charge on any of the excess contributions tax or shortfall interest charge.
Note: The general interest charge is worked out under Part IIA of the Taxation Administration Act 1953.
292‑395 Refunds of amounts overpaid
Section 172 of the Income Tax Assessment Act 1936 applies for the purposes of this Part as if references in that section to tax included references to *excess contributions tax.
292‑400 Security for payment of tax
In section 213 of the Income Tax Assessment Act 1936 (under which the Commissioner may require security for the payment of income tax), a reference to income tax includes a reference to *excess contributions tax.
(1) As soon as practicable after making an *excess contributions tax assessment for a person, the Commissioner must give the person the following, in accordance with this section:
(a) if the person is liable to pay an amount of *excess concessional contributions tax in accordance with the assessment—a release authority in respect of the amount;
(b) if the person is liable to pay an amount of *excess non‑concessional contributions tax in accordance with the assessment—a release authority in respect of the amount.
(2) A release authority must:
(a) state the amount of *excess concessional contributions tax or *excess non‑concessional contributions tax (whichever is applicable) that the person is liable to pay as a result of the assessment; and
(b) be dated; and
(c) contain any other information that the Commissioner considers relevant.
292‑410 Giving a release authority to a superannuation provider
(1) The person may give the release authority to a *superannuation provider that holds a *superannuation interest (other than a *defined benefit interest) for the person in a *complying superannuation plan within 90 days after the date of the release authority.
Note: Excess contributions tax is due and payable at the end of 21 days after notice of assessment: see section 292‑385.
(2) However, if:
(a) the release authority is for *excess non‑concessional contributions tax; and
(b) a *superannuation provider holds a *superannuation interest for the person in a *complying superannuation plan (other than a *defined benefit interest);
the person must give the release authority to a superannuation provider holding a superannuation interest for the person in a complying superannuation plan (other than a defined benefit interest) within 21 days after the date of the release authority.
Note: Section 288‑90 in Schedule 1 to the Taxation Administration Act 1953 provides for an administrative penalty for failing to comply with this subsection.
(3) Subsection (4) applies if:
(a) the release authority is for *excess non‑concessional contributions tax; and
(b) a *superannuation provider holds a *superannuation interest for the person (other than a *defined benefit interest); and
(c) any of the following conditions are satisfied:
(i) the person does not give the release authority to a superannuation provider holding a superannuation interest for the person in a *complying superannuation plan within 90 days after the date of the release authority in accordance with subsection (1);
(ii) if the person has made one or more requests as mentioned in paragraph 292‑415(1)(a) in relation to the release authority within 90 days after the date of the release authority—the total of the amounts (if any) paid by superannuation providers in relation to the release authority falls short of the amount of the excess non‑concessional contributions tax stated in the release authority;
(iii) the total of the *values of every superannuation interest (other than a defined benefit interest) held for the person by a superannuation provider to which the release authority is given falls short of the amount of the excess non‑concessional contributions tax stated in the release authority.
(4) If the conditions in subsection (3) are satisfied, the Commissioner may give the release authority to one or more *superannuation providers that hold a *superannuation interest (other than a *defined benefit interest) for the person.
292‑415 Superannuation provider given release authority must pay amount
(1) A *superannuation provider that has been given a release authority in accordance with section 292‑410 must pay to the person or the Commissioner within 30 days after receiving the release authority the least of the following amounts:
(a) if the person or Commissioner requests the superannuation provider, in writing, to pay a specified amount in relation to the release authority—that amount;
(b) the amount of *excess concessional contributions tax or *excess non‑concessional contributions tax (whichever is applicable) stated in the release authority;
(c) the sum of the *values of every *superannuation interest (other than a *defined benefit interest) held by the superannuation provider for the person in:
(i) for a release authority given under subsection 292‑410(1)—*complying superannuation plans; or
(ii) for a release authority given under subsection 292‑410(4)—*superannuation plans.
Note 1: Section 288‑95 in Schedule 1 to the Taxation Administration Act 1953 provides for an administrative penalty for failing to comply with this subsection.
Note 2: Section 288‑100 in Schedule 1 to the Taxation Administration Act 1953 provides that the person giving the release authority to the superannuation provider can be liable to an administrative penalty if excess amounts are paid in relation to the release authority.
Note 3: For reporting obligations on the superannuation provider in these circumstances, see section 390‑65 in Schedule 1 to the Taxation Administration Act 1953.
Note 4: For the taxation treatment of the payment, see section 304‑15.
(2) The payment must be made out of one or more *superannuation interests (other than a *defined benefit interest) held by the *superannuation provider for the person in:
(a) for a release authority given under subsection 292‑410(1)—*complying superannuation plans; or
(b) for a release authority given under subsection 292‑410(4)—*superannuation plans.
(3) If the payment is made to the Commissioner, it is taken to be made in satisfaction (in whole or part) of the person’s liability for *excess concessional contributions tax or *excess non‑concessional contributions tax stated in the release authority.
(4) If:
(a) the release authority was given by the Commissioner in accordance with subsection 292‑410(4); and
(b) the payment is made to the Commissioner;
the Commissioner must, as soon as possible, give the person written notice that the payment has been made.
(5) Section 307‑125 (the proportioning rule) does not apply to a payment made as required under this section.
Subdivision 292‑H—Other provisions
Table of sections
292‑465 Commissioner’s discretion to disregard contributions etc. in relation to a financial year
292‑470 Power of Commissioner to obtain information
292‑465 Commissioner’s discretion to disregard contributions etc. in relation to a financial year
(1) If you make an application in accordance with subsection (2), the Commissioner may make a written determination that, for the purposes of this Division:
(a) all or part of your *concessional contributions for a *financial year is to be disregarded, or allocated instead for the purposes of another financial year specified in the determination; and
(b) all or part of your *non‑concessional contributions for a financial year is to be disregarded, or allocated instead for the purposes of another financial year specified in the determination.
(2) You may apply to the Commissioner in the *approved form for a determination under subsection (1). The application can only be made within:
(a) the period:
(i) starting on the day you receive an *excess contributions tax assessment for the *financial year; and
(ii) ending 60 days after that day; or
(b) a longer period allowed by the Commissioner.
(3) The Commissioner may make the determination only if he or she considers that:
(a) there are special circumstances; and
(b) making the determination is consistent with the object of this Division.
(4) In making the determination the Commissioner may have regard to the matters in subsections (5) and (6) and any other relevant matters.
(5) The Commissioner may have regard to whether a contribution made in the relevant *financial year would more appropriately be allocated towards another financial year instead.
(6) The Commissioner may have regard to whether it was reasonably foreseeable, when a relevant contribution was made, that you would have *excess concessional contributions or *excess non‑concessional contributions for the relevant *financial year, and in particular:
(a) if the relevant contribution is made in respect of you by another person—the terms of any agreement or arrangement between you and that person as to the amount and timing of the contribution; and
(b) the extent to which you had control over the making of the contribution.
(7) The Commissioner must give you a copy of the determination.
292‑470 Power of Commissioner to obtain information
Section 264 of the Income Tax Assessment Act 1936 applies for the purposes of this Division as if the reference in paragraph (1)(b) of that section to a person’s income or assessment were a reference to a matter relevant to the administration or operation of this Division.
Note: For superannuation providers’ reporting obligations see Division 390 in Schedule 1 to the Taxation Administration Act 1953.
Division 295—Taxation of superannuation entities
Table of Subdivisions
Guide to Division 295
295‑A Provisions of general operation
295‑B Modifications of provisions of this Act
295‑C Contributions included
295‑D Contributions excluded
295‑E Other income amounts
295‑F Exempt income
295‑G Deductions
295‑H Components of taxable income
295‑I No‑TFN contributions
295‑J Tax offset for no‑TFN contributions income (TFN quoted within 4 years)
295‑1 What this Division is about
This Division sets out special rules about the taxation of superannuation entities.
It sets out how to calculate the taxable income of those entities and to identify the components of that taxable income for the purpose of applying the appropriate tax rate.
It sets out how to calculate the no‑TFN contributions income of relevant entities for an income year for the purpose of applying the appropriate tax rate.
Subdivision 295‑A—Provisions of general operation
Table of sections
295‑5 Entities to which Division applies
295‑10 How to work out the tax payable by superannuation entities
295‑15 Division does not impose a tax on property of a State
295‑20 Exempting laws ineffective
295‑25 Assessments on basis of anticipated SIS Act notice
295‑30 Effect of revocation etc. of SIS Act notices
295‑35 Acronyms used in tables
295‑5 Entities to which Division applies
(1) This Division applies to these entities:
(a) a *complying superannuation fund;
(b) a *non‑complying superannuation fund;
(c) a *complying approved deposit fund;
(d) a *non‑complying approved deposit fund;
(e) a *pooled superannuation trust;
whether they are established by an *Australian law, by a public authority constituted by or under such a law or in some other way.
(2) The *superannuation provider in relation to an entity referred to in paragraph (1)(a) to (d) is liable to pay tax on the taxable income of the entity.
Note: A superannuation provider in relation to an entity referred to in paragraphs (1)(a) and (b) or in relation to an RSA is liable to pay tax on the no‑TFN contributions income of the entity: see section 295‑605.
(3) The trustee of a *pooled superannuation trust is liable to pay tax on the taxable income of the trust.
(4) This Division also applies to an *RSA provider that is not a *life insurance company.
Note 1: Division 320 deals with RSA providers that are life insurance companies.
Note 2: However, Subdivisions 295‑I and 295‑J apply to RSA providers that are life insurance companies: see section 320‑155.
295‑10 How to work out the tax payable by superannuation entities
(1) Use this method for *superannuation funds, *approved deposit funds and *pooled superannuation trusts:
Method statement
Step 1. For a *superannuation fund, work out the *no‑TFN contributions income. Apply the applicable rates as set out in the Income Tax Rates Act 1986 to that income.
Step 2. Work out the entity’s assessable income and deductions taking account of the special rules in this Division. The special rules modify some provisions of this Act. They also include amounts in assessable income, allow deductions and exempt amounts from income tax.
Step 3. Work out the entity’s taxable income as if its trustee:
(a) were an Australian resident (except where paragraph (b) applies); or
(b) for a *non‑complying superannuation fund that is a *foreign superannuation fund for the income year—were not an Australian resident.
Step 4. Work out the *low tax component and *non‑arm’s length component of the taxable income of a *complying superannuation fund, *complying approved deposit fund or *pooled superannuation trust.
Step 5. Apply the applicable rates as set out in the Income Tax Rates Act 1986 to the components, or to the taxable income of a *non‑complying superannuation fund or *non‑complying approved deposit fund.
Step 6. Subtract the entity’s *tax offsets from the step 5 amount or, for a *superannuation fund, from the sum of the fund’s step 1 and step 5 amounts.
(2) Use this method for *RSA providers:
Method statement
Step 1. Work out the entity’s *no‑TFN contributions income. Apply the applicable rates as set out in the Income Tax Rates Act 1986 to that income.
Step 2. Work out the entity’s assessable income and deductions taking account of the special rules in this Division.
Step 3. Work out the *RSA component and *standard component of the entity’s taxable income.
Step 4. Apply the applicable rates as set out in the Income Tax Rates Act 1986 to the components. The *RSA component is taxed at a concessional rate.
Step 5. Subtract the entity’s *tax offsets from the sum of the entity’s step 1 and step 4 amounts.
295‑15 Division does not impose a tax on property of a State
This Division does not impose a tax on property of any kind belonging to a State (within the meaning of section 114 of the Constitution).
295‑20 Exempting laws ineffective
A *Commonwealth law (other than this Act) does not have the effect of exempting the trustee of an entity to which this Division applies from the liability to pay tax unless it does so expressly.
295‑25 Assessments on basis of anticipated SIS Act notice
(1) The Commissioner may make an assessment for a fund or trust that is not a *complying superannuation fund, *complying approved deposit fund or *pooled superannuation trust for the income year as if it were such an entity if the Commissioner considers it likely that a notice will be given under section 40 of the Superannuation Industry (Supervision) Act 1993 having the effect that it will become such an entity.
(2) However, the grounds for making an assessment under subsection (1) are taken never to have existed if:
(a) the Commissioner becomes satisfied that the notice will not be given; or
(b) *APRA does not receive the documents referred to in subsection 36(1) of the Superannuation Industry (Supervision) Act 1993 about the fund or trust before the end of 12 months after the assessment is made.
295‑30 Effect of revocation etc. of SIS Act notices
This Division has effect as if a notice given under section 342 of the Superannuation Industry (Supervision) Act 1993 (about pre‑1 July 88 funding credits) or under regulations made for the purposes of that section had never been given if:
(a) the notice is revoked; or
(b) the decision to give the notice is set aside.
295‑35 Acronyms used in tables
In tables in this Division, these acronyms are used for these entities:
Acronyms used in tables | ||
Item | Entity | Acronym |
1 | *Complying superannuation fund | CSF |
2 | *Non‑complying superannuation fund | N‑CSF |
3 | *Complying approved deposit fund | CADF |
4 | *Non‑complying approved deposit fund | N‑CADF |
5 | *Pooled superannuation trust | PST |
Subdivision 295‑B—Modifications of provisions of this Act
Table of sections
295‑85 CGT to be primary code for calculating gains or losses
295‑90 CGT rules for pre‑30 June 1988 assets
295‑95 Deductions related to contributions
295‑100 Deductions for investing in PSTs and life policies
295‑105 Distributions to PST unitholders
295‑85 CGT to be primary code for calculating gains or losses
(1) The modifications in subsection (2) apply if a *CGT event happens involving a *CGT asset that was owned by one of these entities just before the time of the event:
(a) a *complying superannuation fund;
(b) a *complying approved deposit fund;
(c) a *pooled superannuation trust.
(2) These provisions do not apply to the *CGT event:
(a) sections 6‑5 (about *ordinary income), 8‑1 (about amounts you can deduct), and 15‑15 and 25‑40 (about profit‑making undertakings or plans);
(b) sections 25A and 52 of the Income Tax Assessment Act 1936 (about profit‑making undertakings or schemes).
Exceptions
(3) The provisions referred to in subsection (2) can apply to the *CGT event if:
(a) any *capital gain or *capital loss from the event is attributable to currency exchange rate fluctuations; or
(b) the *CGT asset is one of these:
(i) debenture stock, a bond, *debenture, certificate of entitlement, bill of exchange, promissory note or other security;
(ii) a deposit with a bank, building society or other financial institution;
(iii) a loan (secured or not);
(iv) some other contract under which an entity is liable to pay an amount (whether the liability is secured or not).
(4) The provisions referred to in subsection (2) can also apply to the *CGT event if a *capital gain or *capital loss from the event is disregarded because of one of the provisions in this table:
Where gain or loss disregarded because of CGT provision | ||
Item | Provision | Brief description |
1 | Paragraph 104‑15(4)(a) | Title in a CGT asset does not pass when a hire purchase or similar agreement ends |
2 | Section 118‑5 | Cars, motor cycles and valour decorations |
3 | Section 118‑10 | Collectables and personal use assets |
4 | Section 118‑13 | Shares in a PDF |
5 | Section 118‑25 | Trading stock |
6 | Section 118‑30 | Film copyright |
7 | Section 118‑35 | Research and development |
8 | Section 118‑55 | Foreign currency hedging gains and losses |
9 | Section 118‑60 | Certain gifts |
10 | Section 118‑300 | Insurance policies |
11 | Section 118‑305 | Superannuation |
12 | Section 118‑310 | CGT event happens to right to, or part of, RSA |
295‑90 CGT rules for pre‑30 June 1988 assets
(1) This section applies to the trustee of:
(a) a *complying superannuation fund; or
(b) a *complying approved deposit fund; or
(c) a *pooled superannuation trust.
(2) Parts 3‑1 and 3‑3 (about capital gains and losses) apply to a *CGT asset that:
(a) the trustee or a former trustee owned at the end of 30 June 1988; and
(b) the trustee owned at the commencement of this section;
as if the trustee had *acquired the asset on 30 June 1988.
(3) Subsection (2) does not affect how to work out the asset’s *cost base or *reduced cost base.
Note: See Subdivision 295‑B of the Income Tax (Transitional Provisions) Act 1997 for rules about cost base.
(4) Subsection 104‑30(5) applies to an option granted by the trustee as if the reference in that subsection to 20 September 1985 were a reference to 1 July 1988.
295‑95 Deductions related to contributions
(1) Provisions of this Act about deducting amounts apply to these entities as if all contributions made to them were included in their assessable income:
(a) *complying superannuation funds;
(b) *non‑complying superannuation funds that are *Australian superannuation funds;
(c) *complying approved deposit funds;
(d) *non‑complying approved deposit funds;
(e) *RSA providers.
Note 1: This means that the entities can deduct amounts incurred in obtaining the contributions.
Note 2: Examples of contributions that are not assessable are:
- contributions which the contributor cannot deduct;
- contributions excluded from assessable income under Subdivision 295‑D.
(2) A *superannuation fund is an Australian superannuation fund at a time, and for the income year in which that time occurs, if:
(a) the fund was established in Australia, or any asset of the fund is situated in Australia at that time; and
(b) at that time, the central management and control of the fund is ordinarily in Australia; and
(c) at that time either the fund had no member covered by subsection (3) (an active member) or at least 50% of:
(i) the total *market value of the fund’s assets attributable to *superannuation interests held by active members; or
(ii) the sum of the amounts that would be payable to or in respect of active members if they voluntarily ceased to be members;
is attributable to superannuation interests held by active members who are Australian residents.
(3) A member is covered by this subsection at a time if the member is:
(a) a contributor to the fund at that time; or
(b) an individual on whose behalf contributions have been made, other than an individual:
(i) who is a foreign resident; and
(ii) who is not a contributor at that time; and
(iii) for whom contributions made to the fund on the individual’s behalf after the individual became a foreign resident are only payments in respect of a time when the individual was an Australian resident.
(4) To avoid doubt, the central management and control of a *superannuation fund is ordinarily in Australia at a time even if that central management and control is temporarily outside Australia for a period of not more than 2 years.
295‑100 Deductions for investing in PSTs and life policies
(1) Provisions of this Act about deducting amounts apply to *complying superannuation funds and *complying approved deposit funds as if *ordinary income and *statutory income received from these investments were included in their assessable income:
(a) units in a *pooled superannuation trust;
(b) *life insurance policies issued by a *life insurance company;
(c) an interest in a trust whose assets consist only of life insurance policies issued by a life insurance company.
Note: Income from these investments is not assessable: see for example sections 295‑105 and 118‑350.
(2) A *complying superannuation fund cannot deduct an amount (otherwise than under section 295‑465) for fees or charges incurred for:
(a) *virtual PST life insurance policies; or
(b) *exempt life insurance policies; or
(c) units in a *pooled superannuation trust that are *segregated current pension assets of the fund.
295‑105 Distributions to PST unitholders
The assessable income of a *complying superannuation fund, *complying approved deposit fund or *pooled superannuation trust does not include amounts *derived by the entity because it holds units in a *pooled superannuation trust.
Note: These entities will not be subject to any tax liability when they dispose of the units: see subsection 295‑85(2) and section 118‑350.
Subdivision 295‑C—Contributions included
295‑155 What this Subdivision is about
There are basically 3 types of assessable contributions:
(a) those made by a contributor (for example, an employer) on behalf of someone else (for example, an employee); and
(b) those made on the contributor’s own behalf for which the contributor is entitled to a deduction; and
(c) those transferred from a foreign superannuation fund to an Australian superannuation fund.
There are some additions and exceptions.
Table of sections
Contributions and payments
295‑160 Contributions and payments
295‑165 Exception—spouse contributions
295‑170 Exception—Government co‑contributions and contributions for a child
295‑173 Exception—trustee contributions
295‑175 Exception—payments by a member spouse
295‑180 Exception—choice to exclude certain contributions
295‑185 Exception—temporary residents
Personal contributions and roll‑over amounts
295‑190 Personal contributions and roll‑over amounts
295‑195 Exclusion of personal contributions
Transfers from foreign funds
295‑200 Transfers from foreign superannuation funds
Application of tables to RSA providers
295‑205 Application of tables to RSA providers
Former constitutionally protected funds
295‑210 Former constitutionally protected funds
295‑160 Contributions and payments
The assessable income of an entity includes contributions or payments as set out in this table for the income year in which the contributions or payments are received.
Note: For an explanation of the acronyms used, see section 295‑35.
Contributions and payments included in assessable income | ||
Item | Assessable income of this entity: | Includes: |
1 | CSF N‑CSF that is an *Australian superannuation fund for the income year *RSA provider | Contribution to provide *superannuation benefits for someone else (except a contribution that is a *roll‑over superannuation benefit) |
2 | N‑CSF that is a *foreign superannuation fund for the income year | Contribution to provide *superannuation benefits for someone else to the extent that it relates to a period when that person was: (a) an Australian resident; or (b) a foreign resident who *derives *withholding payments covered by subsection 900‑12(3) (except a contribution that is a *roll‑over superannuation benefit) |
3 | CSF CADF *RSA provider | Payment under section 65 of the Superannuation Guarantee (Administration) Act 1992 |
4 | CSF *RSA provider | Payment under section 61 or 61A of the Small Superannuation Accounts Act 1995 |
295‑165 Exception—spouse contributions
(1) Item 1 of the table in section 295‑160 does not include in assessable income a contribution made by an individual to a *complying superannuation fund or an *RSA:
(a) to provide *superannuation benefits for the individual’s *spouse (regardless whether the benefits are payable to the individual’s spouse’s *SIS dependants if the individual’s spouse dies before or after becoming entitled to receive the benefits); and
(b) that the individual cannot deduct under Subdivision 290‑B.
(2) Paragraph (1)(a) does not apply to *superannuation benefits for a *spouse living permanently separately and apart from the individual.
295‑170 Exception—Government co‑contributions and contributions for a child
(1) Item 1 of the table in section 295‑160 does not include in assessable income a contribution:
(a) that is a Government co‑contribution made under the Superannuation (Government Co‑contribution for Low Income Earners) Act 2003; or
(b) for the benefit of a person under 18 that is not made by or on behalf of the person’s employer.
(2) Item 4 of the table in section 295‑160 does not include in assessable income a payment to the extent to which it represents a Government co‑contribution or co‑contributions made under the Superannuation (Government Co‑contribution for Low Income Earners) Act 2003.
295‑173 Exception—trustee contributions
Item 1 of the table in section 295‑160 does not include in assessable income a contribution made by an entity that, when the contribution was made, was:
(a) the trustee of a *complying superannuation fund, a *complying approved deposit fund or a *pooled superannuation trust; or
(b) the trustee of an exempt life assurance fund (within the meaning of Division 6C of Part III of the Income Tax Assessment Act 1936).
295‑175 Exception—payments by a member spouse
Contributions are not included in assessable income under section 295‑160 if they are an amount paid by a member spouse, as mentioned in regulations under the Family Law Act 1975, to a regulated superannuation fund (within the meaning of that Act), or to an *RSA provider, to be held for the benefit of the *non‑member spouse in satisfaction of the non‑member spouse’s entitlement in respect of the *superannuation interest concerned.
295‑180 Exception—choice to exclude certain contributions
(1) Item 1 of the table in section 295‑160 does not include an amount in the assessable income of a *public sector superannuation scheme for an income year to the extent that the trustee chooses that it not be included.
(2) The entity that made the contributions must consent to the choice.
Note: Making this choice effectively shifts the liability for tax on the contributions to the recipient of the benefit. The benefit is treated as an element untaxed in the fund: see Subdivision 301‑C.
(3) However, the choice cannot be made for an income year for an amount that exceeds the sum of amounts covered by notices given by the trustee under section 307‑285 for *superannuation benefits paid in the income year.
(4) A choice under this section cannot be revoked or withdrawn.
(5) A choice under this section cannot be made in relation to a *public sector superannuation scheme that comes into operation after 5 September 2006.
295‑185 Exception—temporary residents
Item 2 of the table in section 295‑160 does not include a contribution in the assessable income of an entity if the individual (for whom it was made) is a *temporary resident at the end of the income year to which the contribution relates.
Personal contributions and roll‑over amounts
295‑190 Personal contributions and roll‑over amounts
(1) The assessable income of an entity includes amounts as set out in this table.
Note: For an explanation of the acronyms used, see section 295‑35.
Personal contributions and roll‑over amounts included in assessable income | ||
Item | Assessable income of this entity: | Includes: |
1 | CSF *RSA provider | A contribution covered by a valid and acknowledged notice under section 290‑170 |
2 | CSF CADF N‑CADF *RSA provider | A *roll‑over superannuation benefit that an individual is taken to receive under section 307‑15 to the extent that: (a) it consists of an *element untaxed in the fund; and (b) is not an *excess untaxed roll‑over amount for that individual |
3 | CSF CADF *RSA provider | The *taxable component of a directed termination payment (within the meaning of section 82‑10F of the Income Tax (Transitional Provisions) Act 1997) |
(2) A contribution referred to in item 1 is included in the income year in which it is received if the notice is received by the *superannuation provider by the day the provider lodges its *income tax return for that income year.
(3) Otherwise it is included in the income year in which the notice is received.
(4) A payment referred to in item 2 or 3 is included in the income year in which it is received by the *superannuation provider.
295‑195 Exclusion of personal contributions
Variation notice received before return lodged
(1) A contribution is not included in the assessable income of a *complying superannuation fund or *RSA provider to the extent that it has been reduced by a notice under section 290‑180 if the notice is received by the *superannuation provider before it has lodged its *income tax return for the income year in which the contribution was made.
Variation notice received after return lodged
(2) A contribution is not included in the assessable income of a *complying superannuation fund or *RSA provider for the income year in which the contribution was made to the extent that it has been reduced by a notice under section 290‑180 if:
(a) the notice is received by the *superannuation provider after it has lodged its *income tax return for the income year; and
(b) the provider exercises the option mentioned in subsection (3).
(3) An amount referred to in subsection (2) may, at the option of the provider, be excluded from the assessable income of the fund or *RSA provider for the income year referred to in subsection (2) if excluding it would result in a greater reduction in tax for that year than the reduction that would occur for the income year in which the notice is received if a deduction were allowed under item 2 of the table in subsection 295‑490(1).
Note: The exclusion is an alternative to the fund deducting the amount under item 2 of the table in subsection 295‑490(1).
295‑200 Transfers from foreign superannuation funds
(1) The assessable income of a fund that is an *Australian superannuation fund for the income year includes an amount transferred to the fund from a fund that was a *foreign superannuation fund for the income year in relation to a member of the foreign fund to the extent that the amount transferred exceeds amounts vested in the member at the time of the transfer.
(2) The assessable income of a fund that is a *complying superannuation fund for the income year includes so much of an amount transferred to the fund from a fund that was a *foreign superannuation fund for the income year as is specified in a choice made by a former member of the foreign fund under section 305‑80.
(3) The amount is included in the income year in which the transfer happens.
(4) This section also applies to an amount transferred from a scheme for the payment of benefits in the nature of superannuation upon retirement or death that:
(a) is not, and never has been, an *Australian superannuation fund or a *foreign superannuation fund; and
(b) was not established in Australia; and
(c) is not centrally managed or controlled in Australia.
Application of tables to RSA providers
295‑205 Application of tables to RSA providers
The tables in this Subdivision apply to *RSA providers only to the extent that amounts are paid to *RSAs they provide.
Former constitutionally protected funds
295‑210 Former constitutionally protected funds
(1) This section applies to a *complying superannuation fund for an income year if the fund ceased to be a *constitutionally protected fund during the year or at the end of the previous year.
(2) The assessable income of the fund for the income year includes the sum of the *roll‑over superannuation benefits to the extent that they consist of the *element untaxed in the fund of the *taxable component that would be included in that assessable income if all contributions and earnings accumulated in the fund when the fund ceased to be a *constitutionally protected fund:
(a) had been paid out of the fund immediately before it ceased to be a constitutionally protected fund; and
(b) were paid to the fund as roll‑over superannuation benefits immediately after that time.
Subdivision 295‑D—Contributions excluded
Table of sections
295‑260 Transfer of liability to investment vehicle
295‑265 Application of pre‑1 July 88 funding credits
295‑270 Anticipated funding credits
295‑260 Transfer of liability to investment vehicle
(1) The *superannuation provider in relation to a *complying superannuation fund or a *complying approved deposit fund (the transferor) may reduce the amount that would otherwise be included in the fund’s assessable income for an income year under Subdivision 295‑C by agreement with another entity (the transferee) in which it holds investments.
What the transferee must be
(2) The transferee must be a *life insurance company or a *pooled superannuation trust.
Note: Amounts transferred are included in the transferee’s assessable income: see section 295‑320 (for PSTs) and paragraph 320‑15(1)(i) (for life insurance companies).
Agreement requirements
(3) The transferor may make one agreement only for an income year with a particular transferee.
(4) An agreement:
(a) must be in writing, and must be signed by or for the transferor and transferee; and
(b) must be made by the day the transferor lodges its *income tax return for its income year to which the agreement relates; and
(c) cannot be revoked.
Limits on transfer
(5) The total amount covered by the agreements cannot exceed the amount that would otherwise be included in the transferor’s assessable income under Subdivision 295‑C for that income year.
(6) The amount covered by an agreement with a particular transferee cannot exceed this amount:
where:
greatest equity value is the greatest of these amounts during the transferor’s income year:
(a) if the transferee is a *pooled superannuation trust—the *market value of the transferor’s investment in units in the trust;
(b) if not—the market value of the transferor’s investment in:
(i) *life insurance policies issued by the transferee; or
(ii) a trust whose assets consist only of life insurance policies issued by the transferee.
transferor’s low tax component tax rate is the rate of tax imposed on the *low tax component of the fund’s taxable income for the income year.
295‑265 Application of pre‑1 July 88 funding credits
Choice to reduce contributions included in assessable income
(1) The *superannuation provider in relation to a *complying superannuation fund can choose to reduce the amount of contributions that would otherwise be included in the fund’s assessable income for an income year under item 1 of the table in section 295‑160 if it has pre‑1 July 88 funding credits available for the income year.
When funding credits are available
(2) Use this method to work out whether a fund has pre‑1 July 88 funding credits available for an income year:
Method statement
Step 1. Identify the amount of pre‑1 July 88 funding credits unused at the end of the previous income year.
Step 2. Index that amount.
Note: Subdivision 960‑M shows you how to index amounts.
Step 3. Add any pre‑1 July 88 funding credits transferred to the fund in the income year under regulations made for the purposes of subsection 342(7) of the Superannuation Industry (Supervision) Act 1993.
Step 4. Deduct from the step 3 amount:
(a) pre‑1 July 88 funding credits transferred from the fund in the income year under regulations made for the purposes of subsection 342(7) of that Act; and
(b) amounts specified in a notice given to the *superannuation provider in relation to the fund under subsection 342(6) of that Act for the income year.
Step 5. The result is the pre‑1 July 88 funding credits available to the fund for the income year.
That amount, reduced by any amount specified in a choice made under subsection (1) for the income year, is the amount of pre‑1 July 88 funding credits unused at the end of the income year.
Note 1: Regulations under subsection 342(7) of the SIS Act allow APRA to approve transfers of pre‑1 July 88 funding credits between funds.
Note 2: Subsection 342(6) of that Act covers the situation where the fund’s rules are changed to produce a reduction in pre‑1 July 88 funding credits and the trustee notifies APRA of the change.
(3) If a notice is given to the *superannuation provider in relation to the fund under subsection 342(2) of the Superannuation Industry (Supervision) Act 1993 granting the trustee a pre‑1 July 88 funding credit, this section applies as if the pre‑1 July 88 funding credit had arisen at the beginning of the income year in which 1 July 1988 occurred.
(4) However, if a notice is given to the *superannuation provider in relation to the fund under subsection 342(4) of the Superannuation Industry (Supervision) Act 1993 for the income year, the fund has no pre‑1 July 88 funding credits.
Note: Subsection 342(4) of that Act covers the situation where the fund’s rules are changed to produce a reduction in pre‑1 July 88 funding credits and the provider fails to notify APRA of the change.
Limit on choice
(5) The total amount covered by the choice cannot exceed the pre‑1 July 88 funding credits available to the fund for the income year.
(6) The total amount covered by the choice also cannot exceed the amount of contributions that would otherwise be included in the fund’s assessable income for the income year under item 1 of the table in section 295‑160 that are used to fund liabilities that accrued before 1 July 1988.
(7) The regulations may prescribe either or both of the following:
(a) the manner in which the *superannuation provider in relation to a *superannuation fund is to work out the amount applicable to the fund under subsection (6) for an income year;
(b) methods (other than the method specified in subsection (6)) of working out how the provider of a superannuation fund can apply pre‑1 July 88 funding credits.
(8) Methods prescribed under paragraph (7)(b) may be applicable to particular *superannuation funds or to a class or classes of superannuation funds.
295‑270 Anticipated funding credits
(1) Subsection (2) has effect if the *superannuation provider in relation to a *complying superannuation fund expects a notice to be given under subsection 342(2) of the Superannuation Industry (Supervision) Act 1993 or under regulations made for the purposes of subsection 342(7) of that Act to the effect that pre‑1 July 88 funding credits of a particular amount will be available to the fund for the income year.
(2) Section 295‑265 applies to the fund as if pre‑1 July 88 funding credits of the anticipated amount were available to the fund for the income year (in addition to any other pre‑1 July 88 funding credits available to the fund for the year).
(3) However, section 295‑265 applies to the fund for the income year as if pre‑1 July 88 funding credits of the anticipated amount were not available to the fund for the income year if:
(a) it becomes clear that the expected notice will not be given or that the specified amount of pre‑1 July 88 funding credits will not be available; or
(b) *APRA does not receive the things referred to in subsection 342(3) of the Superannuation Industry (Supervision) Act 1993 (for a notice expected under subsection 342(2) of that Act) or the things required to be given under regulations made for the purposes of subsection 342(7) of that Act (for a notice under those regulations) before the earlier of:
(i) the end of 12 months after the fund’s assessment is made for the income year; and
(ii) the time the things are required to be given by the regulations.
Subdivision 295‑E—Other income amounts
Table of sections
Amounts included
295‑320 Other amounts included in assessable income
295‑325 Previously complying funds
295‑330 Previously foreign funds
Amounts excluded
295‑335 Amounts excluded from assessable income
295‑320 Other amounts included in assessable income
The assessable income of an entity includes the amounts as set out in this table.
Note: For an explanation of the acronyms used, see section 295‑35.
Amounts included in assessable income | |||
Item | Assessable income of this entity: | Includes: | For the income year: |
1 | PST | Amount transferred to it by a CSF or CADF under section 295‑260 | Of the PST that includes the last day of the transferor’s income year to which the agreement relates |
2 | N‑CSF that was a CSF for the previous income year | *Ordinary income and *statutory income from previous years worked out under section 295‑325 | Following the income year in which it was a CSF |
3 | CSF; or N‑CSF that is an *Australian superannuation fund for the income year and that was a *foreign superannuation fund for the previous income year | *Ordinary income and *statutory income from previous years worked out under section 295‑330 | Following the income year in which it was a foreign superannuation fund |
4 | CSF | The part of a rebate or refund of an insurance premium that is attributable to an amount deducted under an item of the table in subsection 295‑465(1) | In which the rebate or refund is received |
5 | *RSA provider | The part of a rebate or refund of an insurance premium that is attributable to an amount deducted under section 295‑475 | In which the rebate or refund is received |
295‑325 Previously complying funds
The amount of *ordinary income and *statutory income from previous years included in the assessable income of a fund in an income year under item 2 of the table in section 295‑320 is:
295‑330 Previously foreign funds
The amount of *ordinary income and *statutory income from previous years included in the assessable income of a fund in an income year under item 3 of the table in section 295‑320 is:
295‑335 Amounts excluded from assessable income
The assessable income of an entity does not include the amounts set out in this table.
Note: For an explanation of the acronyms used, see section 295‑35.
Amounts excluded from assessable income | ||
Item | This entity: | Does not include this in assessable income: |
1 | CSF CADF PST | A bonus on a *life insurance policy (except a reversionary bonus) |
2 | PST | Amount attributable to amounts received from a *constitutionally protected fund |
3 | *RSA provider | A bonus on a *life insurance policy that is an *RSA (except a reversionary bonus) |
Subdivision 295‑F—Exempt income
Table of sections
295‑385 Income from assets set aside to meet current pension liabilities
295‑390 Income from other assets used to meet current pension liabilities
295‑395 Meaning of segregated non‑current assets
295‑400 Income of a PST attributable to current pension liabilities
295‑405 Other exempt income
295‑410 Amount credited to RSA
295‑385 Income from assets set aside to meet current pension liabilities
(1) The *ordinary income and *statutory income of a *complying superannuation fund for an income year is exempt from income tax to the extent that:
(a) it would otherwise be assessable income; and
(b) it is from *segregated current pension assets.
Exception
(2) Subsection (1) does not apply to:
(a) *non‑arm’s length income; or
(b) amounts included in assessable income under Subdivision 295‑C.
Meaning of segregated current pension assets
(3) Assets of a *complying superannuation fund are segregated current pension assets at a time if:
(a) the assets are invested, held in reserve or otherwise dealt with at that time solely to enable the fund to discharge all or part of its liabilities (contingent or not) in respect of *superannuation income stream benefits that are payable by the fund at that time; and
(b) the trustee of the fund obtains an *actuary’s certificate before the date for lodgment of the fund’s *income tax return for the income year to the effect that the assets and the earnings that the actuary expects will be made from them would provide the amount required to discharge in full those liabilities, or that part of those liabilities, as they fall due.
(4) Assets of a *complying superannuation fund are also segregated current pension assets of the fund at a time if the assets are invested, held in reserve or otherwise being dealt with at that time for the sole purpose of enabling the fund to discharge all or part of its liabilities (contingent or not), as they become due, in respect of *superannuation income stream benefits:
(a) that are payable by the fund at that time; and
(b) prescribed by the regulations for the purposes of this section.
(5) Subsection (4) does not apply unless, at all times during the income year, the liabilities of the fund (contingent or not) to pay *superannuation income stream benefits payable by the fund were liabilities in respect of superannuation income stream benefits that are prescribed by the regulations for the purposes of this section.
(6) However, assets of a *complying superannuation fund that are supporting a *superannuation income stream benefit that is prescribed by the regulations for the purposes of this section are not segregated current pension assets to the extent that the *market value of the assets exceeds the account balance supporting the benefit.
295‑390 Income from other assets used to meet current pension liabilities
(1) A proportion of the *ordinary income and *statutory income of a *complying superannuation fund that would otherwise be assessable income is exempt from income tax under this section. The proportion is worked out under subsection (3).
Exception
(2) Subsection (1) does not apply to:
(a) *non‑arm’s length income; or
(b) amounts included in assessable income under Subdivision 295‑C; or
(c) income *derived from *segregated non‑current assets; or
(d) income that is exempt from income tax under section 295‑385.
Formula
(3) The proportion is:
where:
average value of current pension liabilities is the average value for the income year of the fund’s current liabilities (contingent or not) in respect of *superannuation income stream benefits that are payable by the fund in that year. This does not include liabilities for which *segregated current pension assets are held.
average value of superannuation liabilities is the average value for the income year of the fund’s current and future liabilities (contingent or not) in respect of *superannuation benefits in respect of which contributions have, or were liable to have, been made. This does not include liabilities for which *segregated current pension assets or *segregated non‑current assets are held.
Actuary’s certificate
(4) The value of particular liabilities of the fund at a particular time is the amount of the fund’s assets, together with future contributions in respect of the benefits concerned and expected earnings on the assets and contributions after that time, that would provide the amount required to discharge those liabilities as they fall due. This must be specified in an *actuary’s certificate obtained by the trustee of the fund before the date for lodgment of the fund’s *income tax return for the income year.
(5) The expected earnings are worked out at the rate the actuary expects will be the rate of the fund’s earnings on its assets (except *segregated current pension assets or *segregated non‑current assets).
Superannuation liabilities where no current certificate
(6) The superannuation liabilities do not have to be valued by an actuary for the income year if the fund has no *segregated current pension assets or *segregated non‑current assets for the income year. Instead, the value can be worked out using this formula:
where:
current value of assets is the value of all of the fund’s assets at a time in the income year, as specified in an *actuary’s certificate obtained by the trustee of the fund before the date for lodgment of the fund’s *income tax return for the income year.
last value of assets is the most recent value of all of the fund’s assets specified in an *actuary’s certificate.
last value of superannuation liabilities is the value, at the time of that most recent valuation, of the fund’s superannuation liabilities specified in an *actuary’s certificate.
Note: This allows a fund to avoid the expense of an actuarial valuation of its superannuation liabilities, except in those years that a valuation is required by the SIS Act in order for the fund to continue to be complying.
(7) Subsections (4), (5) and (6) do not apply in working out the amounts to be used in the formula in subsection (3) if, at all times during the income year, the liabilities of the fund in respect of *superannuation income stream benefits payable at those times were liabilities in respect of superannuation income stream benefits that are prescribed by the regulations for the purposes of this subsection.
295‑395 Meaning of segregated non‑current assets
(1) Assets of a *complying superannuation fund are segregated non‑current assets at a time in an income year if:
(a) the assets are invested, held in reserve or otherwise dealt with at that time solely to enable the fund to discharge all or part of its current and future liabilities (contingent or not) to pay benefits in respect of which contributions have, or were liable to have, been made; and
(b) the trustee of the fund obtains an *actuary’s certificate before the date for lodgment of the fund’s *income tax return for the income year to the effect that the amount of the assets, together with any future contributions, and the earnings that the actuary expects will be made from them will provide the amount required to discharge in full those liabilities, or that part of those liabilities, as they fall due.
(2) The liabilities referred to in paragraph (1)(a) do not include liabilities (contingent or not) in respect of *superannuation income stream benefits payable by the fund at that time.
295‑400 Income of a PST attributable to current pension liabilities
(1) This proportion of the *ordinary income and *statutory income that would otherwise be assessable income of a *pooled superannuation trust is *exempt income:
Exceptions
(2) Subsection (1) does not apply to:
(a) *non‑arm’s length income; or
(b) amounts included in assessable income under item 1 of the table in section 295‑320.
Alternative exemption
(3) However, the trustee of the *pooled superannuation trust can choose that a different amount be *exempt income of the trust under this section if a percentage of the assessable income of the trust would have been exempt income under section 295‑385 or 295‑390 if it had been *derived instead by the unitholders in the trust in proportion to their holdings.
(4) That percentage of the trust’s *ordinary income and *statutory income is then *exempt income.
The *ordinary income or *statutory income of an entity is exempt from income tax as set out in this table.
Note: For an explanation of the acronyms used, see section 295‑35.
*Exempt income | ||
Item | For this entity: | This is exempt: |
1 | CSF N‑CSF CADF N‑CADF | A grant of financial assistance under Part 23 of the Superannuation Industry (Supervision) Act 1993 |
2 | *RSA provider | Amount credited to the *RSA where a pension (within the meaning of the Retirement Savings Accounts Act 1997) was paid from the RSA for all of the period in the income year that the RSA existed |
3 | *RSA provider | Part of an amount credited to the *RSA (worked out under section 295‑410) where a pension (within the meaning of the Retirement Savings Accounts Act 1997) was paid from the RSA for part of the period in the income year that the RSA existed |
295‑410 Amount credited to RSA
For item 3 of the table in section 295‑405, the part of the amount credited to the *RSA that is *exempt income is worked out by:
(a) multiplying the amount by the number of days in the income year for which the pension (within the meaning of the Retirement Savings Accounts Act 1997) was paid; and
(b) dividing the result by the number of days in the income year that the RSA existed.
Table of sections
Death or disability benefits
295‑460 Benefits for which deductions are available
295‑465 Complying funds—deductions for insurance premiums
295‑470 Complying funds—deductions for future liability to pay benefits
295‑475 RSA providers—deductions for insurance premiums
295‑480 Meaning of whole of life policy and endowment policy
Increased amount of superannuation lump sum death benefits
295‑485 Deductions for increased amount of superannuation lump sum death benefit
Other deductions
295‑490 Other deductions
Certain amounts cannot be deducted
295‑495 Amounts that cannot be deducted
295‑460 Benefits for which deductions are available
Sections 295‑465 (about deductions for complying funds for insurance premiums), 295‑470 (about deductions for complying funds for future liability to pay benefits) and 295‑475 (about deductions for *RSA providers for insurance premiums) apply to these benefits:
(a) a *superannuation death benefit;
(b) a *disability superannuation benefit;
(c) a benefit consisting of an amount payable to a person under an income stream because of the person’s temporary inability to engage in *gainful employment, that is payable for no longer than:
(i) 2 years; or
(ii) if an approval under section 62 of the Superannuation Industry (Supervision) Act 1993 is in force for benefits of that kind and the approval specifies a longer maximum period—that longer period; or
(iii) if there is no such approval in force—a longer period allowed by the Commissioner.
Note 1: The fund can deduct amounts in relation to these benefits under either section 295‑465 or 295‑470, but not both.
Note 2: The taxable component of the superannuation lump sums will contain an element untaxed in the fund: see section 307‑290.
295‑465 Complying funds—deductions for insurance premiums
(1) A *complying superannuation fund can deduct the proportions specified in this table of premiums it pays for insurance policies that are (wholly or partly) for current or contingent liabilities of the fund to provide benefits referred to in section 295‑460 for its members. It can deduct the amounts for the income year in which the premiums are paid.
Deductions of *complying superannuation funds | |
Item | The fund can deduct this amount: |
1 | 30% of the premium for a *whole of life policy if all individuals whose lives are insured are members of the fund |
2 | 10% of the premium for an *endowment policy if all individuals whose lives are insured are members of the fund |
3 | 30% of the part of an insurance policy premium (for a policy that is not a *whole of life policy or an *endowment policy) that is specified in the policy as being for a distinct part of the policy, if that part would have been a whole of life policy had it been a separate policy |
4 | 10% of the part of an insurance policy premium (for a policy that is not a *whole of life policy or an *endowment policy) that is specified in the policy as being for a distinct part of the policy, if that part would have been an endowment policy had it been a separate policy |
5 | The part of a premium that is specified in the policy as being wholly for the liability to provide benefits referred to in section 295‑460 |
6 | So much of other insurance policy premiums as are attributable to the liability to provide benefits referred to in section 295‑460 |
Note: If the fund receives a rebate or refund of an insurance premium, the amount may be included in its assessable income: see table item 4 in section 295‑320.
(2) A *complying superannuation fund can also deduct the amount it could reasonably be expected to pay in an *arm’s length transaction to obtain an insurance policy to cover it for that part of its current or contingent liabilities to provide benefits referred to in section 295‑460 for which it does not have insurance coverage. It can deduct the amount for the income year when it has the liability.
Actuary’s certificate
(3) The trustee must obtain an *actuary’s certificate before the date for lodgment of the fund’s *income tax return for the income year in order to deduct an amount referred to in item 6 of the table or in subsection (2).
Choice not to deduct amounts under this section
(4) The trustee may choose not to deduct amounts under this section for an income year and to deduct instead (under section 295‑470) amounts based on the fund’s future liability to pay the benefits.
(5) The choice applies also to future income years unless the Commissioner decides that it should not.
295‑470 Complying funds—deductions for future liability to pay benefits
(1) A *complying superannuation fund can deduct an amount under this section for an income year if:
(a) the trustee of the fund makes a choice under subsection 295‑465(4) and the choice applies to the income year; and
(b) the trustee pays:
(i) a benefit referred to in paragraph 295‑460(a) or (b) for the income year in consequence of the termination of a member’s employment; or
(ii) a benefit referred to in paragraph 295‑460(c).
(2) The amount the fund can deduct is:
where:
benefit amount is:
(a) for a benefit that is a *superannuation lump sum—the amount of the lump sum; or
(b) for a benefit that is a *superannuation income stream—the *value of the *superannuation interest supporting the income stream; or
(c) for a benefit referred to in paragraph 295‑460(c)—the total of the amounts paid during the income year.
future service days is the number of days in the period starting when:
(a) the termination happened; or
(b) for a benefit referred to in paragraph 295‑460(c)—the member became unable to engage in *gainful employment;
and ending on the member’s *last retirement day.
total service days is the sum of future service days and the number of days in:
(a) for a benefit that is a *superannuation lump sum—the *service period for the superannuation lump sum; or
(b) for another benefit—the period ending on the first day of the period to which the first payment of the benefit relates and starting on the earliest of:
(i) the day on which the member joined the relevant *superannuation fund; and
(ii) the first day of the period of employment to which the benefit relates (including a qualifying period before the member could join the fund and any period when the member was not a member of the fund); and
(iii) the day applicable under subsection (3).
(3) The applicable day is the first day of the *service period for a *superannuation lump sum that is a *roll‑over superannuation benefit if all or part of the *value of the other benefit is attributable to the roll‑over superannuation benefit.
295‑475 RSA providers—deductions for insurance premiums
An *RSA provider can deduct premiums it pays for insurance policies that are wholly for its liability to provide benefits referred to in section 295‑460 for its *RSA holders. It can deduct the amounts for the income year in which the premiums are paid.
Note: If the RSA provider receives a rebate or refund of an insurance premium, the amount may be included in its assessable income: see table item 5 in section 295‑320.
295‑480 Meaning of whole of life policy and endowment policy
(1) A whole of life policy is an insurance policy:
(a) that includes an investment component; and
(b) the premiums for which are not dissected; and
(c) where the sum insured (and any bonuses) are payable on:
(i) the death of the individual insured; or
(ii) the earlier of the death of the individual insured and the individual attaining the age specified in the policy (being at least the age of 85).
(2) An endowment policy is an insurance policy:
(a) that includes an investment component; and
(b) the premiums for which are not dissected; and
(c) where the sum insured (and any bonuses) are payable on:
(i) a day specified in, or worked out under, the policy; or
(ii) the death of the individual insured if that happens before that day;
but does not include a *whole of life policy.
Increased amount of superannuation lump sum death benefits
295‑485 Deductions for increased amount of superannuation lump sum death benefit
(1) An entity that is a *complying superannuation fund, or a *complying approved deposit fund, and has been since 1 July 1988 (or since it came into existence if that was later) can deduct an amount under this section if:
(a) it pays a *superannuation lump sum because of the death of a person to the trustee of the deceased’s estate or an individual who was a *spouse, former spouse or child of the deceased at the time of death or payment; and
(b) it increases the lump sum by an amount, or does not reduce the lump sum by an amount (the tax saving amount) so that the amount of the lump sum is the amount that the fund could have paid if no tax were payable on amounts included in assessable income under Subdivision 295‑C.
Note: Paragraph (1)(b) has effect as if the reference to amounts included in assessable income under Subdivision 295‑C included a reference to amounts included in assessable income under former section 274 of the Income Tax Assessment Act 1936: see section 295‑485 of the Income Tax (Transitional Provisions) Act 1997.
(2) The fund can deduct the amount in the income year in which the lump sum is paid.
(3) The amount the fund can deduct is:
where:
low tax component rate is the rate of tax imposed on the *low tax component of the fund’s taxable income for the income year.
Note: The deduction is designed to compensate the fund for the tax payable on the contributions that are used to fund the lump sum.
(4) The amount the fund can deduct for a *superannuation lump sum paid because of the death of a person to the trustee of the deceased’s estate is so much of the subsection (3) amount as is appropriate having regard to the extent to which individuals referred to in paragraph (1)(a) can reasonably be expected to benefit from the estate.
(1) An entity can deduct amounts as set out in this table.
Note: For an explanation of the acronyms used, see section 295‑35.
Other deductions | |||
Item | This entity: | Can deduct: | For the income year in which: |
1 | CSF N‑CSF CADF N‑CADF PST | An amount included in the entity’s assessable income under Subdivision 295‑C that is a *fringe benefit | The contribution is included in assessable income |
2 | CSF *RSA provider | Contributions to the extent they have been reduced by a notice under section 290‑180 received by the *superannuation provider after it lodged its *income tax return for the income year in which the contributions were made, but only if the provider has not exercised the option mentioned in subsection 295‑195(3) | The notice is received |
3 | CSF N‑CSF CADF N‑CADF | A levy imposed by regulations under section 6 of the Superannuation (Financial Assistance Funding) Levy Act 1993 | The levy is incurred |
4 | Entity that is a N‑CSF and has been since 1 July 1988, or since it came into existence if that was later | An amount paid to an entity who includes it in assessable income under section 290‑100 | It is included in the entity’s assessable income |
(2) A fund cannot deduct an amount under item 3 of the table for a levy imposed by regulations under section 6 of the Superannuation (Financial Assistance Funding) Levy Act 1993 to the extent that:
(a) the levy is remitted; or
(b) there is a refund or other application of an overpayment of the levy.
(3) No other provision of this Act affects a fund’s income tax liability in relation to the levy.
Certain amounts cannot be deducted
295‑495 Amounts that cannot be deducted
These entities cannot deduct anything for these amounts:
Note: For an explanation of the acronyms used, see section 295‑35.
Amounts that cannot be deducted | ||
Item | This entity | Cannot deduct anything for: |
1 | CSF | *Superannuation benefits |
2 | N‑CSF | *Superannuation benefits (except amounts paid as mentioned in item 4 of the table in section 295‑490) |
3 | *RSA provider | *Superannuation benefits paid from, or amounts withdrawn from, *RSAs |
4 | *RSA provider | Amounts credited to *RSAs |
5 | CSF N‑CSF CADF N‑CADF | A repayment of a grant of financial assistance under Part 23 of the Superannuation Industry (Supervision) Act 1993 |
Subdivision 295‑H—Components of taxable income
Table of sections
295‑545 Components of taxable income—complying superannuation funds, complying ADFs and PSTs
295‑550 Meaning of non‑arm’s length income
295‑555 Components of taxable income—RSA providers
295‑545 Components of taxable income—complying superannuation funds, complying ADFs and PSTs
(1) The taxable income of these entities is split into a *non‑arm’s length component and a *low tax component:
(a) *complying superannuation funds;
(b) *complying approved deposit funds;
(c) *pooled superannuation trusts.
Note: A concessional rate applies to the low tax component, while the non‑arm’s length component is taxed at the highest marginal rate. The rates are set out in the Income Tax Rates Act 1986.
(2) The non‑arm’s length component for an income year is the entity’s *non‑arm’s length income for that year less any deductions to the extent that they are attributable to that income.
(3) The low tax component is any remaining part of the entity’s taxable income for the income year.
295‑550 Meaning of non‑arm’s length income
(1) An amount of *ordinary income or *statutory income is non‑arm’s length income of a *complying superannuation fund, a *complying approved deposit fund or a *pooled superannuation trust (other than an amount to which subsection (2) applies or an amount *derived by the entity in the capacity of beneficiary of a trust) if:
(a) it is derived from a *scheme the parties to which were not dealing with each other at *arm’s length in relation to the scheme; and
(b) that amount is more than the amount that the entity might have been expected to derive if those parties had been dealing with each other at arm’s length in relation to the scheme.
(2) An amount of *ordinary income or *statutory income is also non‑arm’s length income of the entity if it is:
(a) a *dividend paid to the entity by a *private company; or
(b) ordinary income or statutory income that is reasonably attributable to such a dividend;
unless the amount is consistent with an *arm’s length dealing.
(3) In deciding whether an amount is consistent with an *arm’s length dealing under subsection (2), have regard to:
(a) the value of *shares in the company that are assets of the entity; and
(b) the cost to the entity of the shares on which the *dividend was paid; and
(c) the rate of that dividend; and
(d) whether the company has paid a dividend on other shares in the company and, if so, the rate of that dividend; and
(e) whether the company has issued any shares to the entity in satisfaction of a dividend paid by the company (or part of it) and, if so, the circumstances of the issue; and
(f) any other relevant matters.
(4) Income *derived by the entity as a beneficiary of a trust, other than because of holding a fixed entitlement to the income, is non‑arm’s length income of the entity.
(5) Other income *derived by the entity as a beneficiary of a trust through holding a fixed entitlement to the income of the trust is non‑arm’s length income of the entity if:
(a) the entity acquired the entitlement under a *scheme, or the income was derived under a scheme, the parties to which were not dealing with each other at *arm’s length; and
(b) the amount of the income is more than the amount that the entity might have been expected to derive if those parties had been dealing with each other at arm’s length.
(6) This section:
(a) applies to a *non‑share equity interest in the same way as it applies to a *share; and
(b) applies to an *equity holder in a company in the same way as it applies to a shareholder in the company; and
(c) applies to a *non‑share dividend in the same way as it applies to a *dividend.
295‑555 Components of taxable income—RSA providers
(1) The taxable income of an *RSA provider is split into an *RSA component and a *standard component.
Note: The RSA component is taxed at the same concessional rate that applies to the low tax component of complying superannuation funds, complying approved deposit funds and pooled superannuation trusts. The standard component is taxed at the standard company rate.
(2) The RSA component for an income year is worked out in this way:
Method statement
Step 1. Add these amounts included in the provider’s assessable income for the income year:
(a) amounts included under Subdivision 295‑C; and
(b) other amounts credited during the year to *RSAs that it provides.
Step 2. Subtract from the step 1 amount amounts paid from those *RSAs (except benefits for the RSA holders or tax).
Step 3. The result is the RSA component.
(3) However, if the amount worked out under subsection (2) is more than the *RSA provider’s taxable income:
(a) the provider’s taxable income is equal to the *RSA component; and
(b) this Act applies to the provider as if it had a *tax loss for the income year of an amount that would have been that loss if the RSA component were not *ordinary income or *statutory income.
(4) The standard component is any remaining part of the *RSA’s taxable income for the income year.
Subdivision 295‑I—No‑TFN contributions
Table of sections
295‑605 Liability for tax on no‑TFN contributions income
295‑610 No‑TFN contributions income
295‑615 Meaning of quoted (for superannuation purposes)
295‑620 No reduction under Subdivision 295‑D
295‑625 Assessments
295‑605 Liability for tax on no‑TFN contributions income
(1) A *superannuation provider in relation to a *complying superannuation fund is liable to pay tax on the *no‑TFN contributions income of the fund for an income year.
(2) A *superannuation provider in relation to a *non‑complying superannuation fund is liable to pay tax on the *no‑TFN contributions income of the fund for an income year.
(3) An *RSA provider is liable to pay tax on its *no‑TFN contributions income for an income year.
Note 1: The tax is imposed by the Income Tax Act 1986.
Note 2: The no‑TFN contributions income is subject to a special rate of tax under the Income Tax Rates Act 1986.
Note 3: The Commissioner may make an assessment of the amount of income tax on the no‑TFN contributions income: see section 169 of the Income Tax Assessment Act 1936.
295‑610 No‑TFN contributions income
(1) An amount included by Subdivision 295‑C in the assessable income of a *complying superannuation fund, a *non‑complying superannuation fund or an *RSA provider for an income year is no‑TFN contributions income for the year if:
(a) it is included by that Subdivision in the assessable income of the income year of the fund or RSA provider in which 1 July 2007 occurs, or a later income year; and
(b) it is a contribution made to the fund or *RSA on or after 1 July 2007 to provide *superannuation benefits for an individual; and
(c) by the end of the income year, the individual has not *quoted (for superannuation purposes) his or her *tax file number to the *superannuation provider.
Exception
(2) However, an amount is not no‑TFN contributions income if:
(a) the contribution was made in relation to a *superannuation interest or an *RSA of the individual that existed prior to 1 July 2007; and
(b) the total contributions made in relation to the superannuation interest or RSA for the income year that are included in assessable income under Subdivision 295‑C did not exceed $1,000.
295‑615 Meaning of quoted (for superannuation purposes)
(1) An individual has quoted (for superannuation purposes) a *tax file number to an entity at a time if the individual:
(a) quotes his or her tax file number to the entity at that time; or
(b) is taken by the Superannuation Industry (Supervision) Act 1993, the Retirement Savings Accounts Act 1997 or this Act to quote his or her tax file number to the entity at that time;
in connection with the operation or the possible future operation of one or more of the following Acts:
(c) the Superannuation Acts (within the meaning of Part 25A of the Superannuation Industry (Supervision) Act 1993);
(d) the Retirement Savings Accounts Act 1997.
(2) An individual is taken to have quoted (for superannuation purposes) a *tax file number to an entity at a time if the Commissioner gives notice of the individual’s tax file number to the entity at that time.
295‑620 No reduction under Subdivision 295‑D
There is no reduction of the amount of *no‑TFN contributions income by Subdivision 295‑D.
Note: Subdivision 295‑D can reduce an amount that would otherwise be included in assessable income. It does not reduce the amount of no‑TFN contributions income. An amount is still no‑TFN contributions income even if, because of Subdivision 295‑D, the amount (or part of it) is not included in assessable income.
(1) If the Commissioner makes an assessment of the amount of income tax on the *no‑TFN contributions income, notice of the assessment may be included in a notice of any other assessment under this Act.
Self‑assessment
(2) If the conditions in subsection (3) are met, the Commissioner is taken to have made an assessment of a kind set out in subsection (4).
(3) The conditions are:
(a) one of the following gives the Commissioner an *income tax return for an income year on a particular day (the return day):
(i) a *superannuation provider in relation to a *complying superannuation fund;
(ii) a superannuation provider in relation to a *non‑complying superannuation fund;
(iii) an *RSA provider; and
(b) the return is the first income tax return given by the provider for the year; and
(c) the Commissioner has not already made an assessment of a kind set out in subsection (4) for the provider for the year.
(4) The assessment is taken to have been made for the provider for the income year on the return day, and to be an assessment, in accordance with the information stated in the return, of the amount of income tax payable on the *no‑TFN contributions income (if any) of the provider (or to be an assessment that no tax is payable).
(5) The return is taken to be notice of the assessment signed by the Commissioner and given to the provider on the return day.
Note: The return may also be taken to be a notice of another assessment: see section 166A of the Income Tax Assessment Act 1936.
Subdivision 295‑J—Tax offset for no‑TFN contributions income (TFN quoted within 4 years)
Table of sections
295‑675 Entitlement to a tax offset
295‑680 Amount of the tax offset
295‑675 Entitlement to a tax offset
(1) A *superannuation provider in relation to a *superannuation fund or an *RSA provider is entitled to a *tax offset for an income year (the current year) commencing on or after 1 July 2007 for amounts of tax that count towards the offset for the provider for the current year.
(2) An amount of tax counts towards the offset for the provider for the current year if:
(a) the tax was payable by the provider in one of the most recent 3 income years ending before the current year; and
(b) the tax was payable on an amount of *no‑TFN contributions income of the fund or *RSA provider; and
(c) the amount of no‑TFN contributions income was a contribution made to the fund or provider to provide *superannuation benefits for an individual who, in the current year, has *quoted (for superannuation purposes) his or her *tax file number to the provider for the first time.
Note: In certain circumstances the superannuation provider or RSA provider can get a refund of the tax offset under Division 67.
295‑680 Amount of the tax offset
The amount of the *tax offset is the sum of each amount of tax that counts towards the offset for the provider for the current year.
Division 301—Superannuation member benefits paid from complying plans etc.
Table of Subdivisions
Guide to Division 301
301‑A Application
301‑B Member benefits: general rules
301‑C Member benefits: elements untaxed in fund
301‑D Departing Australia superannuation payments
301‑E Superannuation lump sum member benefits less than $200
301‑1 What this Division is about
This Division sets out the tax treatment of superannuation benefits received by members of complying plans etc. This treatment varies depending on the age of the member when they receive the benefit. This Division also sets out the tax treatment of departing Australia superannuation payments and certain payments less than $200.
Table of sections
301‑5 Division applies to superannuation member benefits paid from complying plans etc.
301‑5 Division applies to superannuation member benefits paid from complying plans etc.
This Division applies to:
(a) *superannuation member benefits that are paid from a *complying superannuation plan; and
(b) *superannuation guarantee payments; and
(c) *small superannuation account payments; and
(d) *unclaimed money payments; and
(e) *superannuation co‑contribution benefit payments; and
(f) *superannuation annuity payments.
Note: For the tax treatment of superannuation death benefits paid from complying plans, see Division 302. Superannuation benefits paid from superannuation plans that are not complying superannuation plans are dealt with in Division 305.
Subdivision 301‑B—Member benefits: general rules
Table of sections
Member benefits—recipient aged 60 or above
301‑10 All superannuation benefits are tax free
Member benefits—recipient aged over preservation age and under 60
301‑15 Tax free status of tax free component
301‑20 Superannuation lump sum—taxable component taxed at 0% up to low rate cap amount, 15% on remainder
301‑25 Superannuation income stream—taxable component attracts 15% offset
Member benefits—recipient aged under preservation age
301‑30 Tax free status of tax free component
301‑35 Superannuation lump sum—taxable component taxed at 20%
301‑40 Superannuation income stream—taxable component is assessable income, 15% offset for disability benefit
Member benefits—recipient aged 60 or above
301‑10 All superannuation benefits are tax free
If you are 60 years or over when you receive a *superannuation benefit, the benefit is not assessable income and is not *exempt income.
Note 1: Your superannuation benefit may be a superannuation lump sum or a superannuation income stream benefit: see sections 307‑65 and 307‑70.
Note 2: If your superannuation benefit includes an element untaxed in the fund, see Subdivision 301‑C.
Member benefits—recipient aged over preservation age and under 60
301‑15 Tax free status of tax free component
If you are under 60 years but have reached your *preservation age when you receive a *superannuation benefit, the *tax free component of the benefit is not assessable income and is not *exempt income.
Note 1: Your superannuation benefit may be a superannuation lump sum or a superannuation income stream benefit: see sections 307‑65 and 307‑70).
Note 2: For tax free component, see Subdivision 307‑C.
(1) If you are under 60 years but have reached your *preservation age when you receive a *superannuation lump sum, the *taxable component of the lump sum is assessable income.
Note 1: For taxable component, see Subdivision 307‑C.
Note 2: If your lump sum includes an element untaxed in the fund, see Subdivision 301‑C.
(2) You are entitled to a *tax offset that ensures that the rate of income tax on the amount mentioned in subsection (3) does not exceed 0%.
(3) The amount is so much of the total of the *taxable components included in your assessable income for the income year under subsection (1) as does not exceed your *low rate cap amount (see section 307‑345) for the income year.
(4) You are entitled to a *tax offset that ensures that the rate of income tax on the amount mentioned in subsection (5) does not exceed 15%.
(5) The amount is so much of the total of the *taxable components included in your assessable income for an income year under subsection (1) as exceeds your *low rate cap amount for the income year.
Note: This amount will be nil if the total of the taxable components falls short of your low rate cap amount for the income year.
301‑25 Superannuation income stream—taxable component attracts 15% offset
(1) If you are under 60 years but have reached your *preservation age when you receive a *superannuation income stream benefit, the *taxable component of the benefit is assessable income.
(2) You are entitled to a *tax offset equal to 15% of the *taxable component of the benefit.
Note 1: For taxable component, see Subdivision 307‑C.
Note 2: If your superannuation income stream benefit includes an element untaxed in the fund, see Subdivision 301‑C.
Member benefits—recipient aged under preservation age
301‑30 Tax free status of tax free component
If you are under your *preservation age when you receive a *superannuation benefit, the *tax free component of the benefit is not assessable income and is not *exempt income.
Note 1: Your superannuation benefit may be a superannuation lump sum or a superannuation income stream benefit: see sections 307‑65 and 307‑70.
Note 2: For tax free component, see Subdivision 307‑C.
301‑35 Superannuation lump sum—taxable component taxed at 20%
(1) If you are under your *preservation age when you receive a *superannuation lump sum, the *taxable component of the lump sum is assessable income.
Note: For taxable component, see Subdivision 307‑C.
(2) You are entitled to a *tax offset that ensures that the rate of income tax on the *taxable component of the lump sum does not exceed 20%.
Note: If your lump sum includes an element untaxed in the fund, see Subdivision 301‑C.
(1) If you are under your *preservation age when you receive a *superannuation income stream benefit, the *taxable component of the benefit is assessable income.
Note: For taxable component, see Subdivision 307‑C.
Offset for disability benefit
(2) If the benefit is a *superannuation income stream benefit and a *disability superannuation benefit, you are entitled to a *tax offset equal to 15% of the *taxable component of the benefit.
Subdivision 301‑C—Member benefits: elements untaxed in fund
Table of sections
301‑90 Tax free component and element taxed in fund dealt with under Subdivision 301‑B, but element untaxed in the fund dealt with under this Subdivision
Member benefits (element untaxed in fund)—recipient aged 60 or above
301‑95 Superannuation lump sum—element untaxed in fund taxed at 15% up to untaxed plan cap amount, top rate on remainder
301‑100 Superannuation income stream—element untaxed in fund attracts 10% offset
Member benefits (element untaxed in fund)—recipient aged over preservation age and under 60
301‑105 Superannuation lump sum—element untaxed in fund taxed at 15% up to low rate cap amount, 30% up to untaxed plan cap amount, top rate on remainder
301‑110 Superannuation income stream—element untaxed in fund is assessable income
Member benefits (element untaxed in fund)—recipient aged under preservation age
301‑115 Superannuation lump sum—element untaxed in fund taxed at 30% up to untaxed plan cap amount, top rate on remainder
301‑120 Superannuation income stream—element untaxed in fund is assessable income
If you receive a *superannuation benefit that includes an *element untaxed in the fund:
(a) the *tax free component (if any) of the benefit is treated in the same way as the tax free component of a superannuation benefit under Subdivision 301‑B; and
(b) the *element taxed in the fund (if any) included in the benefit is treated in the same way as the taxable component of a superannuation benefit under Subdivision 301‑B; and
(c) the element untaxed in the fund is treated in accordance with this Subdivision.
Member benefits (element untaxed in fund)—recipient aged 60 or above
(1) If you are 60 years or over when you receive a *superannuation lump sum from a *superannuation plan, the *element untaxed in the fund of the lump sum is assessable income.
(2) You are entitled to a *tax offset that ensures that the rate of income tax on the amount mentioned in subsection (3) does not exceed 15%.
Note: The remainder of the element untaxed in the fund is taxed at the top marginal rate in accordance with the Income Tax Rates Act 1986.
(3) The amount is so much of the *element untaxed in the fund as does not exceed your *untaxed plan cap amount for the *superannuation plan at the time you receive the benefit.
301‑100 Superannuation income stream—element untaxed in fund attracts 10% offset
(1) If you are 60 years or over when you receive a *superannuation income stream benefit, the *element untaxed in the fund of the benefit is assessable income.
(2) You are entitled to a *tax offset equal to 10% of the *element untaxed in the fund of the benefit.
Member benefits (element untaxed in fund)—recipient aged over preservation age and under 60
(1) If you are under 60 years but have reached your *preservation age when you receive a *superannuation lump sum from a *superannuation plan, the *element untaxed in the fund of the lump sum is assessable income.
(2) You are entitled to a *tax offset that ensures that the rate of income tax on the amount worked out under subsection (3) does not exceed 30%.
(3) The amount is so much of the *element untaxed in the fund as does not exceed your *untaxed plan cap amount for the *superannuation plan at the time you receive the benefit.
Note: To the extent that the element untaxed in the fund exceeds the amount worked out under this subsection, it is taxed at the top marginal rate in accordance with the Income Tax Rates Act 1986.
(4) If you are entitled to one or more *tax offsets under subsection (2) for *superannuation benefits that you receive in an income year, you are entitled to a tax offset that ensures that the rate of income tax on the amount worked out under subsection (5) does not exceed 15%.
(5) The amount is so much of the total of the one or more amounts worked out under subsection (3) as does not exceed your *low rate cap amount for the income year.
(6) If you are also entitled to a *tax offset under subsection 301‑20(2) for the income year, reduce your *low rate cap amount for the purposes of subsection (5) of this section for the income year by the amount mentioned in subsection 301‑20(3).
301‑110 Superannuation income stream—element untaxed in fund is assessable income
If you are under 60 years but have reached your *preservation age when you receive a *superannuation income stream benefit, the *element untaxed in the fund of the benefit is assessable income.
Member benefits (element untaxed in fund)—recipient aged under preservation age
(1) If you are under your *preservation age when you receive a *superannuation lump sum from a *superannuation plan, the *element untaxed in the fund of the lump sum is assessable income.
(2) You are entitled to a *tax offset that ensures that the rate of income tax on the amount mentioned in subsection (3) does not exceed 30%.
Note: The remainder of the element untaxed in the fund is taxed at the top marginal rate in accordance with the Income Tax Rates Act 1986.
(3) The amount is so much of the *element untaxed in the fund as does not exceed your *untaxed plan cap amount for the *superannuation plan at the time you receive the benefit.
301‑120 Superannuation income stream—element untaxed in fund is assessable income
If you are under your *preservation age when you receive a *superannuation income stream benefit, the *element untaxed in the fund of the benefit is assessable income.
Subdivision 301‑D—Departing Australia superannuation payments
Table of sections
301‑170 Departing Australia superannuation payments
301‑175 Treatment of departing Australia superannuation benefits
301‑170 Departing Australia superannuation payments
A departing Australia superannuation payment is a *superannuation lump sum that:
(a) is paid to a person who has departed Australia; and
(b) is paid:
(i) in accordance with regulations under the Superannuation Industry (Supervision) Act 1993 or the Retirement Savings Accounts Act 1997 that are specified in regulations made for the purposes of this definition; or
(ii) in accordance with section 67A of the Small Superannuation Accounts Act 1995; or
(iii) by an exempt public sector superannuation scheme (within the meaning of section 10 of the Superannuation Industry (Supervision) Act 1993) and is made in accordance with rules of the fund that are substantially similar to the regulations specified as mentioned in subparagraph (i).
301‑175 Treatment of departing Australia superannuation benefits
(1) Despite anything else in this Division, if you receive a *superannuation benefit that is a *departing Australia superannuation payment, the benefit is not assessable income and is not *exempt income.
(2) However, you are liable to pay income tax on that payment at the rate declared by the Parliament in respect of *departing Australia superannuation payments.
Note 1: The tax is imposed in the Superannuation (Departing Australia Superannuation Payments Tax) Act 2007 and the amount of the tax is set out in that Act.
Note 2: See the Taxation Administration Act 1953 for provisions dealing with the payment of the tax.
Subdivision 301‑E—Superannuation lump sum member benefits less than $200
Table of sections
301‑225 Superannuation lump sum member benefits less than $200 are tax free
301‑225 Superannuation lump sum member benefits less than $200 are tax free
Despite anything else in this Division (apart from Subdivision 301‑D), a *superannuation member benefit that you receive is not assessable income and is not *exempt income if:
(a) the benefit is a *superannuation lump sum; and
(b) the amount of the benefit is less than $200; and
(c) the *value of the *superannuation interest from which the benefit is paid is nil just after the benefit is paid; and
(d) the requirements (if any) specified in the regulations in relation to the benefit are satisfied.
Division 302—Superannuation death benefits paid from complying plans etc.
Table of Subdivisions
Guide to Division 302
302‑A Application
302‑B Death benefits to dependant
302‑C Death benefits to non‑dependant
302‑D Definitions relating to dependants
302‑1 What this Division is about
This Division sets out the tax treatment of superannuation death benefits received by members of complying plans etc. This treatment varies depending on the age of the deceased when they died (and in some cases on the age of the recipient of the benefit).
Table of sections
302‑5 Division applies to superannuation death benefits paid from complying plans etc.
302‑10 Superannuation death benefits paid to trustee of deceased estate
302‑5 Division applies to superannuation death benefits paid from complying plans etc.
This Division applies to *superannuation death benefits that:
(a) are paid from a *complying superannuation plan; or
(b) are *superannuation guarantee payments, *small superannuation account payments, *unclaimed money payments, *superannuation co‑contribution benefit payments or *superannuation annuity payments.
Note: For the tax treatment of superannuation member benefits paid from complying plans, see Division 301. Superannuation benefits paid from superannuation plans that are not complying superannuation plans are dealt with in Division 305.
302‑10 Superannuation death benefits paid to trustee of deceased estate
(1) This section applies to you if:
(a) you are the trustee of a deceased estate; and
(b) you receive a *superannuation death benefit in your capacity as trustee.
(2) To the extent that 1 or more beneficiaries of the estate who were *death benefits dependants of the deceased have benefited, or may be expected to benefit, from the *superannuation death benefit:
(a) the benefit is treated as if it had been paid to you as a person who was a death benefits dependant of the deceased; and
(b) the benefit is taken to be income to which no beneficiary is presently entitled.
(3) To the extent that 1 or more beneficiaries of the estate who were not *death benefits dependants of the deceased have benefited, or may be expected to benefit, from the *superannuation death benefit:
(a) the benefit is treated as if it had been paid to you as a person who was not a death benefits dependant of the deceased; and
(b) the benefit is taken to be income to which no beneficiary is presently entitled.
Subdivision 302‑B—Death benefits to dependant
Table of sections
Lump sum death benefits to dependants are tax free
302‑60 All of superannuation lump sum is tax free
Superannuation income stream—either deceased died aged 60 or above or dependant aged 60 or above
302‑65 Superannuation income stream benefits are tax free
Superannuation income stream—deceased died aged under 60 and dependant aged under 60
302‑70 Superannuation income stream—tax free status of tax free component
302‑75 Superannuation income stream—taxable component attracts 15% offset
Death benefits to dependant—elements untaxed in fund
302‑80 Treatment of element untaxed in the fund of superannuation income stream death benefit to dependant
302‑85 Deceased died aged 60 or above or dependant aged 60 years or above—superannuation income stream—element untaxed in fund attracts 10% offset
302‑90 Deceased died aged under 60 and dependant aged under 60—superannuation income stream—element untaxed in fund is assessable income
Lump sum death benefits to dependants are tax free
302‑60 All of superannuation lump sum is tax free
A *superannuation lump sum that you receive because of the death of a person of whom you are a *death benefits dependant is not assessable income and is not *exempt income.
Superannuation income stream—either deceased died aged 60 or above or dependant aged 60 or above
302‑65 Superannuation income stream benefits are tax free
A *superannuation income stream benefit that you receive because of the death of a person of whom you are a *death benefits dependant is not assessable income and is not *exempt income in either or both of the following cases:
(a) you are 60 years or over when you receive the benefit;
(b) the deceased died aged 60 or over.
Note: If your superannuation income stream benefit includes an element untaxed in the fund, see section 302‑85.
Superannuation income stream—deceased died aged under 60 and dependant aged under 60
302‑70 Superannuation income stream—tax free status of tax free component
The *tax free component of a *superannuation income stream benefit that you receive because of the death of a person of whom you are a *death benefits dependant is not assessable income and is not *exempt income if:
(a) you are under 60 when you receive the benefit; and
(b) the deceased died aged under 60.
Note: For tax free component, see Subdivision 307‑C.
302‑75 Superannuation income stream—taxable component attracts 15% offset
(1) The *taxable component of a *superannuation income stream benefit that you receive because of the death of a person of whom you are a *death benefits dependant is assessable income if:
(a) you are under 60 when you receive the benefit; and
(b) the deceased died aged under 60.
Note: For taxable component, see Subdivision 307‑C.
(2) You are entitled to a *tax offset equal to 15% of the *taxable component of the benefit.
Death benefits to dependant—elements untaxed in fund
If a *superannuation income stream benefit that you receive because of the death of a person of whom you are a *death benefits dependant includes an *element untaxed in the fund:
(a) the *tax free component (if any) of the benefit is treated in the same way as the tax free component of a superannuation income stream benefit under section 302‑65 or 302‑70; and
(b) the *element taxed in the fund (if any) of the benefit is treated in the same way as the *taxable component of a superannuation income stream benefit under section 302‑65 or 302‑75; and
(c) the element untaxed in the fund is treated in accordance with section 302‑85 or 302‑90.
(1) The *element untaxed in the fund of a *superannuation income stream benefit that you receive because of the death of a person of whom you are a *death benefits dependant is assessable income in either or both of the following cases:
(a) you are 60 years or over when you receive the benefit;
(b) the deceased died aged 60 or above.
(2) You are entitled to a *tax offset equal to 10% of the *element untaxed in the fund of the benefit.
The *element untaxed in the fund of a *superannuation income stream benefit that you receive because of the death of a person of whom you are a *death benefits dependant is assessable income if:
(a) you are aged under 60 when you receive the benefit; and
(b) the deceased died aged under 60.
Subdivision 302‑C—Death benefits to non‑dependant
Table of sections
Superannuation lump sum
302‑140 Superannuation lump sum—tax free status of tax free component
302‑145 Superannuation lump sum—element taxed in the fund taxed at 15%, element untaxed in the fund taxed at 30%
302‑140 Superannuation lump sum—tax free status of tax free component
The *tax free component of a *superannuation lump sum that you receive because of the death of a person of whom you are not a *death benefits dependant is not assessable income and is not *exempt income.
Note: For tax free component, see Subdivision 307‑C.
(1) If you receive a *superannuation lump sum because of the death of a person of whom you are not a *death benefits dependant, the *taxable component of the lump sum is assessable income.
Note: For taxable component, see Subdivision 307‑C.
(2) You are entitled to a *tax offset that ensures that the rate of income tax on the *element taxed in the fund of the lump sum does not exceed 15%.
(3) You are entitled to a *tax offset that ensures that the rate of income tax on the *element untaxed in the fund of the lump sum does not exceed 30%.
Subdivision 302‑D—Definitions relating to dependants
Table of sections
302‑195 Meaning of death benefits dependant
302‑200 What is an interdependency relationship?
302‑195 Meaning of death benefits dependant
(1) A death benefits dependant, of a person who has died, is:
(a) the deceased person’s *spouse or former spouse; or
(b) the deceased person’s *child, aged less than 18; or
(c) any other person with whom the deceased person had an interdependency relationship under section 302‑200 just before he or she died; or
(d) any other person who was a dependant of the deceased person just before he or she died.
(2) For the purposes of this Division, treat an individual who receives a *superannuation lump sum because of the death of another person as a death benefits dependant of the deceased person in relation to the lump sum if the deceased person *died in the line of duty (see subsection (3)) as:
(a) a member of the Defence Force; or
(b) a member of the Australian Federal Police or the police force of a State or Territory; or
(c) a protective service officer (within the meaning of the Australian Federal Police Act 1979).
(3) For the purposes of subsection (2), a person died in the line of duty if the person died in the circumstances specified in the regulations.
302‑200 What is an interdependency relationship?
(1) Two persons (whether or not related by family) have an interdependency relationship under this section if:
(a) they have a close personal relationship; and
(b) they live together; and
(c) one or each of them provides the other with financial support; and
(d) one or each of them provides the other with domestic support and personal care.
(2) In addition, 2 persons (whether or not related by family) also have an interdependency relationship under this section if:
(a) they have a close personal relationship; and
(b) they do not satisfy one or more of the requirements of an interdependency relationship mentioned in paragraphs (1)(b), (c) and (d); and
(c) the reason they do not satisfy those requirements is that either or both of them suffer from a physical, intellectual or psychiatric disability.
(3) The regulations may specify:
(a) matters that are, or are not, to be taken into account in determining under subsection (1) or (2) whether 2 persons have an interdependency relationship under this section; and
(b) circumstances in which 2 persons have, or do not have, an interdependency relationship under this section.
Division 303—Superannuation benefits paid in special circumstances
Table of sections
303‑5 Commutation of income stream if you are under 25 etc.
303‑5 Commutation of income stream if you are under 25 etc.
(1) A *superannuation lump sum that you receive from a *complying superannuation plan is not assessable income and is not *exempt income if:
(a) the superannuation lump sum arises from the commutation of a *superannuation income stream; and
(b) any of these conditions are satisfied:
(i) you are under 25 when you receive the superannuation lump sum;
(ii) the commutation takes place because you turn 25;
(iii) you are permanently disabled when you receive the superannuation lump sum; and
(c) you had received one or more *superannuation income stream benefits from the superannuation income stream before the commutation because of the death of a person of whom you are a *death benefits dependant.
(2) Subsection (1) applies despite Divisions 301 and 302.
Division 304—Superannuation benefits in breach of legislative requirements etc.
304‑1 What this Division is about
This Division overrides the tax treatment in Divisions 301 and 302 if payments from complying superannuation plans etc. are in breach of payment and other rules.
Table of sections
Operative provisions
304‑5 Application
304‑10 Superannuation benefits in breach of legislative requirements etc.
304‑15 Excess payments from release authorities
This Division applies despite Divisions 301, 302 and 303.
304‑10 Superannuation benefits in breach of legislative requirements etc.
(1) Include in your assessable income the amount of a *superannuation benefit if:
(a) any of the following applies:
(i) you received the benefit from a *complying superannuation fund or from a *superannuation fund that was previously a complying superannuation fund;
(ii) the benefit is attributable to the assets of a complying superannuation fund or from a superannuation fund that was previously a complying superannuation fund; and
(b) any of the following applies:
(i) the fund was not (when you received the benefit) maintained as required by section 62 of the Superannuation Industry (Supervision) Act 1993;
(ii) you received the benefit otherwise than in accordance with payment standards prescribed under subsection 31(1) of the Superannuation Industry (Supervision) Act 1993.
(2) Include in your assessable income the amount of a *superannuation benefit if:
(a) any of the following applies:
(i) you received the benefit from a *complying approved deposit fund or from an *approved deposit fund that was previously a complying approved deposit fund;
(ii) the benefit is attributable to the assets of a complying approved deposit fund or from an approved deposit fund that was previously a complying approved deposit fund; and
(b) you received the benefit otherwise than in accordance with payment standards prescribed under subsection 32(1) of the Superannuation Industry (Supervision) Act 1993.
(3) Include in your assessable income the amount of a *superannuation benefit you receive from an *RSA in breach of the Retirement Savings Accounts Act 1997, regulations under that Act or payment standards prescribed under subsection 38(2) of that Act.
(4) However, you do not have to include the amount in your assessable income to the extent that the Commissioner is satisfied that it is unreasonable that it be included having regard to:
(a) for subsection (1) or (2)—the nature of the fund; and
(b) any other matters that the Commissioner considers relevant.
(5) For the purposes of this section, treat your receipt of a benefit (other than a *superannuation benefit) out of, or attributable to, the assets of a *superannuation plan as your receipt of a superannuation benefit.
304‑15 Excess payments from release authorities
(1) This section applies to a *superannuation benefit that you receive, paid in relation to a release authority given in relation to you in accordance with section 292‑410.
(2) The *superannuation benefit is not assessable income and is not *exempt income to the extent that it does not exceed the amount mentioned in subsection (3).
(3) The amount is the amount of *excess contributions tax stated in the release authority, reduced (but not below zero) by the amount of any *superannuation benefit that was not assessable income and not *exempt income under a previous operation of subsection (2) in relation to the release authority.
(4) The *superannuation benefit is assessable income to the extent (if any) that it exceeds the amount mentioned in subsection (3).
Division 305—Superannuation benefits paid from non‑complying superannuation plans
Table of Subdivisions
Guide to Division 305
305‑A Superannuation benefits from Australian non‑complying superannuation funds
305‑B Superannuation benefits from foreign superannuation funds
305‑1 What this Division is about
This Division sets out the tax treatment of superannuation benefits received by members of non‑complying plans (including foreign superannuation funds).
Subdivision 305‑A—Superannuation benefits from Australian non‑complying superannuation funds
Table of sections
305‑5 Tax treatment of superannuation benefits from certain Australian non‑complying superannuation funds
A *superannuation benefit that you receive from a *non‑complying superannuation fund that is an *Australian superannuation fund (for the income year in which the benefit is paid) is *exempt income if:
(a) the fund:
(i) has never been a *complying superannuation fund; or
(ii) last stopped being a complying superannuation fund for the income year in which 1 July 1995 occurred or a later income year; and
(b) the fund:
(i) has never been a *foreign superannuation fund; or
(ii) last stopped being a foreign superannuation fund for the income year in which 1 July 1995 occurred or a later income year.
Subdivision 305‑B—Superannuation benefits from foreign superannuation funds
Table of sections
Application of Subdivision
305‑55 Restriction to lump sums received from certain foreign superannuation funds
Lump sums received within 6 months after Australian residency or termination of foreign employment etc.
305‑60 Lump sums tax free—foreign resident period
305‑65 Lump sums tax free—Australian resident period
Lump sums to which sections 305‑60 and 305‑65 do not apply
305‑70 Lump sums received more than 6 months after Australian residency or termination of foreign employment etc.
305‑75 Lump sums—applicable fund earnings
305‑80 Lump sums paid into complying superannuation plans—choice
305‑55 Restriction to lump sums received from certain foreign superannuation funds
(1) This Subdivision applies if:
(a) you receive a *superannuation lump sum from a *foreign superannuation fund; and
(b) the fund is an entity mentioned in item 4 of the table in subsection 295‑490(1) (which deals with deductions for superannuation entities).
(2) This Subdivision also applies if you receive a payment, other than a pension payment, from a scheme for the payment of benefits in the nature of superannuation upon retirement or death that:
(a) is not, and never has been, an *Australian superannuation fund or a *foreign superannuation fund; and
(b) was not established in Australia; and
(c) is not centrally managed or controlled in Australia.
(3) This Subdivision applies to a payment mentioned in subsection (2) from a scheme mentioned in that subsection in the same way as it applies to a *superannuation lump sum from a *foreign superannuation fund.
305‑60 Lump sums tax free—foreign resident period
A *superannuation lump sum you receive from a *foreign superannuation fund is not assessable income and is not *exempt income if:
(a) you receive it within 6 months after you become an Australian resident; and
(b) it relates only to a period:
(i) when you were not an Australian resident; or
(ii) starting after you became an Australian resident and ending before you receive the payment; and
(c) it does not exceed the amount in the fund that was vested in you when you received the payment.
Note: If you received the lump sum after that period of 6 months, or the lump sum exceeds the vested amount, the payment will fall within section 305‑70.
305‑65 Lump sums tax free—Australian resident period
(1) A *superannuation lump sum you receive is not assessable income and is not *exempt income if:
(a) you receive it in consequence of:
(i) the termination of your employment as an employee, or as the holder of an office, in a foreign country; or
(ii) the termination of your engagement on qualifying service on an approved project (within the meaning of section 23AF of the Income Tax Assessment Act 1936), in relation to a foreign country; and
(b) it relates only to the period of that employment, holding of office, or engagement; and
(c) you were an Australian resident during the period of the employment, holding of office or engagement; and
(d) you receive the lump sum within 6 months after the termination; and
(e) the lump sum is not exempt from taxation under the law of the foreign country; and
(f) for a period of employment or holding an office—your foreign earnings from the employment or office are exempt from income tax under section 23AG of the Income Tax Assessment Act 1936; and
(g) for a period of engagement on qualifying service on an approved project—your eligible foreign remuneration from the service is exempt from income tax under section 23AF of that Act.
Note: If you received the lump sum after that period of 6 months, the lump sum will fall within section 305‑70.
(2) For the purposes of subsection (1), treat the termination of employment, holding of office, or engagement as including:
(a) retirement from the employment, office or engagement; and
(b) cessation of the employment, office or engagement because of death.
Lump sums to which sections 305‑60 and 305‑65 do not apply
Superannuation lump sums to which section applies
(1) This section applies to a *superannuation lump sum you receive from a *foreign superannuation fund if:
(a) you are an Australian resident when you receive the lump sum; and
(b) sections 305‑60 and 305‑65 do not apply to the lump sum.
Assessable part
(2) Include in your assessable income so much of the lump sum (excluding any amount mentioned in subsection (4)) as equals:
(a) your *applicable fund earnings (worked out under section 305‑75); or
(b) if you have made a choice under section 305‑80—your applicable fund earnings, less the amount covered by the choice.
Note: Under section 305‑80, if your lump sum is paid into a complying superannuation plan, you can choose to have some or all of the applicable fund earnings excluded from your assessable income. The amount you choose is included in the assessable income of the plan: see section 295‑200.
Non‑assessable, non‑exempt part
(3) The remainder of the lump sum is not assessable income and is not *exempt income.
Amount paid into another foreign superannuation fund
(4) Any part of the lump sum that is paid into another *foreign superannuation fund is not assessable income and is not *exempt income.
Note: However, your applicable fund earnings under section 305‑75 in relation to a later lump sum payment out of the other foreign superannuation fund may include an amount (previously exempt fund earnings) attributable to the lump sum.
305‑75 Lump sums—applicable fund earnings
(1) This section applies if you need to work out an amount (your applicable fund earnings) in relation to a *superannuation lump sum to which section 305‑70 applies that you receive from a *foreign superannuation fund.
If you were an Australian resident at all times
(2) If you were an Australian resident at all times during the period to which the lump sum relates, the amount of your applicable fund earnings is the amount (not less than zero) worked out as follows:
(a) work out the total of the following amounts:
(i) the part of the lump sum that is attributable to contributions made by or in respect of you on or after the day when you became a member of the fund (the start day);
(ii) the part of the lump sum (if any) that is attributable to amounts transferred into the fund from any other *foreign superannuation fund during the period;
(b) subtract that total amount from the amount in the fund that was vested in you when the lump sum was paid (before any deduction for *foreign income tax);
(c) add the total of all your previously exempt fund earnings (if any) covered by subsections (5) and (6).
If you were not an Australian resident at all times
(3) If you become an Australian resident after the start of the period to which the lump sum relates (but before you received it) the amount of your applicable fund earnings is the amount (not less than zero) worked out as follows:
(a) work out the total of the following amounts:
(i) the amount in the fund that was vested in you just before the day (the start day) you first became an Australian resident during the period;
(ii) the part of the payment that is attributable to contributions to the fund made by or in respect of you during the remainder of the period;
(iii) the part of the payment (if any) that is attributable to amounts transferred into the fund from any other *foreign superannuation fund during the remainder of the period;
(b) subtract that total amount from the amount in the fund that was vested in you when the lump sum was paid (before any deduction for *foreign income tax);
(c) multiply the resulting amount by the proportion of the total days during the period when you were an Australian resident;
(d) add the total of all previously exempt fund earnings (if any) covered by subsections (5) and (6).
Previous lump sums from the fund
(4) If the lump sum is not the first lump sum from the fund you have received to which this section applies, for subsections (2) and (3) the start day is the day after you received the most recent such lump sum.
Previously exempt fund earnings
(5) You have an amount of previously exempt fund earnings in respect of the lump sum if:
(a) part or all of the amount in the fund that was vested in you when the lump sum was paid (before any deduction for *foreign income tax) is attributable to the amount; and
(b) the amount is attributable to a payment received from a *foreign superannuation fund; and
(c) the amount would have been included in your assessable income under subsection 305‑70(2) by the application of this section, but for the payment having been received by another foreign superannuation fund.
(6) The amount of your previously exempt fund earnings is the amount mentioned in paragraph (5)(c) (disregarding the addition of previously exempt fund earnings under subsection (2) or (3) of this section).
305‑80 Lump sums paid into complying superannuation plans—choice
(1) This section applies if:
(a) section 305‑70 applies to a *superannuation lump sum that is paid from a *foreign superannuation fund; and
(b) you are taken to receive the lump sum under section 307‑15; and
(c) all of the lump sum is paid into a *complying superannuation fund; and
(d) immediately after the lump sum is paid into the complying superannuation fund, you no longer have a *superannuation interest in the foreign superannuation fund.
(2) You may choose for all or part of your *applicable fund earnings worked out under section 305‑75 (but not exceeding the amount of the lump sum) to be included in the assessable income of the *complying superannuation plan.
Note: Section 295‑200 provides for the amount specified in the choice to be included in the assessable income of the complying superannuation plan.
(3) Your choice:
(a) must be in writing; and
(b) must comply with the requirements (if any) specified in the regulations.
306‑1 What this Division is about
This Division sets out the tax treatment of payments made from one superannuation plan to another superannuation plan, and of similar payments.
Table of sections
Operative provisions
306‑5 Effect of a roll‑over superannuation benefit
306‑10 Roll‑over superannuation benefit
306‑15 Tax on excess untaxed roll‑over amounts
306‑20 Effect of payment to government of unclaimed superannuation money
306‑5 Effect of a roll‑over superannuation benefit
A *roll‑over superannuation benefit that you are taken to receive under section 307‑15 is not assessable income and is not *exempt income.
Note: Roll‑over superannuation benefits are paid into a complying superannuation plan or are used to purchase a superannuation annuity on your behalf. However, you are taken to receive the benefit under subsection 307‑15(1).
306‑10 Roll‑over superannuation benefit
A *superannuation benefit is a roll‑over superannuation benefit if:
(a) the benefit is a *superannuation lump sum and a *superannuation member benefit; and
(b) the benefit is not a superannuation benefit of a kind specified in the regulations; and
(c) the benefit satisfies any of the following conditions:
(i) it is paid from a *complying superannuation plan;
(ii) it is an *unclaimed money payment;
(iii) it arises from the commutation of a *superannuation annuity; and
(d) the benefit satisfies any of the following conditions:
(i) it is paid to a complying superannuation plan;
(ii) it is paid to an entity to purchase a superannuation annuity from the entity.
Note 1: A superannuation benefit may be paid from one superannuation plan of a superannuation provider to another superannuation plan of the same provider.
Note 2: For the treatment of amounts transferred within a superannuation plan, see subsection 307‑5(8).
306‑15 Tax on excess untaxed roll‑over amounts
(1) This section applies to a *superannuation benefit if:
(a) it is a *roll‑over superannuation benefit that is paid into a *superannuation plan; and
(b) you are taken to receive the benefit under section 307‑15; and
(c) the benefit consists of, or includes, an amount that is an *element untaxed in the fund; and
(d) the amount mentioned in paragraph (c) exceeds your *untaxed plan cap amount (see section 307‑350) for the *superannuation plan just before you are taken to receive the benefit.
(1A) However, this section does not apply to a *roll‑over superannuation benefit that is transferred from one *superannuation interest in a *superannuation plan to another superannuation interest in the same plan.
Note 1: A superannuation benefit may be paid from one superannuation plan of a superannuation provider to another superannuation plan of the same provider. Such a benefit may be a roll‑over superannuation benefit: see section 306‑10.
Note 2: For the treatment of amounts transferred within the same superannuation plan, see subsection 307‑5(8).
(2) The excess untaxed roll‑over amount is the amount of the excess mentioned in paragraph (1)(d).
(3) You are liable to pay income tax on the *excess untaxed roll‑over amount at the rate declared by the Parliament in respect of such amounts.
Note 1: The tax is imposed in the Superannuation (Excess Untaxed Roll‑over Amounts Tax) Act 2007, and the amount of tax is set out in that Act.
Note 2: See the Taxation Administration Act 1953 for provisions dealing with the payment of the tax.
306‑20 Effect of payment to government of unclaimed superannuation money
An *unclaimed money payment that you are taken to receive under section 307‑15 because it is paid in accordance with the Superannuation (Unclaimed Money and Lost Members) Act 1999 to the Commissioner or a State or Territory authority (within the meaning of that Act) is not assessable income and is not *exempt income.
Division 307—Key concepts relating to superannuation benefits
Table of Subdivisions
Guide to Division 307
307‑A Superannuation benefits generally
307‑B Superannuation lump sums and superannuation income stream benefits
307‑C Components of a superannuation benefit
307‑D Superannuation interests
307‑E Elements taxed and untaxed in the fund of the taxable component of superannuation benefit
307‑F Low rate cap and untaxed plan cap amounts
307‑G Other concepts
307‑1 What this Division is about
This Division defines concepts used in Divisions 301 to 306, such as superannuation benefit, and the tax free component and taxable component of such benefits. To work out those components, it is often necessary to work out the corresponding components of the superannuation interest from which the benefit is paid (see Subdivision 307‑D).
This Division also defines the element taxed in the fund and the element untaxed in the fund of superannuation benefits, which are relevant to superannuation benefits paid from untaxed funds etc. (see Subdivision 307‑D).
Subdivision 307‑F defines the concessional limits used in Division 301 known as the low rate cap amount and untaxed plan cap amount.
Subdivision 307‑A—Superannuation benefits generally
Table of sections
307‑5 What is a superannuation benefit?
307‑10 Payments that are not superannuation benefits
307‑15 Payments for your benefit or at your direction or request
307‑5 What is a superannuation benefit?
(1) A superannuation benefit is a payment described in the table.
Types of superannuation benefits | |||
Item | Column 1 | Column 2 | Column 3 |
1 | superannuation fund payment | A payment to you from a *superannuation fund because you are a fund member. | A payment to you from a superannuation fund, after another person’s death, because the other person was a fund member. |
2 | RSA payment | A payment to you from an *RSA because you are the holder of the RSA. | A payment to you from an RSA, after another person’s death, because the other person was the holder of the RSA. |
3 | approved deposit fund payment | A payment to you from an *approved deposit fund because you are a depositor with the fund. | A payment to you from an approved deposit fund after another person’s death, because the other person was a depositor with the fund. |
4 | small superannuation account payment | A payment to you under section 63, 64, 65, 66, 67 or 67A, or subsection 76(6), of the Small Superannuation Accounts Act 1995. (These provisions authorise payment of money held under the Act.) | A payment to you under section 68 or subsection 76(7) of the Small Superannuation Accounts Act 1995. (These provisions authorise payment of money held under the Act to the legal personal representative of the deceased.) |
5 | unclaimed money payment | A payment to you under section 17 or 18 of the Superannuation (Unclaimed Money and Lost Members) Act 1999 otherwise than because of another person’s death. | A payment to you under section 17 or 18 of the Superannuation (Unclaimed Money and Lost Members) Act 1999 because of another person’s death. |
6 | superannuation co‑contribution benefit payment | A payment to you under paragraph 15(1)(c) of the Superannuation (Government Co‑contribution for Low Income Earners) Act 2003. | A payment to you under paragraph 15(1)(d) of the Superannuation (Government Co‑contribution for Low Income Earners) Act 2003. |
7 | superannuation guarantee payment | A payment to you under section 65A or 66 of the Superannuation Guarantee (Administration) Act 1992. (This provides for money collected under the Act to be paid to a person who retires because of incapacity or invalidity.) | A payment to you under section 67 of the Superannuation Guarantee (Administration) Act 1992. (This provides for money collected under the Act to be paid to the legal personal representative of the deceased.) |
8 | superannuation annuity payment | A payment to you: (a) from a *superannuation annuity; or (b) arising from the commutation of a superannuation annuity; because you are the annuitant. | A payment to you: (a) from a superannuation annuity; or (b) arising from the commutation of a superannuation annuity; because of the death of the annuitant. |
(2) A superannuation member benefit is a payment described in column 2 of the table.
(3) A *superannuation benefit is also a superannuation member benefit if:
(a) the superannuation benefit arises from the commutation of a *superannuation income stream; and
(b) it would be a *superannuation death benefit apart from this subsection; and
(c) the benefit is paid after the latest of the following:
(i) 6 months after the death of the deceased person;
(ii) 3 months after the grant of probate of that deceased person’s will or letters of administration of that deceased person’s estate;
(iii) if the payment of the benefit is delayed because of legal action about entitlement to the benefit—6 months after the legal action ceases;
(iv) if the payment of the benefit is delayed because of reasonable delays in the process of identifying and making initial contact with potential recipients of the benefit—6 months after that process is completed; and
(d) the Commissioner has not made a decision about the benefit under subsection (3A).
(3A) For the purposes of paragraph (3)(d), the Commissioner may make a decision in writing that the superannuation benefit is not a superannuation member benefit under subsection (3), if:
(a) both of these conditions are satisfied:
(i) the payment of the benefit is delayed because of legal action about entitlement to the benefit;
(ii) the benefit is paid more than 6 months after the legal action ceases; or
(b) both of these conditions are satisfied:
(i) the payment of the benefit is delayed because of reasonable delays in the process of identifying and making initial contact with potential recipients of the benefit;
(ii) the benefit is paid more than 6 months after that process is completed.
(3B) In making a decision under subsection (3A), the Commissioner must have regard to the following matters:
(a) whether there was any action taken to try to pay the benefit within the 6 months after the cessation of the legal action or the completion of the process, and if so, the nature of that action;
(b) whether there were any factors beyond the control of the entity that paid the benefit, or of the person to whom the benefit was paid, that prevented the payment of the benefit within those 6 months;
(c) the circumstances of the person to whom the benefit was paid, and the actions of that person in relation to the benefit.
(4) A superannuation death benefit is a payment described in column 3 of the table.
(5) Subsection (6) applies if a *contributions‑splitting superannuation benefit or a *family law superannuation payment is paid to you because another person is a member of a *superannuation fund, holder of an *RSA or depositor with an *approved deposit fund, or the annuitant under a *superannuation annuity.
(6) For the purposes of this section (and despite section 307‑15):
(a) treat yourself as a member of the fund, holder of the *RSA, depositor with the fund or annuitant under the *superannuation annuity; and
(b) do not treat the other person as a member of the fund, holder of the RSA, depositor with the fund or annuitant under the superannuation annuity.
Note: This means that the benefit is a superannuation benefit for you but not for the other person.
(7) A family law superannuation payment is a payment that:
(a) is a payment of any of the following kinds:
(i) a payment in accordance with Part VIIIB of the Family Law Act 1975;
(ii) a payment in accordance with the Family Law (Superannuation) Regulations 2001;
(iii) a payment in accordance with Part 7A of the Superannuation Industry (Supervision) Regulations 1994;
(iv) a payment in accordance with Part 4A of the Retirement Savings Accounts Regulations 1997;
(v) a payment specified in the regulations; and
(b) satisfies the requirements (if any) specified in the regulations.
Treatment of amounts transferred within a superannuation plan
(8) If an amount is transferred from one *superannuation interest in a *superannuation plan to another superannuation interest in the same plan, treat the transfer as a payment in determining whether the transfer of the amount is a superannuation benefit or a roll‑over superannuation benefit.
307‑10 Payments that are not superannuation benefits
A payment of any of the following kinds is not a superannuation benefit:
(a) an amount payable to a person under an income stream because of the person’s temporary inability to engage in *gainful employment;
(aa) a benefit to which subsection 26AF(1) or 26AFA(1) of the Income Tax Assessment Act 1936 applies;
(ab) an amount required by the Bankruptcy Act 1966 to be paid to a trustee;
(b) an amount:
(i) received by you, or to which you are entitled, as the result of the commutation of a pension payable from a *constitutionally protected fund; and
(ii) wholly applied in paying any superannuation contributions surcharge (as defined in section 38 of the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997);
(c) an amount:
(i) received by you, or to which you are entitled, as the result of the commutation of a pension payable by a superannuation provider (within the meaning of the Superannuation Contributions Tax (Assessment and Collection) Act 1997); and
(ii) wholly applied in paying any superannuation contributions surcharge (as defined in section 43 of that Act);
(d) a payment of a pension or an *annuity from a *foreign superannuation fund.
307‑15 Payments for your benefit or at your direction or request
(1) This section applies for the purposes of:
(a) determining whether a payment is a superannuation benefit; and
(b) determining whether a *superannuation benefit is made to you, or received by you.
(2) A payment is treated as being made to you, or received by you, if it is made:
(a) for your benefit; or
(b) to another person or to an entity at your direction or request.
Note: Paragraph (b) would cover, for example, a direction by you that a payment be rolled over from your original superannuation fund into another superannuation fund.
Subdivision 307‑B—Superannuation lump sums and superannuation income stream benefits
Table of sections
307‑65 Meaning of superannuation lump sum
307‑70 Meaning of superannuation income stream and superannuation income stream benefit
307‑65 Meaning of superannuation lump sum
A superannuation lump sum is a *superannuation benefit that is not a *superannuation income stream benefit (see section 307‑70).
307‑70 Meaning of superannuation income stream and superannuation income stream benefit
(1) A superannuation income stream benefit is a *superannuation benefit specified in the regulations that is paid from a *superannuation income stream.
(2) A superannuation income stream has the meaning given by the regulations.
Subdivision 307‑C—Components of a superannuation benefit
Table of sections
307‑120 Components of superannuation benefit
307‑125 Proportioning rule
307‑130 Superannuation guarantee payment consists entirely of taxable component
307‑135 Superannuation co‑contribution benefit payment consists entirely of tax free component
307‑140 Contributions‑splitting superannuation benefit consists entirely of taxable component
307‑145 Modification for disability benefits
307‑150 Modification in respect of superannuation lump sum with element untaxed in fund
307‑120 Components of superannuation benefit
(1) Work out the following components of a *superannuation benefit under this Subdivision:
(a) the tax free component;
(b) the taxable component.
(2) Work out those components under:
(a) if the benefit is not mentioned in paragraph (b), (c) or (d)—section 307‑125; or
(b) if the benefit is a *superannuation guarantee payment—section 307‑130; or
(c) if the benefit is a *superannuation co‑contribution benefit payment—section 307‑135; or
(d) if the benefit is a *contributions‑splitting superannuation benefit—section 307‑140.
(3) Those components may be modified under sections 307‑145 (which deals with certain disability benefits) and 307‑150 (which deals with certain *elements untaxed in fund).
(1) The object of this section is to ensure that the *tax free component and *taxable component of a *superannuation benefit are calculated by:
(a) first, determining the proportions of the *value of the *superannuation interest that those components represent; and
(b) next, applying those proportions to the benefit.
(2) The *superannuation benefit is taken to be paid in a way such that each of those components of the benefit bears the same proportion to the amount of the benefit that the corresponding component of the *superannuation interest bears to the *value of the superannuation interest.
Example: The amount of a superannuation lump sum is $100. Just before the benefit is paid, the value of the superannuation interest was $1000 (of which $200 was the tax free component and $800 was the taxable component). For the lump sum, the tax free component is $20 and the taxable component is $80.
(3) For the purposes of subsection (2), determine the *value of the *superannuation interest, and the amount of each of those components of the interest, at whichever of the following times is applicable:
(a) if the *superannuation benefit is a *superannuation income stream benefit—when the relevant *superannuation income stream commenced;
(b) if the superannuation benefit is a *superannuation lump sum—just before the benefit is paid;
(c) despite paragraphs (a) and (b), if the superannuation benefit arises from the commutation of a superannuation income stream—when the relevant *superannuation income stream commenced.
(4) Subsection (2) does not apply to a *superannuation benefit if any of the following applies:
(a) the regulations specify an alternative method for determining those components of the benefit;
(b) a determination under subsection (5) specifies an alternative method for determining those components of the benefit;
(c) the Commissioner consents in writing to the use of another method for determining those components of the benefit.
If so, use that method to determine those components of the benefit.
(5) For the purposes of paragraph (4)(b), the Commissioner may determine, by legislative instrument, one or more alternative methods for determining those components of a *superannuation benefit.
(6) If the *superannuation benefit is an *unclaimed money payment or a *small superannuation account payment, for the purposes of this section:
(a) treat the benefit as a superannuation benefit paid from a *superannuation interest; and
(b) treat the amount of the benefit as the *value of that superannuation interest just before the time the benefit is paid.
307‑130 Superannuation guarantee payment consists entirely of taxable component
The components of a *superannuation benefit that is a *superannuation guarantee payment are as follows:
(a) the *tax free component is nil;
(b) the *taxable component is the amount of the benefit.
307‑135 Superannuation co‑contribution benefit payment consists entirely of tax free component
The components of a *superannuation benefit that is a *superannuation co‑contribution benefit payment are as follows:
(a) the *tax free component is the amount of the benefit;
(b) the *taxable component is nil.
307‑140 Contributions‑splitting superannuation benefit consists entirely of taxable component
The components of a *superannuation benefit that is a *contributions‑splitting superannuation benefit are as follows:
(a) the *tax free component is nil;
(b) the *taxable component is the amount of the benefit.
307‑145 Modification for disability benefits
(1) Work out the tax free component of the *superannuation benefit under subsection (2) if the benefit is a *superannuation lump sum and a *disability superannuation benefit.
(2) The tax free component is the sum of:
(a) the *tax free component of the benefit worked out apart from this section; and
(b) the amount worked out under subsection (3).
However, the tax free component cannot exceed the amount of the benefit.
(3) Work out the amount by applying the following formula:
where:
days to retirement is the number of days from the day on which the person stopped being capable of being *gainfully employed to his or her *last retirement day.
service days is the number of days in the *service period for the lump sum.
(4) The balance of the *superannuation benefit is the taxable component of the benefit.
307‑150 Modification in respect of superannuation lump sum with element untaxed in fund
(1) This section applies to a *superannuation lump sum if:
(a) it is not a *roll‑over superannuation benefit; or
(b) it is a roll‑over superannuation benefit that includes an *element untaxed in the fund, all or part of which will be included in the assessable income of the *superannuation provider in relation to the *superannuation fund into which the benefit is paid.
(2) However, this section applies to the *superannuation lump sum only to the extent that it is attributable to a *superannuation interest that existed just before 1 July 2007.
(3) If the *superannuation lump sum includes an *element untaxed in the fund:
(a) increase the *tax free component of the benefit by the amount that is the lesser of these amounts:
(i) the amount worked out under subsection (4); and
(ii) the amount of the element untaxed in the fund (apart from this section); and
(b) reduce the element untaxed in the fund by the lesser of those amounts.
(4) Work out the amount by applying the following formula:
where:
original tax free component and untaxed element is the sum of:
(a) the *tax free component of the *superannuation benefit (apart from this section); and
(b) the *element untaxed in the fund of the superannuation benefit (apart from this section).
(5) If the benefit is in part attributable to a *crystallised pre‑July 83 amount, in working out the *tax free component of the *superannuation benefit (apart from this section) for the purposes of subsection (4), disregard the amount of the benefit that is attributable to the *crystallised segment of the *superannuation interest from which the benefit is paid.
Subdivision 307‑D—Superannuation interests
Table of sections
307‑200 Regulations relating to meaning of superannuation interests
307‑205 Value of superannuation interest
307‑210 Tax free component of superannuation interest
307‑215 Taxable component of superannuation interest
307‑220 What is the contributions segment?
307‑225 What is the crystallised segment?
307‑200 Regulations relating to meaning of superannuation interests
(1) In the circumstances specified in the regulations, treat a superannuation interest as two or more superannuation interests in the way specified in the regulations.
(2) In the circumstances specified in the regulations, treat 2 or more superannuation interests as one superannuation interest in the way specified in the regulations.
(3) Regulations for the purposes of this section may specify a way of treating a *superannuation interest in relation to one or more of the following aspects of the interest:
(a) the *tax free component (and the *contributions segment and *crystallised segment relating to that component);
(b) the *taxable component;
(c) the *element taxed in the fund of the taxable component;
(d) the *element untaxed in the fund of the taxable component.
(4) Regulations for the purposes of subsection (1) may specify a way of allocating an amount relating to a *superannuation interest treated as two or more superannuation interests in accordance with those regulations to those interests.
(5) Subsections (3) and (4) do not limit the regulations that may be made for the purposes of this section.
307‑205 Value of superannuation interest
The value of a *superannuation interest at a particular time is:
(a) if the regulations specify a method for determining the value of the superannuation interest—that value; or
(b) otherwise—the total amount of all the *superannuation lump sums that could be payable from the interest at that time.
307‑210 Tax free component of superannuation interest
The tax free component of a *superannuation interest is so much of the *value of the interest as consists of:
(a) the *contributions segment of the interest; and
(b) the *crystallised segment of the interest.
Note: If superannuation benefits have been paid from the superannuation interest, the amount of the tax free component of the interest will be reduced by the tax free components of those superannuation benefits: see section 307‑125.
307‑215 Taxable component of superannuation interest
The taxable component of a *superannuation interest is the *value of the interest less the *tax free component of the interest.
307‑220 What is the contributions segment?
(1) The contributions segment of a *superannuation interest is so much of the *value of the interest as consists of contributions made after 30 June 2007, to the extent that they have not been and will not be included in the assessable income of the *superannuation provider in relation to the *superannuation plan in which the interest is held.
(2) For the purposes of this section:
(a) in determining whether contributions are included in the contributions segment under subsection (1):
(i) disregard the *taxable component of a *roll‑over superannuation benefit paid into the interest; and
(ii) for a *superannuation plan that is a *constitutionally protected fund—treat the superannuation plan as if it were not a constitutionally protected fund; and
(b) disregard section 295‑180 and Subdivision 295‑D.
(3) For the purposes of subparagraph (2)(a)(i), treat the *excess untaxed roll‑over amount (if any) of the *roll‑over superannuation benefit as part of the *tax free component of the benefit instead of the *taxable component of the benefit.
307‑225 What is the crystallised segment?
(1) To work out the crystallised segment of a *superannuation interest, first assume that:
(a) an eligible termination payment had been made in respect of the holder of the interest just before 1 July 2007; and
(b) the amount of the eligible termination payment had been equal to the *value of the interest at that time.
(2) The crystallised segment of the *superannuation interest is so much of the *value of the interest as consists of the total of the following components of the eligible termination payment:
(a) the concessional component;
(b) the post‑June 1994 invalidity component;
(c) the undeducted contributions;
(d) the CGT exempt component;
(e) the pre‑July 83 component.
(3) For the purposes of paragraph (2)(e), disregard the *value of the interest just before 1 July 2007 to the extent that it would consist, apart from this subsection, of the *element untaxed in the fund of the *taxable component of a *superannuation benefit constituted by the eligible termination payment.
(4) In this section, the following terms have the same meaning as in subsection 27A(1) of the Income Tax Assessment Act 1936 (as in force just before 1 July 2007):
(a) concessional component;
(b) post‑June 1994 invalidity component;
(c) undeducted contributions;
(d) CGT exempt component;
(e) pre‑July 83 component;
(f) eligible termination payment.
Table of sections
307‑275 Element taxed in the fund and element untaxed in the fund of superannuation benefits
307‑280 Superannuation benefits from constitutionally protected funds etc.
307‑285 Trustee can choose to convert element taxed in the fund to element untaxed in the fund
307‑290 Taxed and untaxed elements of death benefit superannuation lump sums
307‑295 Superannuation benefits from public sector superannuation schemes may include untaxed element
307‑275 Element taxed in the fund and element untaxed in the fund of superannuation benefits
(1) The *taxable component of a *superannuation benefit consists of an element taxed in the fund or an element untaxed in the fund, or both.
(2) The *taxable component of a *superannuation benefit consists wholly of an element taxed in the fund except as provided in a later section of this Subdivision.
(3) Despite subsection (2), the *taxable component of any of the following kinds of *superannuation benefit consists wholly of an element untaxed in the fund:
(a) a *small superannuation account payment;
(b) a *superannuation guarantee payment.
307‑280 Superannuation benefits from constitutionally protected funds etc.
(1) The *taxable component of a *superannuation benefit paid from a *superannuation fund that is a *constitutionally protected fund consists wholly of an element untaxed in the fund.
(2) Despite subsection (1), if:
(a) the benefit is a *superannuation lump sum; and
(b) the benefit is attributable to one or more *roll‑over superannuation benefits that consisted of, or included, an *element taxed in the fund;
the *taxable component of the benefit has an element taxed in the fund equal to the total of those elements taxed in the fund.
(3) The *taxable component of a *superannuation income stream benefit consists wholly of an element untaxed in the fund if it is paid from a *superannuation fund that was a *constitutionally protected fund on the first day of the period to which the *superannuation income stream relates.
307‑285 Trustee can choose to convert element taxed in the fund to element untaxed in the fund
(1) If:
(a) you receive a *superannuation benefit from a *public sector superannuation scheme; and
(b) the trustee of the scheme gives you written notice specifying an amount as the *element untaxed in the fund of the *taxable component of the benefit; and
(c) the notice is given within the time and in the manner approved by the Commissioner in writing; and
(d) the scheme came into operation on or before 5 September 2006;
the taxable component consists of an element untaxed in the fund equal to the specified amount.
(2) The trustee of the scheme can give only one notice under subsection (1) in relation to a particular *superannuation lump sum.
307‑290 Taxed and untaxed elements of death benefit superannuation lump sums
(1) This section applies to a *superannuation death benefit that is a *superannuation lump sum, in relation to which a deduction has been, or is to be, claimed under section 295‑465 or 295‑470.
Note 1: Those sections allow deductions for insurance premiums that have been paid, and for liability for future benefits.
Note 2: Deductions made under former section 279 or 279B of the Income Tax Assessment Act 1936 are treated for the purposes of this section as having been made under section 295‑465 or 295‑470 (see section 307‑290 of the Income Tax (Transitional Provisions) Act 1997).
(2) The *taxable component of the *superannuation lump sum includes an element taxed in the fund worked out as follows:
(a) first, work out the amount under the formula in subsection (3);
(b) next, reduce that amount (but not below zero) by the *tax free component (if any) of the superannuation lump sum.
(3) For the purposes of paragraph (2)(a), the formula is:
days to retirement is the number of days from the day on which the deceased died to the deceased’s *last retirement day.
service days is the number of days in the *service period for the lump sum.
(4) The element untaxed in the fund of the *taxable component is the balance of the taxable component.
(1) This section applies to a *superannuation benefit that is paid from a *public sector superannuation scheme that is not a *constitutionally protected fund.
(2) If the *superannuation benefit paid is not sourced to any extent from contributions made into a *superannuation fund or earnings on such contributions, the *taxable component of the superannuation benefit consists wholly of an element untaxed in the fund.
(3) If the benefit is a *superannuation lump sum that is partly sourced from contributions made into a *superannuation fund or earnings on such contributions, the element taxed in the fund and the element untaxed in the fund of the *taxable component of the benefit are worked out as follows:
Method statement
Step 1. Subdivide the *taxable component of the *superannuation lump sum (the original benefit) into 2 notional superannuation lump sums as follows:
(a) the amount sourced from contributions made into a *superannuation fund or earnings on such contributions (the fund benefit);
(b) the remainder of the taxable component of the lump sum (the non‑fund benefit).
Step 2. The fund benefit consists of an element taxed in the fund, an element untaxed in the fund, or both, as worked out under this Subdivision.
Step 3. The non‑fund benefit consists wholly of an element untaxed in the fund.
Step 4. The element taxed in the fund of the original benefit equals the element taxed in the fund of the fund benefit.
Step 5. The element untaxed in the fund of the original benefit is the sum of the elements untaxed in the fund worked out under steps 2 and 3.
Subdivision 307‑F—Low rate cap and untaxed plan cap amounts
Table of sections
307‑345 Low rate cap amount
307‑350 Untaxed plan cap amount
Starting amount
(1) Your low rate cap amount for the 2007‑2008 income year is $140,000.
Note: However, if you became entitled to a rebate under the corresponding provision of the Income Tax Assessment Act 1936, see section 307‑345 of the Income Tax (Transitional Provisions) Act 1997.
Reductions and increases
(2) If you receive one or more *superannuation member benefits that are *superannuation lump sums in an income year, reduce your low rate cap amount for the next income year (but not below zero) by the total of the amounts that:
(a) are included in your assessable income for the first year in respect of those lump sums; and
(b) are counted towards your entitlement to a *tax offset under subsection 301‑20(2) or 301‑105(4) for the first year.
(3) At the start of each income year after the 2007‑2008 income year, increase your low rate cap amount by the amount (if any) by which the index amount for that income year exceeds the index amount for the previous income year.
(4) For the purposes of subsection (3), the index amount for the 2007‑2008 income year is $140,000. The index amount is then indexed annually.
Note: Subdivision 960‑M shows how to index amounts. However, annual indexation does not necessarily increase the index amount: see section 960‑285.
307‑350 Untaxed plan cap amount
(1) Your untaxed plan cap amount for a *superannuation plan at the start of the 2007‑2008 income year is $1,000,000.
Reductions and increases
(2) If you receive one or more *superannuation member benefits including an *element untaxed in the fund from a *superannuation plan at a time, reduce your untaxed plan cap amount just after that time:
(a) if the total of the elements untaxed in the fund falls short of your *untaxed plan cap amount at that time—by the amount of the benefit or of the total of the benefits; or
(b) otherwise—to nil.
(2A) For the purposes of subsection (2), disregard subsection 307‑5(8).
(3) At the start of each income year after the 2007‑2008 income year, increase your untaxed plan cap amount for the *superannuation plan by the amount (if any) by which the index amount for that income year exceeds the index amount for the previous income year.
(4) For the purposes of subsection (3), the index amount for the 2007‑2008 income year is $1,000,000. The index amount is then indexed annually.
Note: Subdivision 960‑M shows how to index amounts. However, annual indexation does not necessarily increase the index amount: see section 960‑285.
Subdivision 307‑G—Other concepts
Table of sections
307‑400 Meaning of service period for a superannuation lump sum
307‑400 Meaning of service period for a superannuation lump sum
(1) The service period for a *superannuation lump sum consists of each day that is in the period worked out under the table or a period covered by subsection (2).
Service period for superannuation lump sum types | ||
Item | For this superannuation lump sum type: | The service period includes: |
1 | *Superannuation fund payment | The following: (a) if some or all of the *superannuation lump sum accrued while you were, or the deceased was, a member of the *superannuation fund—the period of membership; (b) if some or all of the superannuation lump sum accrued while you were, or the deceased was, employed (or you or the deceased held office)—each period of employment (or of holding office) to which the lump sum relates. |
2 | *approved deposit fund payment | The period starting when you or the deceased first made a deposit to the *approved deposit fund and ending when the payment is made. |
3 | *RSA payment | The following: (a) if some or all of the *superannuation lump sum accrued while you were, or the deceased was, the holder of the *RSA—the period during which you were, or the deceased was, the holder of the RSA; (b) if some or all of the superannuation lump sum accrued while you were, or the deceased was, employed (or you or the deceased held office)—each period of employment (or of holding office) to which the lump sum relates. |
(2) The service period for the *superannuation lump sum (the later lump sum) also includes each day that is in the *service period for an earlier superannuation lump sum if some or all of the later lump sum is attributable, directly or indirectly, to some or all of the earlier lump sum through the payment of one or more *roll‑over superannuation benefits.
Division 320—Life insurance companies
Table of Subdivisions
Guide to Division 320
320‑A Preliminary
320‑B What is included in a life insurance company’s assessable income
320‑C Deductions and capital losses
320‑D Income tax, taxable income and tax loss of life insurance companies
320‑E No‑TFN contributions of life insurance companies that are RSA providers
320‑F Virtual PST
320‑H Segregation of assets to discharge exempt life insurance policy liabilities
320‑I Transfers of business
320‑1 What this Division is about
This Division provides for the taxation of life insurance companies in a broadly comparable way to other entities that derive similar kinds of income.
Because of the nature of the business of life insurance companies, the Division contains special rules for working out their taxable income.
Those rules:
• include certain amounts in assessable income;
• identify certain amounts of exempt income and non‑assessable non‑exempt income;
• identify specific deductions.
Life insurance companies can have one or both of these taxable incomes for any income year for the purposes of working out their income tax for that year:
• a taxable income of the complying superannuation class, which consists of taxable income that relates to complying superannuation business and is taxed at the rate of tax that applies to complying superannuation funds;
• a taxable income of the ordinary class, which consists of taxable income that relates to other businesses and is taxed at the corporate tax rate.
Life insurance companies can also have tax losses that correspond to those 2 classes. The Division provides that tax losses of a particular class can be deducted only from incomes in respect of that class.
The Division ensures that the income tax worked out on the basis of these taxable incomes and tax losses is a single amount of income tax on one taxable income.
The Division also contains rules for segregating the assets of life insurance companies into:
• assets that relate to complying superannuation business;
• assets that relate to immediate annuity and other exempt business.
This Division also ensures that life insurance companies that are RSA providers are liable to pay tax on no‑TFN contributions income.
(1) The object of this Division is to provide for the taxation of *life insurance companies in a broadly comparable way to other entities that *derive similar kinds of income.
(2) To achieve this object, the Division:
(a) identifies certain amounts that are included in the assessable income, or are *exempt income or *non‑assessable non‑exempt income, of a *life insurance company; and
(b) identifies certain amounts that a life insurance company can deduct; and
(c) enables a life insurance company to have taxable incomes and *tax losses of the following classes for the purposes of working out its income tax for an income year:
(i) the *complying superannuation class;
(ii) the *ordinary class; and
(d) contains other provisions necessary to enable the income tax on the taxable income of a life insurance company to be worked out.
Note: Section 320‑5 of the Income Tax (Transitional Provisions) Act 1997 provides that the tax consequences of certain transfers of assets of a life insurance company that is a friendly society to a complying superannuation fund are to be disregarded.
Subdivision 320‑B—What is included in a life insurance company’s assessable income
320‑10 What this Subdivision is about
This Subdivision provides for certain amounts to be included in a life insurance company’s assessable income and for certain other amounts to be exempt income or non‑assessable non‑exempt income.
Table of sections
Operative provisions
320‑15 Assessable income—various amounts
320‑30 Assessable income—special provision for certain income years
320‑35 Exempt income
320‑37 Non‑assessable non‑exempt income
320‑45 Tax treatment of gains or losses from CGT events in relation to virtual PST assets
320‑15 Assessable income—various amounts
(1) A *life insurance company’s assessable income includes:
(a) the total amount of the *life insurance premiums paid to the company in the income year; and
(b) amounts received or recovered under *contracts of reinsurance (except amounts that relate to a risk, or part of a risk, in relation to which subsection 148(1) of the Income Tax Assessment Act 1936 applies) to the extent to which they relate to the *risk components of claims paid under *life insurance policies; and
(c) any amount received or recovered that is a refund, or in the nature of a refund, of the life insurance premium paid under a contract of reinsurance (except any amount that relates to a risk, or part of a risk, in relation to which subsection 148(1) of the Income Tax Assessment Act 1936 applies); and
(ca) any reinsurance commission received or recovered by the company in respect of a contract of reinsurance (except any commission that relates to a risk, or part of a risk, in relation to which subsection 148(1) of the Income Tax Assessment Act 1936 applies); and
(d) any amount received under a profit‑sharing arrangement contained in, or entered into in relation to, a contract of reinsurance; and
(da) the *transfer values of assets transferred by the company from a *virtual PST under subsection 320‑180(1) or 320‑195(3); and
(db) the transfer values of assets transferred by the company to a virtual PST under subsection 320‑180(3) or 320‑185(1); and
(e) if an asset (other than money) is transferred from or to a virtual PST under subsection 320‑180(1) or (3), to a virtual PST under section 320‑185 or from a virtual PST under subsection 320‑195(2) or (3)—the amount (if any) that is included in the company’s assessable income of the income year in which the asset was transferred because of section 320‑200; and
(f) the transfer values of assets transferred by the company from the company’s *segregated exempt assets under subsection 320‑235(1) or 320‑250(2); and
(g) if an asset (other than money) is transferred to the company’s segregated exempt assets under subsection 320‑235(3) or section 320‑240—the amount (if any) that is included in the company’s assessable income because of section 320‑255; and
(h) subject to subsection (2), if the *value, at the end of the income year, of the company’s liabilities under the *net risk components of life insurance policies is less than the value, at the end of the previous income year, of those liabilities—an amount equal to the difference; and
Note: Where the value at the end of the income year exceeds the value at the end of the previous income year, the excess can be deducted: see section 320‑85.
(i) amounts specified in agreements under section 295‑260; and
(j) *specified roll‑over amounts paid to the company; and
(ja) amounts imposed by the company in respect of risk riders for *ordinary investment policies in an income year in which the company did not receive any life insurance premiums for those policies; and
(k) fees and charges (not otherwise included in, or taken into account in working out, the company’s assessable income) imposed by the company in respect of life insurance policies; and
(l) if the company is an *RSA provider—contributions made to *RSAs provided by the company that would be included in the company’s assessable income under Subdivision 295‑C if that Subdivision applied to the company.
(2) Paragraph (1)(h) does not cover any liabilities under:
(a) a *life insurance policy that provides for *participating benefits or *discretionary benefits; or
(b) an *exempt life insurance policy; or
(c) a *funeral policy.
(3) An amount included in assessable income under paragraph (1)(i) is included for the income year of the *life insurance company that includes the last day of the transferor’s income year to which the agreement referred to in section 295‑260 relates.
320‑30 Assessable income—special provision for certain income years
(1) This section applies to a *life insurance company for each of the following income years (each a relevant income year):
(a) the income year in which 1 July 2000 occurs;
(b) the 4 following income years.
Note: The effect of this section is modified when the life insurance business of a life insurance company is transferred to another life insurance company: see section 320‑340.
(2) If:
(a) the *value of the company’s liabilities at the end of 30 June 2000 under its *continuous disability policies (being the value used by the company for the purposes of its return of income);
exceeds
(b) the value of the company’s liabilities at the end of 30 June 2000 under the *net risk components of its continuous disability policies as calculated under subsection 320‑85(4);
the company’s assessable income for each relevant income year includes an amount equal to one‑fifth of the excess.
(3) However, if a *life insurance company ceases in a relevant income year to carry on *life insurance business or to have any liabilities under the *net risk components of *continuous disability policies, subsection (2) does not apply for that income year or any future income years but the company’s assessable income for that income year includes so much of the excess referred to in subsection (2) as has not been included in the company’s assessable income for any previous relevant income years.
These amounts *derived by a *life insurance company are exempt from income tax:
(a) amounts of *ordinary income and *statutory income accrued before 1 July 1988 that were derived from assets that have become *virtual PST assets;
(b) if the company is an *RSA provider—any amounts that are disregarded because of paragraph 320‑137(3)(d) or (e) in working out the company’s taxable income of the *complying superannuation class.
320‑37 Non‑assessable non‑exempt income
(1) These amounts *derived by a *life insurance company are not assessable income and are not *exempt income:
(a) amounts of ordinary income and statutory income derived from *segregated exempt assets, being income that relates to the period during which the assets were segregated exempt assets;
(b) amounts of ordinary income and statutory income derived from the *disposal of units in a *pooled superannuation trust;
(c) if an *Australian/overseas fund or an *overseas fund established by the company derived foreign establishment amounts—the foreign resident proportion of the foreign establishment amounts;
(d) if the company is a *friendly society:
(i) amounts derived before 1 July 2001 that are exempt from income tax under section 50‑1; and
(ii) amounts derived on or after 1 July 2001 but before 1 January 2003, that are attributable to *income bonds, *funeral policies or *sickness policies; and
(iii) amounts derived on or after 1 July 2001 but before 1 January 2003, that are attributable to *scholarship plans and would have been exempt from income tax under section 50‑1 if they had been received before 1 July 2001; and
(iv) amounts derived on or after 1 January 2003 that are attributable to income bonds, funeral policies or *sickness policies, that were issued before 1 January 2003; and
(v) amounts derived on or after 1 January 2003 that are attributable to scholarship plans issued before 1 January 2003 and that would have been exempt from income tax if they had been received before 1 July 2001.
Note: The effect of this section is modified when the life insurance business of a life insurance company is transferred to another life insurance company: see section 320‑325.
(1A) For the purposes of paragraph (1)(c), foreign establishment amounts for the *life insurance company means the total amount of assessable income that was *derived in the income year:
(a) in the course of the carrying on by the company of a business in a foreign country at or through a *permanent establishment of the company in that country; and
(b) from sources in that or any other foreign country; and
(c) from assets that:
(i) are attributable to the permanent establishment; and
(ii) are held to meet the liabilities under the *life insurance policies issued by the company at or through the permanent establishment.
(2) For the purposes of paragraph (1)(c), the foreign resident proportion of the *foreign establishment amounts is the amount worked out using the formula:
where:
all foreign establishment policy liabilities means the average value for the income year (as calculated by an *actuary) of the policy liabilities (as defined in the *Valuation Standard) for all *life insurance policies that:
(a) were included in the class of *life insurance business to which the company’s *Australian/overseas fund or *overseas fund relates; and
(b) were issued by the company at or through the *permanent establishment to which the foreign establishment amounts relate.
foreign resident foreign establishment policy liabilities means the average value for the income year (as calculated by an *actuary) of the policy liabilities (as defined in the *Valuation Standard) for all *life insurance policies that:
(a) are *foreign resident life insurance policies; and
(b) were issued by the company at or through the *permanent establishment to which the foreign establishment amounts relate.
320‑45 Tax treatment of gains or losses from CGT events in relation to virtual PST assets
If a *CGT event happens in respect of a *CGT asset that is a *virtual PST asset of a *life insurance company, section 295‑85 and 295‑90 applies for the purpose of working out the amount of any *capital gain or *capital loss that arises from the event.
Note: See Subdivision 295‑B of the Income Tax (Transitional Provisions) Act 1997 for rules about cost base for assets owned by superannuation entities at the end of 30 June 1988.
Subdivision 320‑C—Deductions and capital losses
320‑50 What this Subdivision is about
This Subdivision specifies particular deductions that are available to a life insurance company, specifies particular amounts that a life insurance company cannot deduct and contains provisions relating to a life insurance company’s capital losses.
Table of sections
Operative provisions
320‑55 Deduction for life insurance premiums where liabilities under life insurance policies are to be discharged from virtual PST assets
320‑60 Deduction for life insurance premiums where liabilities under life insurance policies are to be discharged from segregated exempt assets
320‑65 Deduction for life insurance premiums in respect of life insurance policies that provide for participating or discretionary benefits
320‑70 No deduction for life insurance premiums in respect of certain life insurance policies payable only on death or disability
320‑75 Deduction for ordinary investment policies
320‑80 Deduction for certain claims paid under life insurance policies
320‑85 Deduction for increase in value of liabilities under net risk components of life insurance policies
320‑87 Deduction for assets transferred from or to virtual PST
320‑100 Deduction for life insurance premiums paid under certain contracts of reinsurance
320‑105 Deduction for assets transferred to segregated exempt assets
320‑107 Deductions for increased amount of lump sum death benefit
320‑110 Deduction for interest credited to income bonds
320‑111 Deduction for funeral policy payout
320‑112 Deduction for scholarship plan payout
320‑115 No deduction for amounts credited to RSAs
320‑120 Capital losses from assets other than virtual PST assets or segregated exempt assets
320‑125 Capital losses from virtual PST assets
(1) This section applies to a *life insurance company in respect of *life insurance policies where the company’s liabilities under the policies are to be discharged out of *virtual PST assets.
(2) The company can deduct:
(a) the amounts of the *life insurance premiums received in respect of the policies that are transferred to its *virtual PST assets in the income year;
less:
(b) so much of those amounts as relate to the company’s liability to pay amounts on the death or disability of a person.
(3) For the purposes of subsection (2) only, the amount of a *life insurance premium that relates to the company’s liability to pay amounts on the death or disability of a person is:
(a) if the policy provides for *participating benefits or *discretionary benefits—nil; or
(b) if paragraph (a) does not apply and the policy states that the whole or a specified part of the premium is payable in respect of such a liability—the whole or that part of the premium, as appropriate; or
(c) if neither paragraph (a) nor (b) applies:
(i) if the policy is an *endowment policy—10% of the premium; or
(ii) if the policy is a *whole of life policy—30% of the premium; or
(iii) otherwise—so much of the premium as an *actuary determines to be attributable to such a liability.
A *life insurance company can deduct the amounts of *life insurance premiums transferred in the income year to its *segregated exempt assets under subsection 320‑240(3).
A *life insurance company can deduct the amounts of *net premiums received in respect of *life insurance policies (other than *virtual PST life insurance policies or *exempt life insurance policies) that provide for *participating benefits or *discretionary benefits.
(1) A *life insurance company cannot deduct any part of the amounts of *life insurance premiums received in respect of *life insurance policies under which amounts are to be paid only on the death or disability of a person.
(2) This section does not apply to:
(a) *life insurance policies that provide for *participating benefits or *discretionary benefits; or
(b) funeral policies.
320‑75 Deduction for ordinary investment policies
(1) This section applies to a *life insurance company in respect of *ordinary investment policies issued by the company.
(2) The company can deduct, in respect of *life insurance premiums received in the income year for those policies:
(a) the sum of the *net premiums;
less:
(b) so much of the net premiums as an *actuary determines to be attributable to fees and charges charged in that income year.
(3) In making a determination under subsection (2), an *actuary is to have regard to:
(a) the changes over the income year in the sum of the *net current termination values of the policies; and
(b) the movements in those values during the income year.
(4) In addition, if an *actuary determines that:
(a) there has been a reduction in the income year (the current year) of exit fees that were imposed in respect of those policies in a previous income year; and
(b) the reduction (or a part of it) has not been taken into account in a determination under subsection (2) for the current year;
the company can deduct so much of that reduction as has not been so taken into account.
320‑80 Deduction for certain claims paid under life insurance policies
(1) A *life insurance company can deduct the amounts paid in respect of the *risk components of claims paid under *life insurance policies during the income year.
(2) The risk component of a claim paid under a *life insurance policy is:
(a) if:
(i) the policy does not provide for *participating benefits or *discretionary benefits; and
(ii) the policy is neither an *exempt life insurance policy nor a *funeral policy; and
(iii) an amount is payable under the policy only on the death or disability of the insured person;
the amount paid under the policy as a result of the occurrence of that event; or
(b) if the policy provides for participating benefits or discretionary benefits or is an exempt life insurance policy or a funeral policy—nil; or
(c) otherwise—the amount paid under the policy as a result of the death or disability of the insured person less the *current termination value of the policy (calculated by an *actuary) immediately before the death, or the occurrence of the disability, of the person.
(3) Except as provided by subsection (1), a *life insurance company cannot deduct amounts paid in respect of claims under *life insurance policies.
(1) A *life insurance company can deduct the amount (if any) by which the *value, at the end of the income year, of its liabilities under the *net risk components of *life insurance policies exceeds the value, at the end of the previous income year, of those liabilities.
Note 1: Where the value at the end of the income year is less than the value at the end of the previous income year, the difference is included in assessable income: see paragraph 320‑15(1)(h).
Note 2: Section 320‑85 of the Income Tax (Transitional Provisions) Act 1997 makes special provision in respect of the calculation of the value of a life insurance company’s liabilities under the net risk components of life insurance policies at the end of the income year immediately preceding the income year in which 1 July 2000 occurs.
(2) Subsection (1) does not cover any liabilities under:
(a) a *life insurance policy that provides for *participating benefits or *discretionary benefits; or
(b) an *exempt life insurance policy; or
(c) a *funeral policy.
(3) If a *life insurance policy is a *disability policy (other than a *continuous disability policy), the value at a particular time of the liabilities of the *life insurance company under the *net risk component of the policy is the *current termination value of the component at that time (calculated by an *actuary).
(4) In the case of *life insurance policies other than policies to which subsection (3) applies, the value at a particular time of the liabilities of the *life insurance company under the *net risk components of the policies is the amount calculated by an *actuary to be:
(a) the sum of the policy liabilities (as defined in the *Valuation Standard) in respect of the net risk components of the policies at that time;
less
(b) the sum of any cumulative losses (as defined in the Valuation Standard) for the net risk components of the policies at that time.
320‑87 Deduction for assets transferred from or to virtual PST
(1) A *life insurance company can deduct the *transfer values of assets that are transferred by the company in the income year from a *virtual PST under subsection 320‑180(1) or 320‑195(3).
(2) A *life insurance company can deduct the *transfer values of assets that are transferred by the company in the income year to a *virtual PST under subsection 320‑180(3) or 320‑185(1).
(3) If an asset (other than money) is transferred by a *life insurance company:
(a) from a *virtual PST under subsection 320‑180(1) or 320‑195(2) or (3); or
(b) to a virtual PST under subsection 320‑180(3) or section 320‑185;
the company can deduct the amount (if any) that it can deduct because of section 320‑200.
320‑100 Deduction for life insurance premiums paid under certain contracts of reinsurance
A *life insurance company can deduct amounts that:
(a) were paid by the company in the income year as *life insurance premiums under *contracts of reinsurance; and
(b) do not relate to a risk, or part of a risk, in relation to which subsection 148(1) of the Income Tax Assessment Act 1936 applies.
320‑105 Deduction for assets transferred to segregated exempt assets
(1) A *life insurance company can deduct the *transfer values of assets transferred in the income year to the company’s *segregated exempt assets under subsection 320‑235(3) or 320‑240(1).
(2) If an asset (other than money) is transferred to a *life insurance company’s *segregated exempt assets under subsection 320‑235(3) or section 320‑240, the company can deduct the amount (if any) that it can deduct because of section 320‑255.
320‑107 Deductions for increased amount of lump sum death benefit
(1) A *life insurance company can deduct an amount under this section if:
(a) it pays a lump sum because of the death of a person to the trustee of the deceased’s estate or an individual who was a *spouse, former spouse or child of the deceased at the time of death or payment; and
(b) the payment is in relation to the commutation of, or is of the capital amount payable on the termination of, an *exempt life insurance policy or a life insurance policy covered by subparagraph (b)(i) of the definition of virtual PST life insurance policy in subsection 995‑1(1) while the policy was held by the deceased by reason that the deceased would have been entitled to receive the *annuity concerned; and
(c) it increases the lump sum by an amount (the tax saving amount) so that the amount of the lump sum is the amount that the company could have paid if no tax were payable on amounts included in its assessable income under Subdivision 320‑B.
(2) The company can deduct the amount for the income year in which the lump sum is paid.
(3) The amount the company can deduct is:
where:
complying superannuation class rate is the rate of tax imposed on the *complying superannuation class of the company’s taxable income for the income year.
(4) The amount the company can deduct for a sum paid because of the death of a person to the trustee of the deceased’s estate is so much of the subsection (3) amount as is appropriate having regard to the extent to which individuals referred to in paragraph (1)(a) can reasonably be expected to benefit from the estate.
320‑110 Deduction for interest credited to income bonds
(1) A *life insurance company that is a *friendly society can deduct interest credited in the income year to the holders of *income bonds issued after 31 December 2002 where the interest accrued on or after 1 January 2003.
(2) This section has effect despite subsection 320‑80(3).
320‑111 Deduction for funeral policy payout
(1) A *life insurance company that is a *friendly society can deduct the amount of a benefit provided in the income year by the company under a *funeral policy issued after 31 December 2002, reduced by so much of the sum of the amounts deducted or deductible by the company under section 320‑75 for any income year as is reasonably related to the benefit.
(2) This section has effect despite subsection 320‑80(3).
320‑112 Deduction for scholarship plan payout
(1) A *life insurance company that is a *friendly society can deduct the amount of a benefit it provides in the income year and on or after 1 January 2003:
(a) under a *scholarship plan covered by subsection (2) or (3); and
(b) to, or on behalf of, a person nominated in the plan as a beneficiary whose education is to be helped by the benefit;
reduced by so much of the sum of the amounts deducted or deductible by the company under section 320‑75 for any income year as is reasonably related to the benefit.
(2) This subsection covers a *scholarship plan issued by the *life insurance company after 31 December 2002.
(3) This subsection covers a *scholarship plan if:
(a) the plan was issued by the *life insurance company before 1 January 2003; and
(b) no amount received by the company on or after 1 January 2003 and attributable to the plan is *non‑assessable non‑exempt income of the company under paragraph 320‑37(1)(d).
(4) This section has effect despite subsection 320‑80(3).
320‑115 No deduction for amounts credited to RSAs
A *life insurance company that is an *RSA provider cannot deduct amounts credited to *RSAs.
320‑120 Capital losses from assets other than virtual PST assets or segregated exempt assets
(1) This section applies to assets (ordinary assets) of a *life insurance company other than:
(a) *virtual PST assets; or
(b) *segregated exempt assets.
(2) In working out a *life insurance company’s *net capital gain or *net capital loss for the income year, *capital losses from ordinary assets can be used only to reduce *capital gains from ordinary assets.
(3) If some or all of a *capital loss from an ordinary asset cannot be applied in an income year, the unapplied amount can be applied in the next income year in which the company’s *capital gains from ordinary assets exceed the company’s capital losses (if any) from ordinary assets.
(4) If the company has 2 or more unapplied *net capital losses from ordinary assets, the company must apply them in the order in which they were made.
Note: This section affects the amount of assessable income that is to be taken into account in working out a taxable income or tax loss of the ordinary class: see sections 320‑139 and 320‑143.
320‑125 Capital losses from virtual PST assets
(1) In working out a *life insurance company’s *net capital gain or *net capital loss for the income year, *capital losses from *virtual PST assets can be used only to reduce *capital gains from virtual PST assets.
(2) If some or all of a *capital loss from a *virtual PST asset cannot be applied in an income year, the unapplied amount can be applied in the next income year in which the company’s *capital gains from *virtual PST assets exceed the company’s capital losses (if any) from virtual PST assets.
(3) If the company has 2 or more unapplied *net capital losses from *virtual PST assets, the company must apply them in the order in which they were made.
Note: This section affects the amount of assessable income that is to be taken into account in working out a taxable income or tax loss of the complying superannuation class: see sections 320‑137 and 320‑141.
Subdivision 320‑D—Income tax, taxable income and tax loss of life insurance companies
320‑130 What this Subdivision is about
This Subdivision explains how a life insurance company’s income tax is worked out.
For that purpose, this Subdivision enables a life insurance company to have taxable incomes and tax losses of the following classes:
• the complying superannuation class;
• the ordinary class.
320‑131 Overview of Subdivision
Working out the income tax
(1) In any income year, a life insurance company can have:
(a) a taxable income of the complying superannuation class and/or a taxable income of the ordinary class; or
(b) a tax loss of the complying superannuation class and/or a tax loss of the ordinary class; or
(c) a taxable income of one class and a tax loss of the other class.
Note: The taxable incomes mentioned in paragraph (a) are taxed at different rates: see section 23A of the Income Tax Rates Act 1986.
(2) Taxable incomes and tax losses of both classes are taken into account in working out the amount of income tax that the company has to pay for the income year (see section 320‑134). That amount is then taken to be the income tax on the company’s taxable income for that income year.
Working out taxable income and tax loss of each class
(3) In general, the rules in this Act about working out a company’s taxable income or tax loss, or deducting a company’s tax loss, apply to a life insurance company in relation to:
(a) working out a taxable income or tax loss of a particular class; or
(b) deducting a tax loss of a particular class.
(4) However, that general rule is subject to the following:
(a) sections 320‑137 to 320‑143, which allocate amounts of incomes and deductions for the purposes of working out a taxable income or tax loss of a particular class;
(b) subsections 320‑141(2) and 320‑143(2), which provide that tax losses of a particular class can be deducted only from incomes in respect of that class;
(c) section 320‑149, which sets out the provisions in this Act that have effect only in relation to a taxable income or tax loss of the ordinary class.
Table of sections
General rules
320‑133 Object of Subdivision
320‑134 Income tax of a life insurance company
320‑135 Taxable income and tax loss of each of the 2 classes
Taxable income and tax loss of life insurance companies
320‑137 Taxable income—complying superannuation class
320‑139 Taxable income—ordinary class
320‑141 Tax loss—complying superannuation class
320‑143 Tax loss—ordinary class
320‑149 Provisions that apply only in relation to the ordinary class
(1) The object of this Subdivision is to ensure that:
(a) for the purposes of working out the amount of a *life insurance company’s income tax for an income year:
(i) the company’s taxable income or *tax loss of one *class is worked out separately from its taxable income or tax loss of the other class; and
(ii) the company’s tax losses of a particular class can be deducted only from its incomes in respect of that class; and
(b) for the purposes of this Act, that amount of income tax is treated as the company’s income tax on its taxable income for that income year.
(2) In subsection (1), a class means the *complying superannuation class or the *ordinary class.
320‑134 Income tax of a life insurance company
Working out the income tax
(1) Work out a *life insurance company’s income tax for an income year under section 4‑10 as follows:
(a) apply steps 1 and 2 of the method statement in subsection 4‑10(3) to work out separately the amount that would be the company’s basic income tax liability for its taxable income of each *class for that year;
(b) treat the sum of these amounts as the company’s basic income tax liability for that year and apply step 4 of the method statement to subtract its *tax offsets from that sum.
(2) For the purposes of this Act:
(a) the income tax worked out in accordance with subsection (1) is taken to be the company’s income tax on its taxable income for the income year; and
(b) except as provided by subsection (1) of this section and sections 320‑135 to 320‑149, the company’s taxable income for that year is taken to be equal to the sum of the company’s taxable incomes of the 2 *classes for that year.
Note: This means that there is only one assessment in respect of the company’s taxable income for the income year and that the income tax constitutes only one debt to the Commonwealth.
Working out the income tax on certain assumptions
(3) Subsection (1) also has effect in relation to working out an amount that would be the company’s income tax if certain assumptions were made. It has that effect in the same way as it has effect in relation to working out the company’s income tax under section 4‑10 (except in regard to those assumptions).
Note: This means, for example, subsection (1) also has effect in relation to working out the amount of a life insurance company’s income tax on the basis of the tax offset priority rules in Division 63.
320‑135 Taxable income and tax loss of each of the 2 classes
(1) Subject to the other provisions in this Subdivision:
(a) this Act has effect for a *life insurance company in relation to working out a taxable income of a particular *class in the same way as it has effect in relation to working out a taxable income of any other company; and
(b) this Act has effect for a life insurance company in relation to working out or deducting a *tax loss of a particular class in the same way as it has effect in relation to working out or deducting a tax loss of any other company.
(2) Sections 320‑137 to 320‑143 have effect in addition to other provisions in this Act that relate to working out a taxable income or *tax loss, or deducting a tax loss (as appropriate).
(3) Nothing in this Subdivision prevents a *life insurance company from:
(a) having taxable incomes, or *tax losses, of both *classes for the same income year; or
(b) having a taxable income of one class and a tax loss of the other class for the same income year.
Note: In certain circumstances, a life insurance company can have a taxable income and a tax loss of the same class in an income year (see Subdivision 165‑B as it has effect under this Subdivision).
Taxable income and tax loss of life insurance companies
320‑137 Taxable income—complying superannuation class
(1) A *life insurance company’s taxable income of the complying superannuation class is a taxable income worked out under this Act on the basis of only:
(a) assessable income of the company that is covered by subsection (2); and
(b) deductions of the company that are covered by subsection (4); and
(c) *tax losses of the company that are of the *complying superannuation class.
Note: For the usual way of working out a taxable income: see subsection 4‑15(1). For other ways of working out a taxable income: see subsection 4‑15(2).
Relevant assessable income
(2) This subsection covers the following assessable income of a *life insurance company:
(a) assessable income *derived by the company from the investment of its *virtual PST assets in relation to the period during which those assets were virtual PST assets;
(b) so much of the amount that is included in the company’s assessable income because of paragraph 320‑15(1)(a) as is equal to the total *transfer value of assets transferred in the income year by the company to a *virtual PST under subsection 320‑185(3);
(c) if an asset (other than money) is transferred by the company from a virtual PST under subsection 320‑180(1) or 320‑195(2) or (3)—amounts that are included in the company’s assessable income because of section 320‑200;
(d) amounts that are included in the company’s assessable income because of paragraph 320‑15(1)(db), (i) or (j);
(e) amounts that are included in the company’s assessable income under subsection 115‑280(4);
(f) subject to subsection (3), so much of the company’s assessable income for the income year as is:
(i) the total amount credited during that year to the *RSAs provided by the company; less
(ii) the total amount debited during that year from the RSAs.
Amounts disregarded for RSAs
(3) In working out the amount mentioned in paragraph (2)(f), disregard the following amounts:
(a) contributions credited to the *RSAs that would not be included in the company’s assessable income under Subdivision 295‑C if that Subdivision applied to the company;
(b) amounts debited from the RSAs that are benefits paid to, or in respect of, the holders of the RSAs;
(c) income tax debited from the RSAs;
(d) if an *annuity was paid from an RSA in respect of the whole of the income year, or the whole of the part of the income year in which the RSA existed, the total amount credited to the RSA during the income year;
(e) if an annuity was paid from an RSA in respect of a part, but not the whole, of the portion of the income year in which the RSA existed, so much of the total amount credited to the RSA during the income year as is equal to the amount worked out using the following formula:
Relevant deductions
(4) This subsection covers the following deductions of a *life insurance company:
(a) amounts that the company can deduct under section 320‑55;
(b) amounts that the company can deduct (other than any *tax losses) in respect of the investment of the company’s *virtual PST assets in relation to the period during which those assets were virtual PST assets;
(c) amounts that the company can deduct under section 320‑87 because of subsection (1) or paragraph (3)(a) of that section;
(d) amounts that the company can deduct under subsection 115‑280(1);
(e) so much of the amounts that the company can deduct under subsection 115‑215(6) as are attributable to *capital gains that:
(i) the company is taken to have under subsection 115‑215(3); and
(ii) are in respect of the investment of the company’s virtual PST assets; and
(iii) are in relation to the period during which those assets were virtual PST assets.
320‑139 Taxable income—ordinary class
A *life insurance company’s taxable income of the ordinary class is a taxable income worked out under this Act on the basis of only:
(a) assessable income of the company that is not covered by subsection 320‑137(2); and
(b) amounts (other than *tax losses) that the company can deduct and are not covered by subsection 320‑137(4); and
(c) tax losses of the company that are of the *ordinary class.
Note: For the usual way of working out a taxable income: see subsection 4‑15(1). For other ways of working out a taxable income: see subsection 4‑15(2).
320‑141 Tax loss—complying superannuation class
Working out a tax loss of the complying superannuation class
(1) A *life insurance company’s *tax loss of the complying superannuation class is a tax loss worked out under this Act on the basis of only:
(a) assessable income of the company that is covered by subsection 320‑137(2); and
(b) deductions of the company that are covered by subsection 320‑137(4); and
(c) *net exempt income of the company that is attributable to *exempt income *derived:
(i) from the company’s *virtual PST assets; and
(ii) in relation to the period during which those assets were virtual PST assets.
Note: For the usual way of working out a tax loss: see section 36‑10. For other ways of working out a tax loss: see section 36‑25.
Deducting a tax loss of the complying superannuation class
(2) A *life insurance company’s *tax loss of the complying superannuation class can be deducted under this Act only from:
(a) *net exempt income of the company that is attributable to *exempt income *derived:
(i) from the company’s *virtual PST assets; and
(ii) in relation to the period during which those assets were virtual PST assets; and
(b) assessable income of the company that is covered by subsection 320‑137(2), reduced by deductions of the company that are covered by subsection 320‑137(4).
Note: For the usual way of deducting a tax loss: see section 36‑17. For other ways of deducting a tax loss: see section 36‑25.
320‑143 Tax loss—ordinary class
Working out a tax loss of the ordinary class
(1) A *life insurance company’s *tax loss of the ordinary class is a tax loss worked out under this Act on the basis of only:
(a) assessable income of the company that is not covered by subsection 320‑137(2); and
(b) amounts (other than tax losses) that the company can deduct and are not covered by subsection 320‑137(4); and
(c) *net exempt income of the company that is not attributable to *exempt income *derived:
(i) from the company’s *virtual PST assets; and
(ii) in relation to the period during which those assets were virtual PST assets.
Note: For the usual way of working out a tax loss: see section 36‑10. For other ways of working out a tax loss: see section 36‑25.
Deducting a tax loss of the ordinary class
(2) A *life insurance company’s *tax loss of the ordinary class can be deducted under this Act only from:
(a) *net exempt income of the company that is not attributable to *exempt income *derived:
(i) from the company’s *virtual PST assets; and
(ii) in relation to the period during which those assets were virtual PST assets; and
(b) assessable income of the company that is not covered by subsection 320‑137(2), reduced by amounts (other than tax losses) that the company can deduct and are not covered by subsection 320‑137(4).
Note: For the usual way of deducting a tax loss: see section 36‑17. For other ways of deducting a tax loss: see section 36‑25.
320‑149 Provisions that apply only in relation to the ordinary class
(1) The provisions covered by subsection (2):
(a) have effect as provided by section 320‑135 in relation to a *life insurance company’s taxable income, or *tax loss, of the *ordinary class; but
(b) have no effect in relation to the company’s taxable income, or tax loss, of the *complying superannuation class.
(2) This subsection covers these provisions:
(a) section 36‑55;
(b) Division 165 (except Subdivision 165‑CD).
Example 1: A life insurance company that has an amount of excess franking offsets will need to recalculate its tax loss of the ordinary class under section 36‑55. But its tax loss of the complying superannuation class is unaffected by that section.
Example 2: A life insurance company that fails to meet the relevant tests of Division 165 will need to recalculate the ordinary class of its taxable income and tax loss under Subdivision 165‑B. But the complying superannuation class of its taxable income and tax loss are unaffected by that Subdivision.
Subdivision 320‑E—No‑TFN contributions of life insurance companies that are RSA providers
320‑150 What this Subdivision is about
This Subdivision makes Subdivisions 295‑I and 295‑J apply to life insurance companies that are RSA providers.
The consequence is that those life insurance companies are liable to pay tax on no‑TFN contributions income under Subdivision 295‑I. They may also be entitled to a tax offset under Subdivision 295‑J.
Table of sections
Operative provisions
320‑155 Subdivisions 295‑I and 295‑J apply to companies that are RSA providers
320‑155 Subdivisions 295‑I and 295‑J apply to companies that are RSA providers
(1) Despite subsection 295‑5(4), Subdivisions 295‑I and 295‑J apply to a *life insurance company that is an *RSA provider.
(2) For the purposes of the application of those Subdivisions to a *life insurance company, a contribution included in the assessable income of the company under paragraph 320‑15(1)(l) is taken to have been included under Subdivision 295‑C.
320‑165 What this Subdivision is about
This Subdivision explains how a life insurance company can segregate assets (to be known as a virtual PST) to be used for the sole purpose of discharging its complying superannuation liabilities.
Table of sections
Operative provisions
320‑170 Establishment of virtual PST
320‑175 Valuations of virtual PST assets and virtual PST liabilities for each valuation time
320‑180 Consequences of a valuation under section 320‑175
320‑185 Transfer of assets to virtual PST otherwise than as a result of a valuation under section 320‑175
320‑190 Virtual PST liabilities
320‑195 Transfer of assets and payment of amounts from a virtual PST otherwise than as a result of a valuation under section 320‑175
320‑200 Consequences of transfer of assets to or from virtual PST
320‑170 Establishment of virtual PST
(1) A *life insurance company may, on or after 1 July 2000, segregate in accordance with subsections (2) and (3) any of its assets for the sole purpose of discharging its *virtual PST liabilities out of those assets.
Note: Section 320‑170 of the Income Tax (Transitional Provisions) Act 1997 provides that a life insurance company may transfer a part of an asset to a virtual PST before 1 October 2000.
(1A) Except as provided by section 320‑170 of the Income Tax (Transitional Provisions) Act 1997, an asset is taken not to be included in the *virtual PST assets unless the whole of the asset is included among those assets.
(2) The assets segregated must, at the time of the segregation, be a representative sample of all the company’s assets that support its *virtual PST liabilities immediately before the segregation.
(3) The assets segregated must have, as at the time of the segregation, a total *transfer value that does not exceed the sum of:
(a) the company’s *virtual PST liabilities as at that time; and
(b) any reasonable provision made by the company at that time in its accounts for liability for income tax in respect of the assets segregated.
(4) A *life insurance company that segregates assets as mentioned in subsections (1) to (3) at a time after 1 July 2000 but before 1 October 2000 is taken to have segregated those assets in accordance with those subsections on 1 July 2000.
(5) If a segregation of assets is made in accordance with the above subsections, the company must use the segregated assets, and any other assets afterwards included among the segregated assets, only for the purpose of discharging its *virtual PST liabilities.
(6) The assets from time to time segregated are together to be known as a virtual pooled superannuation trust or a virtual PST and each asset from time to time included among the segregated assets is to be known as a virtual PST asset.
(7) In this Subdivision:
(a) a reference to the transfer of an asset to, or from, the *virtual PST:
(i) is a reference to the inclusion of the asset among the segregated assets, or the exclusion of an asset from the segregated assets, as the case may be; and
(ii) includes a reference to the transfer of money to, or from, the virtual PST, as the case may be; and
(b) if an asset transferred to or from the virtual PST is money, a reference to the *transfer value of the asset transferred is a reference to the amount of the money.
320‑175 Valuations of virtual PST assets and virtual PST liabilities for each valuation time
(1) A *life insurance company that has established a *virtual PST must cause the following amounts to be calculated within the period of 60 days starting immediately after each *valuation time:
(a) the total *transfer value of the company’s *virtual PST assets as at the valuation time;
(b) the company’s *virtual PST liabilities as at the valuation time.
(2) These are the valuation times:
(a) the end of the income year in which the *virtual PST was established;
(b) the end of each later income year.
Note 1: The time when a life insurance company joins or leaves a consolidated group is also a valuation time: see sections 713‑525 and 713‑585.
Note 2: A life insurance company that fails to comply with this section is liable to an administrative penalty: see section 288‑70 in Schedule 1 to the Taxation Administration Act 1953.
320‑180 Consequences of a valuation under section 320‑175
Transfer from the virtual PST
(1) If the total *transfer value of the company’s *virtual PST assets as at a *valuation time exceeds the sum of:
(a) the company’s *virtual PST liabilities as at that time; and
(b) any reasonable provision made by the company at that time in its accounts for liability for income tax in respect of those assets;
the company must transfer, from the *virtual PST, assets of any kind having a total transfer value equal to the excess.
(2) A transfer under subsection (1) must be made within the period of 30 days starting immediately after:
(a) the day on which the total *transfer value and the *virtual PST liabilities (as at the *valuation time) were calculated; or
(b) if those amounts were calculated on different days—the later of those days.
The transfer, once made, is taken to have been made at the valuation time (whether or not the transfer is made within those 30 days).
Note: A life insurance company that fails to comply with subsections (1) and (2) is liable to an administrative penalty: see section 288‑70 in Schedule 1 to the Taxation Administration Act 1953.
Transfer to the virtual PST
(3) If the total *transfer value of the company’s *virtual PST assets as at a *valuation time is less than the sum of:
(a) the company’s *virtual PST liabilities as at that time; and
(b) any reasonable provision made by the company at that time in its accounts for liability for income tax in respect of those assets;
the company can transfer, to the *virtual PST, assets of any kind having a total transfer value not exceeding the difference.
(4) A transfer under subsection (3) is taken to have been made at the *valuation time if it is made within the period of 30 days starting immediately after:
(a) the day on which the total *transfer value and the *virtual PST liabilities (as at the valuation time) were calculated; or
(b) if those amounts were calculated on different days—the later of those days.
(1) If a *life insurance company determines, at a time other than a *valuation time, that the total *transfer value of the company’s *virtual PST assets as at that time is less than the sum of:
(a) the company’s *virtual PST liabilities as at that time; and
(b) any reasonable provision made by the company at that time in its accounts for liability for income tax in respect of those assets;
the company can transfer, to the *virtual PST, assets of any kind having a total transfer value not exceeding the difference.
(2) A *life insurance company can at any time transfer an asset of any kind to a *virtual PST in exchange for an amount of money equal to the *transfer value of the asset at the time of the transfer.
(3) A *life insurance company can transfer to a *virtual PST in an income year assets of any kind having a total *transfer value not exceeding the total amount of the *life insurance premiums paid to the company in that income year for the purchase of *virtual PST life insurance policies.
(4) Except as provided by this section and subsection 320‑180(3), a *life insurance company cannot transfer an asset to a *virtual PST.
320‑190 Virtual PST liabilities
(1) The amount of the *virtual PST liabilities of a *life insurance company is to be worked out in accordance with subsection (2) in respect only of *life insurance policies issued by the company:
(a) that are *virtual PST life insurance policies; and
(b) the liabilities under which are to be discharged out of the company’s *virtual PST assets.
(2) The amount of the virtual PST liabilities of a *life insurance company at a particular time is the sum of the following amounts at that time, as calculated by an *actuary:
(a) for policies providing for *participating benefits or *discretionary benefits:
(i) the values of supporting assets, as defined in the *Valuation Standard; and
(ii) the *policy owners’ retained profits;
(b) for other policies—the *current termination values.
(1) If:
(a) a *life insurance policy issued by a *life insurance company becomes an *exempt life insurance policy; and
(b) immediately before the policy became an exempt life insurance policy, the policy was a policy referred to in subsection 320‑190(1);
the company can transfer from a *virtual PST, to its *segregated exempt assets, assets of any kind whose total *transfer value does not exceed the company’s liabilities in respect of the policy.
(2) A *life insurance company can at any time transfer an asset from a *virtual PST in exchange for an amount of money equal to the *transfer value of the asset at the time of the transfer.
(3) If a *life insurance company:
(a) imposes any fees or charges in respect of *virtual PST assets; or
(b) imposes any fees or charges in respect of *virtual PST life insurance policies other than policies:
(i) that provide *superannuation death benefits, *disability superannuation benefits or temporary disability benefits of a kind referred to in paragraph 295‑460(c), that are *participating benefits; and
(ii) the liabilities under which are to be discharged out of the company’s *virtual PST; or
(c) determines, at a time other than a *valuation time, that the total *transfer value of the company’s virtual PST assets as at that time exceeds the sum of:
(i) the company’s *virtual PST liabilities at that time; and
(ii) any reasonable provision made by the company at that time in its accounts for liability for income tax in respect of those assets;
the company must, when the fees or charges are imposed or the excess is determined, as the case may be, transfer, from the *virtual PST, assets having a total transfer value equal to the fees, charges or excess, as the case may be.
(4) If:
(a) any liabilities arise for the discharge of which a *life insurance company’s *virtual PST is established; or
(b) any expenses are incurred by a life insurance company directly in respect of *virtual PST assets in relation to a period during which the assets are virtual PST assets; or
(c) any liabilities to pay *PAYG instalments, or income tax, that are attributable to the company’s *virtual PST assets;
the life insurance company must pay, from the virtual PST, any amounts required to discharge the liabilities, or amounts equal to the expenses (as appropriate).
320‑200 Consequences of transfer of assets to or from virtual PST
(1) This section applies if:
(a) an asset (other than money) is transferred from a *virtual PST under subsection 320‑180(1) or 320‑195(2) or (3); or
(b) an asset (other than money) is transferred to a virtual PST under subsection 320‑180(3) or section 320‑185.
(2) In determining:
(a) for the purposes of this Act (other than Parts 3‑1 and 3‑3) whether an amount is included in, or can be deducted from, the assessable income of a *life insurance company in respect of the transfer of the asset; or
(b) for the purposes of Parts 3‑1 and 3‑3:
(i) whether the company made a *capital gain in respect of the transfer of the asset; or
(ii) whether the company made a *capital loss in respect of the transfer of the asset;
the company is taken:
(c) to have sold, immediately before the transfer, the asset transferred for a consideration equal to its *market value; and
(d) to have purchased the asset again at the time of the transfer for a consideration equal to its market value.
(2A) Without limiting subsection (2), where the asset transferred is a *depreciating asset, Division 40 has effect for the company as if:
(a) in relation to the sale of the asset that is taken to have occurred under paragraph (2)(c):
(i) the sale were a *balancing adjustment event; and
(ii) the *termination value of the asset for that event were equal to the consideration for the sale under that paragraph; and
(iii) the company had stopped *holding the asset at the time of the sale; and
(b) in relation to the purchase of the asset that is taken to have occurred under paragraph (2)(d):
(i) the company had only begun to hold the asset after the purchase; and
(ii) the first element of the asset’s *cost were equal to the consideration for the purchase under that paragraph; and
(iii) the company had acquired the asset from an *associate of the company.
Note: This means that, amongst other things, as a result of the transfer:
- the asset’s cost for the purposes of working out a deduction under Division 40 is reset; and
- the company’s assessable income might be adjusted under section 40‑285.
(3) If, apart from this subsection and section 320‑55, a *life insurance company could deduct an amount or make a *capital loss as a result of a transfer of an asset to or from its *virtual PST, the deduction or capital loss is disregarded until:
(a) the asset ceases to exist; or
(b) the asset, or a greater than 50% interest in it, is *acquired by an entity other than an entity that is an *associate of the company immediately after the transfer.
(4) Subsection (3) does not apply in relation to an amount that the company can deduct under a provision in Division 40.
Subdivision 320‑H—Segregation of assets to discharge exempt life insurance policy liabilities
320‑220 What this Subdivision is about
This Subdivision explains how a life insurance company can segregate assets to be used for the sole purpose of discharging its liabilities under life insurance policies where the income derived by the company from those policies is exempt from income tax.
Table of sections
Operative provisions
320‑225 Segregation of assets for purpose of discharging exempt life insurance policy liabilities
320‑230 Valuations of segregated exempt assets and exempt life insurance policy liabilities for each valuation time
320‑235 Consequences of a valuation under section 320‑230
320‑240 Transfer of assets to segregated exempt assets otherwise than as a result of a valuation under section 320‑230
320‑245 Exempt life insurance policy liabilities
320‑246 Exempt life insurance policy
320‑247 Policy split into an exempt life insurance policy and another life insurance policy
320‑250 Transfer of assets and payment of amounts from segregated exempt assets otherwise than as a result of a valuation under section 320‑230
320‑255 Consequences of transfer of assets to or from segregated exempt assets
320‑225 Segregation of assets for purpose of discharging exempt life insurance policy liabilities
(1) A *life insurance company may, on or after 1 July 2000, segregate in accordance with subsections (2) and (3) any of its assets for the sole purpose of discharging its *exempt life insurance policy liabilities out of those assets.
Note: Section 320‑225 of the Income Tax (Transitional Provisions) Act 1997 provides that a life insurance company may transfer a part of an asset to its segregated exempt assets before 1 October 2000.
(1A) Except as provided by section 320‑225 of the Income Tax (Transitional Provisions) Act 1997, an asset is taken not to be included in the segregated assets under this Subdivision unless the whole of the asset is included among the segregated assets.
(2) The assets segregated must, at the time of the segregation, be a representative sample of all the company’s assets that support its *exempt life insurance policy liabilities immediately before the segregation.
(3) The assets segregated must have, as at the time of the segregation, a total *transfer value that does not exceed the amount of the company’s *exempt life insurance policy liabilities as at that time.
(4) A *life insurance company that segregates assets as mentioned in subsections (1) to (3) at a time after 1 July 2000 but before 1 October 2000 is taken to have segregated those assets in accordance with those subsections on 1 July 2000.
(5) If a segregation of assets is made in accordance with the above subsections, the company must use the *segregated exempt assets, and any other assets afterwards included among the segregated assets, only for the purpose of discharging its *exempt life insurance policy liabilities.
(6) In this Subdivision:
(a) a reference to the transfer of an asset to, or from, a *life insurance company’s *segregated exempt assets:
(i) is a reference to the inclusion of an asset among the segregated exempt assets, or the exclusion of an asset from the segregated exempt assets, as the case may be; and
(ii) includes a reference to the transfer of money to, or from, those assets, as the case may be; and
(b) if an asset transferred to or from those assets is money, a reference to the *transfer value of the asset transferred is a reference to the amount of the money.
(1) A *life insurance company that has segregated any of its assets in accordance with section 320‑225 must cause the following amounts to be calculated within the period of 60 days starting immediately after each *valuation time:
(a) the total *transfer value of the company’s *segregated exempt assets as at the valuation time;
(b) the amount of the company’s *exempt life insurance policy liabilities as at the valuation time.
(2) These are the valuation times:
(a) the end of the income year in which the segregation occurred;
(b) the end of each later income year.
Note 1: The time when a life insurance company joins or leaves a consolidated group is also a valuation time: see sections 713‑525 and 713‑585.
Note 2: A life insurance company that fails to comply with this section is liable to an administrative penalty: see section 288‑70 in Schedule 1 to the Taxation Administration Act 1953.
320‑235 Consequences of a valuation under section 320‑230
Transfer from the segregated exempt assets
(1) If:
(a) the total *transfer value of the company’s *segregated exempt assets as at a *valuation time;
exceeds
(b) the amount of the company’s *exempt life insurance policy liabilities as at that time;
the company must transfer, from the segregated exempt assets, assets of any kind having a total transfer value equal to the excess.
(2) A transfer under subsection (1) must be made within the period of 30 days starting immediately after:
(a) the day on which the total *transfer value and the *exempt life insurance policy liabilities (as at the *valuation time) were calculated; or
(b) if those amounts were calculated on different days—the later of those days.
The transfer, once made, is taken to have been made at the valuation time (whether or not the transfer is made within those 30 days).
Note: A life insurance company that fails to comply with subsections (1) and (2) is liable to an administrative penalty: see section 288‑70 in Schedule 1 to the Taxation Administration Act 1953.
Transfer to the segregated exempt assets
(3) If:
(a) the total *transfer value of the company’s *segregated exempt assets as at a *valuation time;
is less than
(b) the amount of the company’s *exempt life insurance policy liabilities as at that time;
the company can transfer, to the segregated exempt assets, assets of any kind having a total transfer value not exceeding the difference.
(4) A transfer under subsection (3) is taken to have been made at the *valuation time if it is made within the period of 30 days starting immediately after:
(a) the day on which the total *transfer value and the *exempt life insurance policy liabilities (as at the valuation time) were calculated; or
(b) if those amounts were calculated on different days—the later of those days.
(1) If a *life insurance company determines, at a time other than a *valuation time, that:
(a) the total *transfer value of the company’s *segregated exempt assets as at that time;
is less than
(b) the company’s *exempt life insurance policy liabilities as at that time;
the company can transfer, to the segregated exempt assets, assets of any kind having a total transfer value not exceeding the difference.
(2) A *life insurance company can at any time transfer an asset of any kind to its *segregated exempt assets in exchange for an amount of money equal to the *transfer value of the asset at the time of the transfer.
(3) A *life insurance company can transfer, to its *segregated exempt assets in an income year, assets of any kind having a total *transfer value not exceeding the total amount of the *life insurance premiums paid to the company in that income year for the purchase of *exempt life insurance policies.
(4) Except as provided by this section and subsections 320‑195(1) and 320‑235(3), a *life insurance company cannot transfer an asset to its *segregated exempt assets.
320‑245 Exempt life insurance policy liabilities
(1) The amount of the *exempt life insurance policy liabilities of a *life insurance company is to be worked out in accordance with subsection (2) in respect only of *life insurance policies issued by the company:
(a) that are *exempt life insurance policies; and
(b) the liabilities under which are to be discharged out of the company’s *segregated exempt assets.
(2) The amount of the exempt life insurance policy liabilities of a *life insurance company at a particular time is the sum of the following amounts at that time, as calculated by an *actuary:
(a) for policies providing for allocated benefits (other than *participating benefits or *discretionary benefits)—the *current termination values;
(b) for policies providing for participating benefits or discretionary benefits:
(i) the values of supporting assets, as defined in the *Valuation Standard; and
(ii) the *policy owner’s retained profits;
(c) for other policies—the policy liabilities, as defined in the Valuation Standard.
(3) An *exempt life insurance policy provides for allocated benefits if:
(a) the policy:
(i) is held by the trustee of a *complying superannuation fund; and
(iii) provides for an *allocated pension; or
(b) the policy:
(i) is held by a *life insurance company other than the life insurance company that issued the policy; and
(ii) is a *segregated exempt asset of the life insurance company that issued the policy; and
(iii) provides for an allocated pension; or
(c) the policy provides for an *allocated annuity.
320‑246 Exempt life insurance policy
(1) An exempt life insurance policy is a *life insurance policy (other than an *RSA):
(a) that is held by the trustee of a *complying superannuation fund and provides solely for the discharge of the fund’s liabilities (contingent or not) in respect of *superannuation income stream benefits that are currently payable by the fund; or
(b) that is held by the trustee of a *pooled superannuation trust, where:
(i) the policy provides solely for the discharge of the liabilities (contingent or not) in respect of *superannuation income stream benefits that are currently payable by complying superannuation funds; and
(ii) the funds are unit holders of the trust; or
(c) that is held by another *life insurance company and is a *segregated exempt asset of that other company; or
(d) that is held by the trustee of a *constitutionally protected fund; or
(e) that provides for an *immediate annuity that:
(i) was purchased on or before 9 December 1987 and was not purchased wholly or partly with a *roll‑over superannuation benefit; or
(ii) satisfies the conditions in subsections (3), (4) and (5) and was purchased on or before 9 December 1987 wholly or partly with a roll‑over superannuation benefit; or
(iii) satisfies the conditions in subsections (3), (4) and (5) and was purchased after 9 December 1987; or
(iv) satisfies the conditions in subsections (3), (4) and (5) and was purchased on or after 1 July 2007; or
(f) that provides for either or both of the following:
(i) a *personal injury annuity, payments of which are exempt from income tax under Division 54;
(ii) a *personal injury lump sum, payment of which is exempt from income tax under Division 54.
Note: A part of a life insurance policy may be taken to be an exempt life insurance policy under section 320‑247.
(3) An *immediate annuity satisfies the conditions in this subsection if it is payable until the later of:
(a) the death of a person (or the death of the last to die of 2 or more persons); or
(b) the end of a fixed term.
(4) An *immediate annuity satisfies the conditions in this subsection if the contract under which it is payable does not permit:
(a) the total amount payable for its commutation to exceed:
(i) if the annuity is a *superannuation income stream that was purchased on or after 1 July 2007—the amount of the *taxable component of the *superannuation interest supporting the superannuation income stream; or
(ii) if subparagraph (i) does not apply—its reduced purchase price (within the meaning of former section 27A of the Income Tax Assessment Act 1936 just before the commencement of Schedule 1 to the Superannuation Legislation Amendment (Simplification) Act 2007).
(b) any payment of its residual capital value (within the meaning of that section) to exceed its purchase price (within the meaning of that section).
(5) An *immediate annuity satisfies the conditions in this subsection if there is no unreasonable deferral of the payments of the annuity, having regard to:
(a) to the extent to which the payments depend on the returns of the investment of the assets of the *life insurance company paying the annuity—when the payments are made and when those returns are *derived; and
(b) to the extent to which the payments do not depend on those returns—the relative sizes of the payments from year to year; and
(c) any other relevant factors.
320‑247 Policy split into an exempt life insurance policy and another life insurance policy
When is a part of a policy taken to be an exempt life insurance policy?
(1) A part of a *life insurance policy (the original policy) is taken to be an *exempt life insurance policy for the purposes of this Act if:
(a) the part provides solely for the discharge of the liabilities (contingent or not) in respect of *superannuation income stream benefits that are currently payable by a *complying superannuation fund; and
(b) the trustee of the fund holds the original policy.
(2) A part of a *life insurance policy (the original policy) is taken to be an *exempt life insurance policy for the purposes of this Act if:
(a) the part provides solely for the discharge of liabilities that are attributable to the liabilities (contingent or not) in respect of *superannuation income stream benefits that are currently payable by *complying superannuation funds; and
(b) the trustee of a *pooled superannuation trust holds the original policy; and
(c) the funds are unit holders of the trust.
What happens to the rest of the policy?
(3) If a part of a policy (the original policy) is taken to be an *exempt life insurance policy under subsection (1) or (2), the rest of the original policy is taken to be another *life insurance policy for the purposes of this Act.
(1) A *life insurance company can at any time transfer an asset from its*segregated exempt assets in exchange for an amount of money equal to the *transfer value of the asset at the time of the transfer.
(2) If a *life insurance company:
(a) imposes any fees or charges in respect of *segregated exempt assets; or
(b) imposes any fees or charges in respect of *exempt life insurance policies where the liabilities under the policies are to be discharged out of the company’s segregated exempt assets; or
(c) determines, at a time other than a *valuation time, that the total *transfer value of the company’s segregated exempt assets as at that time exceeds the amount of the company’s *exempt life insurance policy liabilities as at that time;
the company must, when the fees or charges are imposed or the excess is determined, as the case may be, transfer from the segregated exempt assets, assets having a total transfer value equal to the fees, charges or excess, as the case may be.
(3) If:
(a) any liabilities arise for the discharge of which a *life insurance company has *segregated exempt assets; or
(b) any expenses are incurred by a life insurance company directly in respect of segregated exempt assets in relation to a period during which the assets are segregated exempt assets;
the life insurance company must pay from the segregated exempt assets any amounts required to discharge the liabilities or amounts equal to the expenses, as the case may be.
320‑255 Consequences of transfer of assets to or from segregated exempt assets
(1) This section applies if:
(a) an asset (other than money) is transferred from the company’s *segregated exempt assets under subsection 320‑235(1) or 320‑250(1) or (2); or
(b) an asset (other than money) is transferred to the company’s *segregated exempt assets under subsection 320‑235(3) or section 320‑240.
(2) In determining:
(a) for the purposes of this Act (other than Division 40 and Parts 3‑1 and 3‑3) whether an amount is included in, or can be deducted from, the assessable income of a *life insurance company in respect of the transfer of the asset; or
(b) for the purposes of Parts 3‑1 and 3‑3:
(i) whether the company made a *capital gain in respect of the transfer; or
(ii) whether the company made a *capital loss in respect of the transfer;
the company is taken:
(c) to have sold, immediately before the transfer, the asset transferred for a consideration equal to its *market value; and
(d) to have purchased the asset again at the time of the transfer for a consideration equal to its market value.
(3) If, apart from this subsection, section 320‑60 and subsection 320‑105(1), a *life insurance company could deduct an amount or apply a *capital loss as a result of the transfer of an asset to its *segregated exempt assets, the deduction or capital loss is disregarded until:
(a) the asset ceases to exist; or
(b) the asset, or a greater than 50% interest in it, is *acquired by an entity other than an entity that is an *associate of the company, immediately after the acquisition.
(3A) Subsection (3) does not apply in relation to an amount that the company can deduct under a provision in Division 40.
(4) A *life insurance company cannot deduct an amount or apply a *capital loss as a result of the transfer of an asset from its *segregated exempt assets.
(6) If a *depreciating asset is transferred to the *segregated exempt assets of a *life insurance company, then, in determining for the purposes of Division 40 whether an amount is included in, or can be deducted from, the company’s assessable income as a result of the transfer, the company is taken:
(a) to have, at the time immediately before the transfer, sold the asset for a consideration equal to its *market value at that time; and
(b) to have, at the time of the transfer, purchased the asset again for a consideration equal to its market value at that time.
(7) If a *depreciating asset that has been included in the *segregated exempt assets of a *life insurance company since the asset was acquired by the company or the initial segregation of those assets took place is transferred from those assets, then the company must assume for the purposes of Division 40 that:
(a) if the asset’s *market value at the time of the transfer is greater than its *adjustable value at that time, the company:
(i) had, at the time immediately before the transfer, sold the asset for a consideration equal to its adjustable value at that time; and
(ii) had, at the time of the transfer, purchased the asset again for a consideration equal to its adjustable value at that time; or
(b) if the asset’s market value at the time of the transfer is equal to or less than its adjustable value at that time, the company:
(i) had, at the time immediately before the transfer, sold the asset for a consideration equal to its market value at that time; and
(ii) had, at the time of the transfer, purchased the asset again for a consideration equal to its market value at that time.
(8) If a *depreciating asset that was previously transferred to the *segregated exempt assets of a *life insurance company is transferred from those assets, then, the company must assume, for the purposes of Division 40 that:
(a) if the asset’s *market value at the time of its transfer from those assets is greater than its market value at the time when it was transferred to those assets, the company:
(i) had, at the time immediately before the transfer from those assets, sold the asset for a consideration equal to its market value at the time when it was transferred to those assets; and
(ii) had, at the time of the transfer from those assets, purchased the asset again for a consideration equal to its market value at the time when it was transferred to those assets; or
(b) if the asset’s market value at the time of its transfer from those assets is equal to or less than its market value at the time when it was transferred to those assets, the company:
(i) had, at the time immediately before the transfer from those assets, sold the asset for a consideration equal to its market value at that time; and
(ii) had, at the time of the transfer from those assets, purchased the asset again for a consideration equal to its market value at that time.
(9) Division 40 has effect in relation to an asset covered by subsection (6), (7) or (8) as if:
(a) in relation to the sale of the asset that is taken to have occurred under that subsection:
(i) the sale were a *balancing adjustment event; and
(ii) the *termination value of the asset for that event were equal to the consideration for the sale under that subsection; and
(iii) the company had stopped *holding the asset at the time of the sale; and
(b) in relation to the purchase of the asset that is taken to have occurred under that subsection:
(i) the company had only begun to hold the asset after the purchase; and
(ii) the first element of the asset’s *cost were equal to the consideration for the purchase under that subsection; and
(iii) the company had acquired the asset from an *associate of the company.
Note: This means that, amongst other things, as a result of the transfer:
- the asset’s cost for the purposes of working out a deduction under Division 40 is reset; and
- the company’s assessable income might be adjusted under section 40‑285 if the transfer is a transfer to the company’s segregated exempt assets.
Subdivision 320‑I—Transfers of business
320‑300 What this Subdivision is about
This Subdivision contains special rules that apply when all or part of the life insurance business of a life insurance company is transferred to another life insurance company under the Life Insurance Act 1995 or the Financial Sector (Business Transfer and Group Restructure) Act 1999.
Table of sections
Operative provisions
320‑305 When this Subdivision applies
320‑310 Special deductions and amounts of assessable income
320‑315 Virtual PST and segregated exempt assets
320‑320 Certain amounts treated as life insurance premiums
320‑325 Friendly societies
320‑330 Immediate annuities
320‑335 Parts of assets treated as separate assets
320‑340 Continuous disability policies
320‑345 Exemption of management fees
320‑305 When this Subdivision applies
The rules in this Subdivision have effect if all or part of the *life insurance business of a *life insurance company (the originating company) is transferred to another life insurance company (the recipient company):
(a) in accordance with a scheme confirmed by the Federal Court of Australia under Part 9 of the Life Insurance Act 1995; or
(b) under the Financial Sector (Business Transfer and Group Restructure) Act 1999.
320‑310 Special deductions and amounts of assessable income
Deduction for originating company
(1) If the originating company pays an amount to the recipient company in respect of liabilities under the *net risk components of *life insurance policies transferred to the recipient company, the originating company can deduct that amount for the income year in which the transfer took place.
Amount included in originating company’s assessable income
(2) If the originating company receives an amount from the recipient company in respect of liabilities under the *net risk components of *life insurance policies transferred to the recipient company, that amount is included in the assessable income of the originating company for the income year in which the transfer took place.
Deduction for recipient company
(3) If the recipient company pays an amount to the originating company in respect of liabilities under the *net risk components of *life insurance policies transferred to the recipient company, the recipient company can deduct that amount for the income year in which the transfer took place.
320‑315 Virtual PST and segregated exempt assets
(1) Assets that were *virtual PST assets of the originating company just before the transfer took place and that are transferred to the recipient company become virtual PST assets of the recipient company.
(2) Assets that were *segregated exempt assets of the originating company just before the transfer took place and that are transferred to the recipient company become segregated exempt assets of the recipient company.
320‑320 Certain amounts treated as life insurance premiums
(1) This Division applies to the recipient company as if the amount or value of any consideration received by the recipient company in respect of liabilities under *life insurance policies transferred to the company were *life insurance premiums paid to the company at the time the transfer took place.
(2) However, subsection (1) does not apply to consideration:
(a) that relates to liabilities that, just before the transfer took place, were discharged out of the originating company’s *virtual PST assets or *segregated exempt assets; or
(b) that relates to the part of a *life insurance policy that has been reinsured under a *contract of reinsurance (except consideration that relates to a risk, or part of a risk, in relation to which subsection 148(1) of the Income Tax Assessment Act 1936 applies).
(1) This section has effect if the originating company and the recipient company were *friendly societies just before the transfer took place.
(2) For the purposes of paragraph 320‑37(1)(d), an *income bond, *funeral policy, *sickness policy or *scholarship plan issued by the recipient company in substitution for an income bond, funeral policy, sickness policy or scholarship plan (the original policy) transferred from the originating company is taken to have been issued at the time the original policy was issued if the terms of the substituted policy are not materially different from those of the original policy.
For the purposes of section 320‑246, a *life insurance policy that provides for an *immediate annuity issued by the recipient company in substitution for a policy (also the original policy) transferred from the originating company is taken to have been issued at the time the original policy was issued if the terms of the substituted policy are not materially different from those of the original policy.
320‑335 Parts of assets treated as separate assets
If:
(a) an asset is transferred to the recipient company from the originating company; and
(b) parts of that asset were, under section 320‑170 or 320‑225 of the Income Tax (Transitional Provisions) Act 1997, treated as separate assets of the originating company just before the transfer took place;
those parts of that asset are also treated as separate assets of the recipient company.
320‑340 Continuous disability policies
(1) This section has effect if:
(a) the originating company and the recipient company were members of the same *wholly‑owned group just before the transfer took place; and
(b) all of the liabilities under the *continuous disability policies of the originating company are transferred to the recipient company; and
(c) the transfer took place before the income year in which 1 July 2005 occurs; and
(d) an amount (the section 320‑30 amount) would have been included in the assessable income of the originating company under section 320‑30 for the income year in which the transfer took place if the transfer had not taken place.
(2) Section 320‑30 does not apply to the originating company for the income year in which the transfer took place or a later income year.
(3) The amount worked out using this formula is included in the assessable income of the originating company for the income year in which the transfer took place:
where:
continuous disability policy days means the number of days during the income year in which the transfer took place that the originating company held *continuous disability policies.
(4) The section 320‑30 amount, reduced by the amount included in the assessable income of the originating company under subsection (3), is included in the assessable income of the recipient company for the income year in which the transfer took place.
(5) For each income year after the year in which the transfer took place and that is a relevant income year for the purposes of section 320‑30, the recipient company’s assessable income includes the amount that would have been included in the originating company’s assessable income under that section for that year if the transfer had not taken place.
320‑345 Exemption of management fees
(1) This section has effect if:
(a) the originating company and the recipient company were members of the same *wholly‑owned group just before the transfer took place; and
(b) a *life insurance policy (also the original policy):
(i) is constituted by a contract made with the originating company before 1 July 2000; and
(ii) is transferred to the recipient company before 1 July 2005.
(2) For the purposes of section 320‑40, a *life insurance policy issued by the recipient company in substitution for the original policy is taken to have been constituted by a contract made with the recipient company before 1 July 2000 if the terms of the substituted policy are not materially different from those of the original policy.
(3) Subsection 320‑40(4) applies to so much of the sum of the amounts applicable in respect of the substituted policy under subsections 320‑40(5), (6) and (7) as does not exceed any fees or charges made by the recipient company that the originating company would have been entitled to make under the terms of the original policy as applying just before 1 July 2000.
Division 322—HIH rescue package
322‑1 What this Division is about
This Division sets out special measures to assist in the rescue package provided in response to the collapse of the HIH group.
Table of sections
Operative provisions
322‑5 Rescue payments treated as insurance payments by HIH
322‑10 HIH Trust exempt from tax
322‑15 Certain capital gains and capital losses disregarded
322‑5 Rescue payments treated as insurance payments by HIH
(1) This Act applies to you as if a payment you receive from the Commonwealth, the *HIH Trust or a prescribed entity for assignment of your rights under or in relation to a *general insurance policy you held with an *HIH company:
(a) had been made by the HIH company; and
(b) had been made under the terms and conditions of the general insurance policy you held with the HIH company.
(2) The HIH Trust is the HIH Claims Support Trust (established on 6 July 2001).
(3) An HIH company is:
(a) CIC Insurance Limited; or
(b) FAI General Insurance Company Limited; or
(c) FAI Reinsurances Pty Limited; or
(d) FAI Traders Insurance Company Pty Limited; or
(e) HIH Casualty and General Insurance Limited; or
(f) HIH Underwriting and Insurance (Australia) Pty Limited; or
(g) World Marine and General Insurances Pty Limited; or
(h) another related company specified in writing by the Commissioner.
322‑10 HIH Trust exempt from tax
The total *ordinary income and *statutory income of:
(a) the HIH Trust; and
(b) an entity prescribed for the purposes of this Division;
is exempt from income tax.
322‑15 Certain capital gains and capital losses disregarded
A *capital gain or *capital loss you make because you assign a right under or in relation to a *general insurance policy you held with an *HIH company to the Commonwealth, the trustee of the *HIH Trust or a prescribed entity is disregarded.
Part 3‑45—Rules for particular industries and occupations
Division 328—Small business entities
Table of Subdivisions
328‑B Objects of this Division
328‑C What is a small business entity
328‑D Capital allowances for small business entities
328‑E Trading stock for small business entities
328‑5 What this Division is about
This Division explains the meaning of the terms small business entity, annual turnover, aggregated turnover and related concepts (Subdivision 328‑C).
If you are a small business entity, this Division allows you to change the way the income tax law applies to you in these ways:
(a) you can choose to put your depreciating assets into a long life pool or a general pool and treat each pool as a single asset (Subdivision 328‑D);
(b) you can choose not to account for annual changes in trading stock value that are not more than $5,000 (Subdivision 328‑E).
In usual circumstances, these changes will simplify the working out of your taxable income, and so reduce your compliance costs.
Table of sections
328‑10 Concessions available to small business entities
328‑10 Concessions available to small business entities
(1) If you are a small business entity for an income year, you can choose to take advantage of the concessions set out in the following table. Some of the concessions have additional, specific conditions that must also be satisfied.
Item | Concession | Provision |
1 | CGT 15‑year asset exemption | Subdivision 152‑B of this Act |
2 | CGT 50% active asset reduction | Subdivision 152‑C of this Act |
3 | CGT retirement exemption | Subdivision 152‑D of this Act |
4 | CGT roll‑over | Subdivision 152‑E of this Act |
5 | Simpler depreciation rules | Subdivision 328‑D of this Act |
6 | Simplified trading stock rules | Subdivision 328‑E of this Act |
7 | Deducting certain prepaid business expenses immediately | Sections 82KZM and 82KZMD of the Income Tax Assessment Act 1936 |
8 | Accounting for GST on a cash basis | Section 29‑40 of the GST Act |
9 | Annual apportionment of input tax credits for acquisitions and importations that are partly creditable | Section 131‑5 of the GST Act |
10 | Paying GST by quarterly instalments | Section 162‑5 of the GST Act |
11 | FBT car parking exemption | Section 58GA of the Fringe Benefits Tax Assessment Act 1986 |
12 | PAYG instalments based on GDP‑adjusted notional tax | Section 45‑130 of Schedule 1 to the Taxation Administration Act 1953 |
(2) Also, if you are a small business entity for an income year, the standard 2‑year period for amending your assessment applies to you (section 170 of the Income Tax Assessment Act 1936).
Note: If you are a small business entity for an income year and your aggregated turnover for the year is less than $75,000, you may also be entitled to the 25% entrepreneurs’ tax offset: see Subdivision 61‑J of this Act.
Subdivision 328‑B—Objects of this Division
328‑50 Objects of this Division
(1) The main object of this Division is to offer eligible small businesses the choice of a new platform to deal with their tax. The platform is designed to benefit those businesses in one or more of these ways:
• reducing their tax;
• providing simpler rules for determining their income and deductions;
• providing simpler capital allowances and trading stock requirements;
• reducing their compliance costs.
(2) This Division also provides rules that are intended to prevent other businesses from taking advantage of those benefits.
Subdivision 328‑C—What is a small business entity
328‑105 What this Subdivision is about
This Subdivision explains the meaning of the terms small business entity, annual turnover, aggregated turnover and related concepts.
Table of sections
Operative provisions
328‑110 Meaning of small business entity
328‑115 Meaning of aggregated turnover
328‑120 Meaning of annual turnover
328‑125 Meaning of connected with an entity
328‑130 Meaning of affiliate
328‑110 Meaning of small business entity
General rule: based on aggregated turnover worked out as at the beginning of the current income year
(1) You are a small business entity for an income year (the current year) if:
(a) you carry on a *business in the current year; and
(b) one or both of the following applies:
(i) you carried on a business in the income year (the previous year) before the current year and your *aggregated turnover for the previous year was less than $2 million;
(ii) your aggregated turnover for the current year is likely to be less than $2 million.
Note: Section 328‑110 of the Income Tax (Transitional Provisions) Act 1997 affects the operation of this subsection in relation to the 2007‑08 and 2008‑09 income years.
(2) You work out your *aggregated turnover for the current year for the purposes of subparagraph (1)(b)(ii):
(a) as at the first day of the current year; or
(b) if you start to carry on a *business during the current year—as at the day you start to carry on the business.
Note: Subsection 328‑120(5) provides for how to work out your annual turnover (which is relevant to working out your aggregated turnover) if you do not carry on a business for the whole of an income year.
Exception: aggregated turnover for 2 previous income years was $2 million or more
(3) However, you are not a small business entity for an income year (the current year) because of subparagraph (1)(b)(ii) if:
(a) you carried on a *business in each of the 2 income years before the current year; and
(b) your *aggregated turnover for each of those income years was $2 million or more.
Note: Section 328‑110 of the Income Tax (Transitional Provisions) Act 1997 affects the operation of this subsection in relation to the 2007‑08 and 2008‑09 income years.
Additional rule: based on aggregated turnover worked out as at the end of the current income year
(4) You are also a small business entity for an income year (the current year) if:
(a) you carry on a *business in the current year; and
(b) your *aggregated turnover for the current year, worked out as at the end of that year, is less than $2 million.
Note: If you are a small business entity only because of subsection (4), you cannot choose any of the following concessions:
(a) paying PAYG instalments based on GDP‑adjusted notional tax: see section 45‑130 of Schedule 1 to the Taxation Administration Act 1953;
(b) accounting for GST on a cash basis: see section 29‑40 of the GST Act;
(c) making an annual apportionment of input tax credits for acquisitions and importations that are partly creditable: see section 131‑5 of the GST Act;
(d) paying GST by quarterly instalments: see section 162‑5 of the GST Act.
Winding up a business previously carried on
(5) This Subdivision applies to you as if you carried on a *business in an income year if:
(a) in that year you were winding up a business you previously carried on; and
(b) you were a *small business entity for the income year in which you stopped carrying on that business.
Note 1: Subsection 328‑120(5) provides for how to work out your annual turnover (which is relevant to working out your aggregated turnover) if you do not carry on a business for the whole of an income year.
Note 2: A special rule applies if you were an STS taxpayer under this Division (as in force immediately before the commencement of this section) in the income year in which you stopped carrying on the business: see section 328‑111 of the Income Tax (Transitional Provisions) Act 1997.
328‑115 Meaning of aggregated turnover
(1) Your aggregated turnover for an income year is the sum of the relevant annual turnovers (see subsection (2)) excluding any amounts covered by subsection (3).
(2) The relevant annual turnovers are:
(a) your *annual turnover for the income year; and
(b) the annual turnover for the income year of any entity (a relevant entity) that is *connected with you at any time during the income year; and
(c) the annual turnover for the income year of any entity (a relevant entity) that is an *affiliate of yours at any time during the income year.
(3) Your aggregated turnover for an income year does not include the following amounts:
(a) amounts *derived in the income year by you or a relevant entity from dealings between you and the relevant entity while the relevant entity is *connected with you or is your *affiliate;
(b) amounts derived in the income year by a relevant entity from dealings between the relevant entity and another relevant entity while each relevant entity is connected with you or is your affiliate;
(c) amounts derived in the income year by a relevant entity while the relevant entity is not connected with you and is not your affiliate.
328‑120 Meaning of annual turnover
General rule
(1) An entity’s annual turnover for an income year is the total *ordinary income that the entity *derives in the income year in the ordinary course of carrying on a *business.
Exclusion of amounts relating to GST
(2) In working out an entity’s *annual turnover for an income year, do not include any amount that is *non‑assessable non‑exempt income under section 17‑5 (which is about GST).
Exclusion of amounts derived from sales of retail fuel
(3) In working out an entity’s *annual turnover for an income year, do not include any amounts of *ordinary income the entity *derives from sales of *retail fuel.
Amounts derived from dealings with associates
(4) In working out an entity’s *annual turnover for an income year, the amount of *ordinary income the entity *derives from any dealing with an *associate of the entity is the amount of ordinary income the entity would derive from the dealing if it were at *arm’s length.
Note: Amounts derived in an income year from any dealings between an entity and an associate that is a relevant entity within the meaning of section 328‑115 are not included in the entity’s aggregated turnover for that year: see subsection 328‑115(3).
Business carried on for part of income year only
(5) If an entity does not carry on a *business for the whole of an income year, the entity’s *annual turnover for the income year must be worked out using a reasonable estimate of what the entity’s annual turnover for the income year would be if the entity carried on a business for the whole of the income year.
Regulations may provide for different calculation of annual turnover
(6) The regulations may provide that an entity’s *annual turnover for an income year is to be calculated in a different way, but only so that it would be less than the amount worked out under this section.
328‑125 Meaning of connected with an entity
(1) An entity is connected with another entity if:
(a) either entity controls the other entity in a way described in this section; or
(b) both entities are controlled in a way described in this section by the same third entity.
Direct control of an entity other than a discretionary trust
(2) An entity (the first entity) controls another entity if the first entity, its *affiliates, or the first entity together with its affiliates:
(a) except if the other entity is a discretionary trust—beneficially own, or have the right to acquire the beneficial ownership of, interests in the other entity that carry between them the right to receive a percentage (the control percentage) that is at least 40% of:
(i) any distribution of income by the other entity; or
(ii) if the other entity is a partnership—the net income of the partnership; or
(iii) any distribution of capital by the other entity; or
(b) if the other entity is a company—beneficially own, or have the right to acquire the beneficial ownership of, *equity interests in the company that carry between them the right to exercise, or control the exercise of, a percentage (the control percentage) that is at least 40% of the voting power in the company.
Direct control of a discretionary trust
(3) An entity (the first entity) controls a discretionary trust if a trustee of the trust acts, or could reasonably be expected to act, in accordance with the directions or wishes of the first entity, its *affiliates, or the first entity together with its affiliates.
(4) An entity (the first entity) controls a discretionary trust for an income year if, for any of the 4 income years before that year:
(a) the trustee of the trust paid to, or applied for the benefit of:
(i) the first entity; or
(ii) any of the first entity’s *affiliates; or
(iii) the first entity and any of its affiliates;
any of the income or capital of the trust; and
(b) the percentage (the control percentage) of the income or capital paid or applied is at least 40% of the total amount of income or capital paid or applied by the trustee for that year.
Note: Section 328‑112 of the Income Tax (Transitional Provisions) Act 1997 affects the operation of this subsection in relation to the 2007‑08, 2008‑09, 2009‑10 and 2010‑11 income years.
(5) An entity does not control a discretionary trust because of subsection (4) if the entity is:
(a) an *exempt entity; or
(b) a *deductible gift recipient.
Commissioner may determine that an entity does not control another entity
(6) If the control percentage referred to in subsection (2) or (4) is at least 40%, but less than 50%, the Commissioner may determine that the first entity does not control the other entity if the Commissioner thinks that the other entity is controlled by an entity other than, or by entities that do not include, the first entity or any of its *affiliates.
Indirect control of an entity
(7) This section applies to an entity (the first entity) that directly controls another entity (the second entity) as if the first entity also controlled any other entity that is directly, or indirectly by any other application or applications of this section, controlled by the second entity.
(8) However, subsection (7) does not apply if the second entity is an entity of any of the following kinds:
(a) a company *shares in which (except shares that carry the right to a fixed rate of *dividend) are listed for quotation in the official list of an *approved stock exchange;
(b) a *publicly traded unit trust;
(c) a *mutual insurance company;
(d) a *mutual affiliate company;
(e) a company (other than one covered by paragraph (a)) all the shares in which are beneficially owned by one or more of the following:
(i) a company covered by paragraph (a);
(ii) a publicly traded unit trust;
(iii) a mutual insurance company;
(iv) a mutual affiliate company.
(1) An individual or a company is an affiliate of yours if the individual or company acts, or could reasonably be expected to act, in accordance with your directions or wishes, or in concert with you, in relation to the affairs of the *business of the individual or company.
(2) However, an individual or a company is not your affiliate merely because of the nature of the business relationship you and the individual or company share.
Example: A partner in a partnership would not be an affiliate of another partner merely because the first partner acts, or could reasonably be expected to act, in accordance with the directions or wishes of the second partner, or in concert with the second partner, in relation to the affairs of the partnership.
Directors of the same company and trustees of the same trust, or the company and a director of that company, would be in a similar position.
Subdivision 328‑D—Capital allowances for small business entities
328‑170 What this Subdivision is about
If you are a small business entity, you can choose to deduct amounts for most of your depreciating assets on a diminishing value basis using a pool that is treated as a single depreciating asset.
Broadly, a pool is made up of the costs of the depreciating assets that are allocated to it or, in some cases, a proportion of those costs.
The pool rate is 30% for most depreciating assets, and 5% for depreciating assets that have an effective life of 25 years or more.
There is an immediate deduction for low‑cost assets.
This Subdivision sets out how to calculate the pool deductions, and also sets out the consequences of:
(a) disposal of depreciating assets; and
(b) not choosing to use this Subdivision for an income year after having chosen to do so for an earlier income year; and
(c) changing the business use of depreciating assets.
Table of sections
Operative provisions
328‑175 Calculations for depreciating assets
328‑180 Low cost assets
328‑185 Pooling
328‑190 Calculation
328‑195 Opening pool balance
328‑200 Closing pool balance
328‑205 Estimate of taxable use
328‑210 Low pool value
328‑215 Disposal etc. of depreciating assets
328‑220 What happens if you are not a small business entity or do not choose to use this Subdivision for an income year
328‑225 Change in business use
328‑230 Estimate where deduction denied
328‑235 Interaction with Divisions 85 and 86
328‑243 Roll‑over relief
328‑245 Consequences of roll‑over
328‑247 Pool deductions
328‑250 Deductions for assets first used in BAE year
328‑253 Deductions for cost addition amounts
328‑255 Closing pool balance etc. below zero
328‑257 Taxable use
328‑175 Calculations for depreciating assets
(1) You can choose to calculate your deductions and some amounts of assessable income under this Subdivision instead of under Division 40 for an income year for all the *depreciating assets that you *hold if:
(a) you are a *small business entity for the income year; and
(b) you started to use the assets or have them *installed ready for use, for a *taxable purpose during or before that income year.
This subsection has effect subject to subsections (2) to (10).
Note: If you choose to use this Subdivision for an income year, you continue to use this Subdivision for your small business pools for a later income year even if you are not a small business entity, or do not choose to use this Subdivision, for the later year: see section 328‑220.
Exception: assets to which Division 40 does not apply
(2) This Subdivision does not apply to a *depreciating asset to which Division 40 does not apply because of section 40‑45.
Exception: primary production
(3) If you are a *small business entity for the income year, for each *depreciating asset you use to carry on a *primary production business and for which you could deduct amounts under Subdivision 40‑F (about primary production depreciating assets) or Subdivision 40‑G (about capital expenditure of primary producers and other landholders) apart from subsection (1), you can choose:
(a) to deduct amounts for it under Subdivision 40‑F or 40‑G; or
(b) to calculate your deductions for it under this Subdivision.
Note: A choice made by a transferor under this subsection for an asset applies also to the transferee if roll‑over relief under subsection 40‑340(1) or (3) is chosen: see section 328‑245.
(4) You must make the choice under subsection (3) for each *depreciating asset of the kind referred to in that subsection for the later of:
(a) the first income year for which you are, or last were, a *small business entity; or
(b) the income year in which you started to use the asset, or have it *installed ready for use, for a *taxable purpose.
Once you have made the choice for an asset, you cannot change it.
Exception: horticultural plants
(5) You cannot deduct amounts for *horticultural plants (including grapevines) under this Subdivision.
Exception: asset let on depreciating asset lease
(6) You cannot deduct amounts for a *depreciating asset under this Subdivision if the asset is being or might reasonably be expected to be let predominantly on a *depreciating asset lease.
Exception: assets in a low‑value or software development pool
(7) You cannot deduct amounts for a *depreciating asset under this Subdivision if:
(a) the asset was allocated to your low‑value pool under Subdivision 40‑E, or to your pool under the former Subdivision 42‑L, during an income year for which you were not a *small business entity or had not chosen to use this Subdivision; or
(b) the asset is *in‑house software and expenditure on the asset is allocated to a software development pool under that Subdivision.
Note: You will have to continue deducting amounts for these assets under Division 40.
(8) A *depreciating asset referred to in subsection (7) is not allocated to a pool under this Subdivision and does not qualify for a deduction under section 328‑180.
Exception: assets previously deductible under research and development provisions
(9) You cannot deduct amounts for a *depreciating asset for any period under this Subdivision if you can deduct an amount for the asset under section 73BA of the Income Tax Assessment Act 1936 (or could so deduct an amount if you had not chosen a tax offset under section 73I of that Act) for the same or an earlier period.
Exception: restriction on choosing to use this Subdivision
(10) If:
(a) you choose to use this Subdivision to deduct amounts for your *depreciating assets for an income year; and
(b) you do not choose to use this Subdivision for a later income year for which you satisfy the conditions to make this choice (see subsection (1));
you cannot choose to use this Subdivision until at least 5 years after the first later income year for which you satisfied the conditions to make this choice but did not do so.
Note 1: Your ability to choose to use this Subdivision may also be restricted by section 328‑440 of the Income Tax (Transitional Provisions) Act 1997.
Note 2: If you choose to use this Subdivision for an income year, you continue to use it for assets that have been allocated to your small business pools for a later income year even if you are not a small business entity, or do not choose to use this Subdivision, for the later year: see section 328‑220.
(1) You deduct the *taxable purpose proportion of the *adjustable value of a *depreciating asset for the income year in which you start to use the asset, or have it *installed ready for use, for a *taxable purpose if:
(a) you were a *small business entity for that year and the year in which you started to *hold it; and
(ab) you chose to use this Subdivision for each of those years; and
(b) the asset is a *low‑cost asset.
(2) You can also deduct, for an income year for which you are a *small business entity and you choose to use this Subdivision, the *taxable purpose proportion of an amount included in the second element of the *cost of a *low‑cost asset for which you have deducted an amount under subsection (1) if:
(a) the amount so included is less than $1,000; and
(b) you started to use the asset, or have it *installed ready for use, for a *taxable purpose during an earlier income year.
(3) A *low‑cost asset for which you have deducted an amount under this section is allocated to your *general small business pool if:
(a) an amount of $1,000 or more is included in the second element of the asset’s *cost; or
(b) any amount is included in the second element of the asset’s cost and you have deducted or can deduct an amount under subsection (2) for an amount previously included in the second element of the asset’s cost.
(4) This Division applies to the asset as if its *adjustable value were the amount included in the second element of its *cost as mentioned in subsection (3).
(5) Subsection (3) applies even if the amount is included in the second element of the asset’s *cost during an income year for which you are not a *small business entity or do not choose to use this Subdivision.
(1) If you are a *small business entity for an income year and you have chosen to use this Subdivision for that year, you deduct amounts for your *depreciating assets (except *low‑cost assets for which you have deducted or can deduct an amount under section 328‑180) through a pool, which allows you to deduct amounts for them as if they were a single asset, thereby simplifying your calculations. You use one rate for the pool.
(2) There are 2 kinds of pools:
(a) a general small business pool to which *depreciating assets having *effective lives of less than 25 years are allocated; and
(b) a long life small business pool to which depreciating assets having effective lives of 25 years or more are allocated.
Allocating assets to a pool
(3) A *depreciating asset:
(a) that you *hold just before, and at the start of, the first income year for which you are, or last were, a *small business entity; and
(b) for which you calculate your deductions under this Subdivision instead of under Division 40; and
(c) that has not previously been allocated to your *general small business pool or *long life small business pool; and
(d) that you have started to use, or have *installed ready for use, for a *taxable purpose;
is automatically allocated to your general small business pool or long life small business pool according to its *effective life.
(4) A *depreciating asset that you start to use, or have *installed ready for use, for a *taxable purpose during an income year for which you are a *small business entity and you choose to use this Subdivision is allocated to the appropriate pool at the end of that year.
Note: The allocation happens even if you no longer hold the asset at the end of that income year.
Exception for long life assets
(5) You can choose not to have a *depreciating asset allocated to a *long life small business pool to which it would otherwise have been allocated if you started to use it, or have it *installed ready for use, for a *taxable purpose before 1 July 2001.
Note: If you make this choice, you would continue to deduct amounts for the asset under Division 40.
(6) You must make that choice for the first income year for which you are a *small business entity and you choose to use this Subdivision. Once you have made the choice for an asset, you cannot change it.
No re‑allocation
(7) Once a *depreciating asset is allocated to your *general small business pool or *long life small business pool, it is not re‑allocated, even if you are not a *small business entity for a later income year or you do not choose to use this Subdivision for that later year.
Note: If you chose to use this Subdivision for an income year, you continue to use it for your small business pools for a later income year even if you are not a small business entity, or do not choose to use this Subdivision, for the later year: see section 328‑220.
Example: Greg is not a small business entity for the 2008‑09 income year. At that time his long life small business pool contains one depreciating asset with an effective life of 26 years. Greg still holds that asset in the 2010‑11 income year. Greg is a small business entity for that income year and chooses to use this Subdivision. The asset has remained in the pool since the end of the 2008‑09 income year. The asset is not re‑allocated when he recommences deducting amounts for depreciating assets under this Subdivision, even though its remaining effective life is now 24 years.
(1) You calculate your deduction for each pool for an income year using this formula:
where:
pool rate is:
(a) 30% for a *general small business pool; or
(b) 5% for a *long life small business pool.
Note: You use section 328‑210 instead if the pool has a low pool value.
(2) Your deduction for each *depreciating asset that you start to use, or have *installed ready for use, for a *taxable purpose during an income year for which you are a *small business entity and choose to use this Subdivision is:
(a) 15% of the *taxable purpose proportion of its *adjustable value if its *effective life is less than 25 years; or
(b) 2.5% of the taxable purpose proportion of its adjustable value if its effective life is 25 years or more.
(3) You can also deduct for an income year for which you are a *small business entity and choose to use this Subdivision the amount worked out under subsection (4) for an amount (the cost addition amount) included in the second element of the *cost of a *depreciating asset for that year if you started to use the asset, or have it *installed ready for use, for a *taxable purpose during an earlier income year.
Note: The second element of cost is worked out under section 40‑190.
(4) The amount you can deduct is:
(a) 15% of the *taxable purpose proportion of the cost addition amount if the asset’s *effective life is less than 25 years; or
(b) 2.5% of the taxable purpose proportion of the cost addition amount if the asset’s effective life is 25 years or more.
Note: The amounts that a transferor and transferee can deduct under this section are modified if roll‑over relief under section 40‑340 is chosen: see sections 328‑243 and 328‑247.
(1) For the first income year for which you are a *small business entity and choose to use this Subdivision, the opening pool balance of a pool is the sum of the *taxable purpose proportions of the *adjustable values of *depreciating assets allocated to the pool under subsection 328‑185(3).
(2) For a later income year, the opening pool balance of a pool is that pool’s *closing pool balance for the previous income year, reduced or increased by any adjustment required under section 328‑225 (about change in the business use of an asset).
Note: You continue to deduct amounts using your small business pools even if you are not a small business entity, or do not choose to use this Subdivision, for a later income year: see section 328‑220.
(3) However, if:
(a) you are not a *small business entity for an income year or you do not choose to use this Subdivision for that year; but
(b) you are a small business entity for a later income year and you choose to use this Subdivision for the later year;
the opening pool balance of a pool includes the sum of the *taxable purpose proportions of the *adjustable values of *depreciating assets allocated to the pool under subsection 328‑185(3) for that year.
You work out the closing pool balance of a pool for an income year in this way:
Method statement
Step 1. Add to the *opening pool balance of the pool for the income year:
(a) the sum of the *taxable purpose proportions of the *adjustable values of *depreciating assets you started to use, or have *installed ready for use, for a *taxable purpose during the income year and that are allocated to that pool; and
(b) the taxable purpose proportion of any cost addition amounts (see subsection 328‑190(3)) for the income year for assets allocated to the pool.
Step 2. Subtract from the step 1 amount:
(a) the *taxable purpose proportions of the *termination values of *depreciating assets allocated to the pool and for which a *balancing adjustment event occurred during the income year; and
(b) your deduction under subsection 328‑190(1) for the pool for the income year; and
(c) your deductions under subsection 328‑190(2) for *depreciating assets you started to use, or have *installed ready for use, for a *taxable purpose during the income year and that are allocated to that pool; and
(d) your deductions under subsection 328‑190(3) for the income year for cost addition amounts for assets allocated to the pool.
Step 3. The result is the closing pool balance of the pool for the income year.
Note: A transferor does not subtract anything for certain balancing adjustment events under paragraph (a) of step 2 if roll‑over relief under section 40‑340 is chosen: see sections 328‑243 and 328‑245.
328‑205 Estimate of taxable use
(1) You must, for the first income year for which you are, or last were, a *small business entity, make a reasonable estimate for that year of the proportion you will use, or have *installed ready for use, each *depreciating asset that you *held just before, and at the start of, that year for a *taxable purpose if:
(a) the asset has not previously been allocated to your *general small business pool or *long life small business pool; and
(b) you have started to use it, or have it installed ready for use, for a taxable purpose; and
(c) you have chosen to calculate your deductions for it under this Subdivision.
Note 1: That proportion will be 100% for an asset that you expect to use, or have installed ready for use, solely for a taxable purpose.
Note 2: Your estimate will be zero for an income year if another provision of this Act denies a deduction for that year: see section 328‑230.
Note 3: This subsection does not apply to a transferee for certain assets if roll‑over relief under section 40‑340 is chosen: see sections 328‑243 and 328‑257.
(2) You must also make this estimate for each *depreciating asset that you *hold and start to use, or have *installed ready for use, for a *taxable purpose during an income year for which you are a *small business entity and you choose to use this Subdivision. You must make the estimate for the income year in which you start to use it, or have it installed ready for use, for such a purpose.
(3) The taxable purpose proportion of a *depreciating asset’s *adjustable value, or of an amount included in the second element of its *cost, is that part of that amount that represents:
(a) the proportion you estimated under subsection (1) or (2); or
(b) if you have had to make an adjustment under section 328‑225 for the asset—the proportion most recently applicable to the asset under that section.
Note: An amount included in the second element of the cost of a depreciating asset is referred to in this Division as a cost addition amount: see subsection 328‑190(3).
(4) The taxable purpose proportion of a *depreciating asset’s *termination value is that part of that amount that represents:
(a) if you have not had to make an adjustment under section 328‑225 for the asset—the proportion you estimated under subsection (1) or (2); or
(b) if you have had to make at least one such adjustment and the asset is allocated to a *general small business pool—the average of:
(i) the proportion you estimated under subsection (1) or (2); and
(ii) the proportion applicable to the asset for each of the 3 income years you *held the asset after the one in which the asset was allocated to the pool; or
(c) if you have had to make at least one such adjustment and the asset is allocated to a long life small business pool—the average of:
(i) the proportion you estimated under subsection (1) or (2); and
(ii) the proportion applicable to the asset for each of the 20 income years you *held the asset after the one in which the asset was allocated to the pool.
Example: When Bria’s van was allocated to her general small business pool for the 2007‑08 income year, she estimated that it would be used 50% for deliveries in her florist business. Due to increasing deliveries, Bria estimates the van’s business use to be 70% for the 2008‑09 year, and 90% for the 2009‑10 year. She makes an adjustment under section 328‑225 for both those years.
Bria sells the van for $3,000 at the start of the 2011‑12 income year. She must now average the business use estimates for the van for the year it was allocated to the pool and the next 3 years to work out the taxable purpose proportion of its termination value. The average is worked out as follows:
- 50% (original estimate); plus
- 70% (2008‑09 estimate); plus
- 90% (2009‑10 estimate); plus
- 90% (no change on previous year);
The taxable purpose proportion of the van’s termination value is, therefore:
(1) Your deduction for a *general small business pool or *long life small business pool for an income year is the amount worked out under subsection (2) (instead of an amount calculated under section 328‑190) if that amount is less than $1,000 but more than zero.
Note: See section 328‑215 for the result when the amount is less than zero.
(2) The amount is the sum of:
(a) the pool’s *opening pool balance for the income year; and
(b) the *taxable purpose proportion of the *adjustable value of each *depreciating asset you started to use, or have *installed ready for use, for a *taxable purpose during the income year and that is allocated to that pool; and
(c) the taxable purpose proportion of any cost addition amounts (see subsection 328‑190(3)) for the income year for assets allocated to the pool;
less the sum of the taxable purpose proportion of the *termination values of depreciating assets allocated to that pool and for which a *balancing adjustment event occurred during the income year.
(3) In that case, the *closing pool balance of the pool for that income year then becomes zero.
Example: Amanda’s Graphics is a small business entity for the 2008‑09 income year and chooses to use this Subdivision for that year. The business has an opening pool balance of $1,200 for its general small business pool for that year.
During that year, Amanda acquired a new computer for $2,000. The taxable purpose proportion of its adjustable value is:
Amanda also sold her business car for $1,900 during that year. The car was used 100% in the business.
To work out whether she can deduct an amount under this section, Amanda uses this calculation:
Because the result is less than $1,000, Amanda can deduct the $900 for the income year. The pool’s closing balance for the year is zero.
328‑215 Disposal etc. of depreciating assets
(1) This section sets out adjustments you may have to make if a *balancing adjustment event occurs for a *depreciating asset for which you calculate your deductions under this Subdivision.
(2) If the asset is allocated to a pool and:
(a) the *closing pool balance of the pool for the income year in which the event occurred is less than zero; or
(b) the amount worked out under subsection 328‑210(2) for that income year is less than zero;
the amount by which that balance or amount is less than zero is included in your assessable income for that year.
(3) In that case, the *closing pool balance of the pool for that income year then becomes zero.
(4) If the asset was one for which you deducted an amount under section 328‑180 (about low‑cost assets), you include the *taxable purpose proportion of the asset’s *termination value in your assessable income.
(1) If you are not a *small business entity for an income year or you do not choose to use this Subdivision for that year, this Subdivision continues to apply to your *general small business pool and *long life small business pool for that year and later income years.
(2) However, *depreciating assets you started to use, or have *installed ready for use, for a *taxable purpose during an income year for which you are not a *small business entity or do not choose to use this Subdivision cannot be allocated to a pool under this Subdivision until an income year for which you are a small business entity and you choose to use this Subdivision.
(3) This section applies to a transferee referred to in subsection 328‑243(1) or (1A) who:
(a) was not a *small business entity for the income year in which the relevant *balancing adjustment events occurred; or
(b) did not choose to use this Subdivision for that year;
as if the transferee had been a small business entity for an earlier income year and had chosen to use this Subdivision for the earlier year. This rule applies even if roll‑over relief is not chosen.
328‑225 Change in business use [see Note 7]
(1) You must, for each income year (the present year) after the year in which a *depreciating asset is allocated to a pool, make a reasonable estimate of the proportion you use the asset, or have it *installed ready for use, for a *taxable purpose in that year.
Note: This section is modified in its application to a transferee for certain assets if roll‑over relief under section 40‑340 is chosen: see sections 328‑243 and 328‑257.
(1A) You must make an adjustment for the present year if your estimate for that year under subsection (1) is different by more than 10 percentage points from:
(a) your original estimate (see section 328‑205); or
(b) if you have made an adjustment under this section—the most recent estimate you made under subsection (1) that resulted in an adjustment under this section.
(2) The adjustment is made to the *opening pool balance of the *general small business pool or *long life small business pool to which the asset was allocated, and it must be made before you calculate your deduction under this Subdivision for the present year.
Note: The opening pool balance will be reduced if the adjustment worked out under subsection (3) is a negative amount. It will be increased if the adjustment is positive.
(3) The adjustment is:
where:
asset value is:
(a) for a *depreciating asset you started to use, or have *installed ready for use, for a *taxable purpose during an income year for which you were a *small business entity and chose to use this Subdivision—the asset’s *adjustable value at that time; or
(b) for an asset you started to use, or have installed ready for use, for a taxable purpose while you were not an STS taxpayer—its adjustable value at the start of the income year for which it was allocated to a *general small business pool or a *long‑life small business pool;
increased by any amounts included in the second element of the asset’s *cost from the time mentioned in paragraph (a) or (b) until the beginning of the income year for which you are making the adjustment.
last estimate is:
(a) your original estimate of the proportion you use, or have *installed ready for use, a *depreciating asset for a *taxable purpose (see section 328‑205); or
(b) if you have made an adjustment under this section—the latest estimate taken into account under this section.
present year estimate is your reasonable estimate of the proportion you use the asset, or have it *installed ready for use, for a *taxable purpose during the present year.
reduction factor is the number worked out under subsection (4).
(4) The reduction factor in the formula in subsection (3) is:
(a) for a *depreciating asset you started to use, or have *installed ready for use, for a *taxable purpose during an income year for which you were a *small business entity and chose to use this Subdivision:
(b) for an asset you started to use, or have *installed ready for use, for a taxable purpose while you were not an STS taxpayer:
where:
n is the number of income years (counting part of an income year as a whole year) before the present year for which you have deducted or can deduct an amount for the *depreciating asset under this Subdivision.
rate is the rate applicable to the pool to which the asset is allocated.
Note: The reduction factor for a depreciating asset in your general small business pool which you started to use, or have installed ready for use, for a taxable purpose during an income year for which you were not a small business entity or did not choose to use this Subdivision is:
- 0.7 for the income year after it is allocated to the pool; and
- 0.49 for the income year after that; and
- 0.343 for the income year after that.
The reduction factor for a depreciating asset in your general small business pool which you started to use, or have installed ready for use, for a taxable purpose during an income year for which you were a small business entity and chose to use this Subdivision is:
- 0.85 for the income year after it is allocated to the pool; and
- 0.595 for the income year after that; and
- 0.417 for the income year after that.
Exceptions
(5) However:
(a) you do not need to make an estimate or an adjustment under this section for a *depreciating asset for an income year that is at least:
(i) for an asset allocated to a *general small business pool—3 income years after the income year in which it was allocated; or
(ii) for an asset allocated to a *long life small business pool—20 income years after the income year in which it was allocated; and
(b) you cannot make an adjustment for a depreciating asset if your reasonable estimate of the proportion you use a depreciating asset, or have it *installed ready for use, for a *taxable purpose changes in a later income year by the 10 percentage points mentioned in subsection (1) or less.
328‑230 Estimate where deduction denied
This Subdivision applies to you as if you had estimated that you will not use, or have *installed ready for use, a *depreciating asset at all for a *taxable purpose during an income year if a provision of this Act outside this Division denies a deduction for the asset for that year.
328‑235 Interaction with Divisions 85 and 86
(1) Despite sections 85‑10 and 86‑60, if you are a *small business entity for an income year you can deduct amounts for *depreciating assets under this Subdivision.
(2) However, you cannot deduct an amount for a *car under this Subdivision if, had you not been a *small business entity and chosen to use this Subdivision, sections 86‑60 and 86‑70 would have prevented you deducting an amount for it.
(1A) There is roll‑over relief under subsection 40‑340(1) (as affected by subsection 40‑340(2)) if:
(a) *balancing adjustment events occur for *depreciating assets on a day (the BAE day) because an entity (the transferor) disposes of the assets in an income year to another entity (the transferee); and
(b) the disposal involves a *CGT event; and
(c) the conditions in item 1, 2 or 3 of the table in subsection 40‑340(1) are satisfied; and
(d) deductions for the assets are calculated under this Subdivision; and
(e) the transferor and the transferee jointly choose the roll‑over relief; and
(f) the condition in subsection (2) is met.
(1) Roll‑over relief can be chosen under subsection 40‑340(3) if:
(a) *balancing adjustment events occur for *depreciating assets on a day (the BAE day) because of subsection 40‑295(2); and
(b) deductions for the assets are calculated under this Subdivision; and
(c) the entity or entities that had an interest in the assets just before the balancing adjustment events occurred (the transferor) and the entity or entities that have an interest in the assets just after the events occurred (the transferee) jointly choose the roll‑over relief; and
(d) the condition in subsection (2) is met.
(2) All of the *depreciating assets that, just before the *balancing adjustment events occurred, were:
(a) *held by the transferor; and
(b) allocated to the transferor’s *general small business pool or *long life small business pool;
must be held by the transferee just after those events occurred.
328‑245 Consequences of roll‑over
(1) The transferor does not subtract anything for the *balancing adjustment events under:
(a) paragraph (a) of step 2 in the method statement in section 328‑200; or
(b) subsection 328‑210(2).
(2) Subsection 328‑215(4) does not apply to the *balancing adjustment events for the transferor.
(3) A choice made by the transferor for a *depreciating asset under subsection 328‑175(3) (about primary production assets) applies to the transferee as if it had been made by the transferee.
(4) Sections 328‑247 to 328‑257 have effect.
(1) The amount that can be deducted for the transferor’s *general small business pool and *long life small business pool for the income year (the BAE year) in which the *balancing adjustment events occurred under subsection 328‑190(1) or section 328‑210 for the BAE year is split equally between:
(a) the transferor and the transferee; or
(b) if there are 2 or more occurrences of balancing adjustment events for relevant entities for the BAE year and a roll‑over is chosen for each occurrence—the entities concerned.
Example: John and Dave operate a dry cleaning business in partnership (the transferor). The transferor is a small business entity for the relevant income year and has chosen to use this Subdivision for that year. On the 90th day of an income year, Jonathan joins the partnership. The new partnership (the transferee) is a small business entity for the income year and chooses to use this Subdivision for that year. Had there been no partnership change, a deduction of $6,600 would have been available for the transferor’s general small business pool. The transferor and transferee jointly choose the roll‑over.
The deduction available to the transferor and the transferee for the pool under subsection 328‑190(1) is $3,300 each.
(2) The transferor cannot deduct any amount for the transferor’s *general small business pool or *long life small business pool for an income year after the BAE year.
328‑250 Deductions for assets first used in BAE year
(1) This section applies in working out the amount that the transferor or transferee can deduct for the BAE year under subsection 328‑180(1) (low‑cost assets) or subsection 328‑190(2) (assets that will be pooled) for a *depreciating asset that the transferor or transferee started to use, or have *installed ready for use, for a *taxable purpose during the BAE year.
Asset first used by transferor
(2) If the asset was first used or *installed ready for use by the transferor, the amount that can be deducted under subsection 328‑180(1) or subsection 328‑190(2) for the asset for the BAE year is split equally between:
(a) the transferor and the transferee; or
(b) if there are 2 or more occurrences of *balancing adjustment events for relevant entities for the BAE year and a roll‑over is chosen for each occurrence—the entities concerned.
Asset first used by transferee
(3) If the asset was first used or *installed ready for use by the transferee:
(a) the transferor cannot deduct anything for the asset for the BAE year; and
(b) the amount that can be deducted under subsection 328‑180(1) or 328‑190(2) for the asset for the BAE year is:
(i) deductible by the transferee; or
(ii) if there are 2 or more occurrences of *balancing adjustment events for relevant entities for the BAE year and a roll‑over is chosen for each occurrence—split equally between the entities concerned (except ones that did not use the asset or have it installed ready for use).
Example: To continue the example from section 328‑247, the transferee buys a low‑cost asset on the 150th day of the BAE year for $800.
On the 250th day of the year, Evan joins the transferee partnership. The new transferee partnership is a small business entity for the BAE year, and chooses to use this Subdivision for that year, and a further roll‑over is chosen.
The original transferor cannot deduct anything for the asset. The original transferee (now a transferor) and the new transferee can deduct $400 each.
Special rule for low‑cost assets
(4) Subsection (5) applies if:
(a) the transferor started to use, or have *installed ready for use, a *low‑cost asset during the BAE year; and
(b) a *balancing adjustment event occurs for that asset before the BAE day.
(5) The transferee cannot deduct anything for the asset for the BAE year, and subsection 328‑215(4) does not apply to the transferee in relation to the asset.
328‑253 Deductions for cost addition amounts
(1) This section applies in working out the amount that the transferor or transferee can deduct for the BAE year under subsection 328‑180(2) or 328‑190(3) for expenditure incurred by the transferor or transferee during the BAE year that is included in the second element of the *cost of a depreciating asset.
Expenditure incurred by transferor
(2) If the expenditure was incurred by the transferor, the amount that can be deducted under subsection 328‑180(2) or 328‑190(3) for the BAE year is split equally between:
(a) the transferor and the transferee; or
(b) if there are 2 or more occurrences of *balancing adjustment events for relevant entities for the BAE year and a roll‑over is chosen for each occurrence—the entities concerned.
Expenditure incurred by transferee
(3) If the expenditure was incurred by the transferee:
(a) the transferor cannot deduct anything for the expenditure for the BAE year; and
(b) the amount that can be deducted under subsection 328‑180(2) or 328‑190(3) for the expenditure for the BAE year is:
(i) deductible by the transferee; or
(ii) if there are 2 or more occurrences of *balancing adjustment events for relevant entities for the BAE year and a roll‑over is chosen for each occurrence—split equally between the entities concerned.
Special rule for expenditure on low‑cost assets
(4) Subsection (5) applies if:
(a) the transferor incurred the expenditure in relation to a *low‑cost asset; and
(b) a *balancing adjustment event occurs for that asset before the BAE day.
(5) The transferee cannot deduct anything for the expenditure for the BAE year, and subsection 328‑215(4) does not apply to the transferee in relation to the asset.
328‑255 Closing pool balance etc. below zero
(1) This section applies if:
(a) the *closing pool balance of the transferor’s *general small business pool or *long life small business pool for the BAE year is less than zero; or
(b) the amount worked out under subsection 328‑210(2) for that pool for the BAE year is less than zero;
because a *balancing adjustment event occurred for an asset allocated to that pool during that year.
(2) The amount included in assessable income under subsection 328‑215(2) is split equally between:
(a) the transferor and transferee; or
(b) if there are 2 or more occurrences of *balancing adjustment events for relevant entities for the BAE year and a roll‑over is chosen for each occurrence—the entities concerned.
(1) This section applies to *depreciating assets (the previously held assets) that were *held by the transferor just before the *balancing adjustment events occurred.
(2) Subsection 328‑205(1) (about estimates of taxable use) does not apply to previously held assets in the hands of the transferee for the BAE year. Instead, the transferee uses for the BAE year:
(a) the estimate made by the transferor under that subsection for the asset; or
(b) if the transferor had made one or more estimates for the asset under subsection 328‑225(1) that resulted in an adjustment under section 328‑225 (about change in business use)—that estimate or the most recent of those estimates.
(3) Section 328‑225 applies to the transferee for each previously held asset for income years after the BAE year as if:
(a) the transferee had *held the asset during the period that the transferor held it; and
(b) estimates applicable to the transferor for the asset under that section were also applicable to the transferee.
Subdivision 328‑E—Trading stock for small business entities
328‑280 What this Subdivision is about
Small business entities can choose not to account for their trading stock in some circumstances. This Subdivision modifies the rules in Division 70 about trading stock for small business entities.
Table of sections
Operative provisions
328‑285 Trading stock for small business entities
328‑295 Value of trading stock on hand
328‑285 Trading stock for small business entities
You can choose not to account for changes in the *value of your *trading stock for an income year if:
(a) you are a *small business entity for that year; and
(b) the difference between the value of all your trading stock on hand at the start of that year and the value you reasonably estimate of all your trading stock on hand at the end of that year is not more than $5,000.
Note 1: As a result, sections 70‑35 and 70‑45 (about comparing the value of each item of trading stock on hand at the start and end of an income year) will not apply to you for the income year.
Note 2: When making a reasonable estimate of the value of trading stock on hand:
- special valuation rules may be used, for example, obsolete stock, natural increase of livestock, horse breeding stock; and
- the estimated value disregards an amount equal to the amount of input tax credits (if any) to which you would be entitled for an item if the acquisition of the item had been solely for a creditable purpose: see subsection 70‑45(1A).
Note 3: If you choose to account for changes in the value of your trading stock for an income year, you will have to do a stocktake and account for the change in the value of all your trading stock: see Subdivision 70‑C.
328‑295 Value of trading stock on hand
(1) If you make a choice under section 328‑285 for an income year, the *value of all your *trading stock on hand at the start of the income year is:
(a) the same amount as was taken into account under this Act at the end of the previous income year; or
(b) zero if no item of trading stock was taken into account under this Act at the end of the previous income year.
Note: The amount taken into account at the end of the previous income year is worked out under either section 70‑45 or subsection (2) of this section.
(2) If you make a choice under section 328‑285 for an income year, this Act applies to you as if the *value of all your *trading stock on hand at the end of the year were equal to the value of all your trading stock on hand at the start of the year.
Note: If you do not make a choice under section 328‑285, the value of trading stock on hand at the end of the year is worked out using section 70‑45.
Example: Angela operates a riding school, and also sells riding gear. Her business is a small business entity for the 2008‑09 income year and makes a choice under section 328‑285 for that year.
At the start of the 2008‑09 income year, the opening value of Angela’s trading stock is $30,000. Using her reliable inventory system, she estimates the closing value to be $34,000.
The closing value for the 2008‑09 income year, and the opening value for the 2009‑10 income year, will be $30,000.
Table of Subdivisions
375‑G Film losses
375‑H Deductions for shares in a film licensed investment company
375‑800 What this Subdivision is about
A tax loss may have a film component if you incurred film deductions in the loss year. If so, the film component is regarded as a separate tax loss. You can deduct the film loss from your film income only.
Table of sections
Operative provisions
375‑805 Does your tax loss have a film component?
375‑810 What is a film loss?
375‑815 Deductibility of film losses
375‑820 Order in which tax losses are to be deducted
375‑805 Does your tax loss have a film component?
(1) A *tax loss in an income year has a film component if:
• your *film deductions
exceed the sum of:
• your *assessable film income; and
• your *net exempt film income.
The amount of the film component is the excess or the tax loss, whichever is less.
(1A) If an entity’s *tax loss is worked out under a provision listed in the table, the film component is what that tax loss would have been if:
(a) the entity’s *film deductions for the *loss year had been its only deductions; and
(b) the entity’s *assessable film income for the *loss year had been its only assessable income; and
(c) the entity’s *net exempt film income for the *loss year had been its only *net exempt income.
However, the film component cannot exceed the actual tax loss.
Working out film component of tax loss | ||
Item | Provision | Type of entity |
1 | 165‑70 | Company—income year when ownership or control changed |
2 | 175‑35 | Company—deductions that have been used to obtain a tax benefit disallowed |
3 | 268‑60 in Schedule 2F to the Income Tax Assessment Act 1936 | Trust—income year when ownership or control changed |
(2) Your film deductions for an income year are the following:
(a) amounts you can deduct for the income year under section 124ZAFA of the Income Tax Assessment Act 1936;
(b) amounts that you can deduct for the income year and to which section 124ZAO of the Income Tax Assessment Act 1936 applies in relation to you for the income year.
(3) Your assessable film income for an income year is so much of the amount, or the sum of the amounts, to which section 26AG of the Income Tax Assessment Act 1936 applies in relation to you for the year of income as is assessable income.
(4) Your net exempt film income for an income year is your *exempt film income for that year reduced by:
(a) any taxes payable in respect of that income in a country or place outside Australia; and
(b) any expenses (not of a capital nature) so far as you incurred them during that year in deriving that income.
(5) Your exempt film income for an income year is so much of the amount, or the sum of the amounts, to which section 26AG of the Income Tax Assessment Act 1936 applies in relation to you for the year of income as is exempt income.
If a *tax loss has a *film component, it is treated as 2 separate *tax losses: one (the film loss) consisting of the film component and the other consisting of the rest (if any).
375‑815 Deductibility of film losses
(1) You can deduct a *film loss only from your *net exempt film income or your *net assessable film income.
(2) Your net assessable film income for an income year is your *assessable film income for that year reduced by your *film deductions for that year.
(3) This section applies in addition to the other rules about how *tax losses are applied.
375‑820 Order in which tax losses are to be deducted
If, for an income year, you have *net exempt film income, *net assessable film income, or both, you deduct your *film losses (in the order in which you incurred them) before any other *tax losses of the same or any other *loss year.
Subdivision 375‑H—Deductions for shares in a film licensed investment company
375‑850 What this Subdivision is about
You can deduct amounts you have paid for shares issued to you by a film licensed investment company (FLIC). The deduction does not apply to shares issued after 30 June 2007.
Because of these deductions, there are special rules about the tax treatment of a FLIC.
Table of sections
Provisions affecting you if you own shares in a film licensed investment company
375‑855 What can you deduct?
375‑860 When can you claim the deduction?
375‑865 How can you lose your entitlement?
375‑870 How this Subdivision applies to partners and partnerships
375‑872 Distribution of FLIC concessional capital is instead taken to be a dividend
Provisions affecting film licensed investment companies
375‑875 Tax losses cannot be transferred to or from FLICs
375‑880 FLIC cannot claim deductions for concessional capital
Provisions affecting you if you own shares in a film licensed investment company
(1) You can deduct money you pay for *shares in a *film licensed investment company (a FLIC) if the shares are issued to you by the FLIC during the period the FLIC’s concessional capital licence is in force.
Note: The period a FLIC’s licence is in force is determined under the Film Licensed Investment Company Act 2005. It cannot be in force after 30 June 2007.
(2) A film licensed investment company is a company that has been granted a licence to raise concessional capital under the Film Licensed Investment Company Act 2005 (whether or not the licence has ceased to be in force).
Note: Under the Film Licensed Investment Company Act 2005 concessional capital is money paid to the FLIC for the issue of shares during the period its concessional capital licence is in force (see section 6 of that Act).
375‑860 When can you claim the deduction?
(1) If you pay for the *shares in an income year and the shares are issued in the same income year, you get the deduction for that income year.
(2) If you pay for the *shares in an income year but the shares are not issued until a later income year, you get the deduction for the later income year.
Note: A FLIC can only issue fully paid shares (see section 13 of the Film Licensed Investment Company Act 2005).
375‑865 How can you lose your entitlement?
(1) You lose your entitlement to the deduction if the *Arts Minister decides to remove the concessional status of your shares.
Note: The Arts Minister may do this if the FLIC in which you hold shares breaches certain requirements under the FLIC’s Act. See sections 32 and 34 of the Film Licensed Investment Company Act 2005.
(2) You also lose your entitlement to the deduction if the Commissioner is satisfied that:
(a) the *FLIC in which you hold the *shares has breached a condition under Division 7 of Part 2 of the Film Licensed Investment Company Act 2005, or a requirement under section 34 of that Act; and
(b) the Arts Minister has been given notice that the Commissioner is satisfied as mentioned in paragraph (a); and
(c) the Arts Minister has not, within 6 months after that notice, notified the Commissioner that the Arts Minister has made a decision about the alleged breach.
Note: The Arts Minister’s decisions about alleged breaches are made under sections 32 and 34 of the Film Licensed Investment Company Act 2005. Subsection (2) above is only relevant in a situation where the Arts Minister has, as far as the Commissioner knows, made no decision under those sections.
(3) If the Commissioner is satisfied of the matters set out in subsection (2), the Commissioner must, within 28 days, give written notice to the *Arts Minister about the loss of entitlement that has occurred under subsection (2).
Amendment of assessment
(4) If you lose your entitlement after you have already got the deduction, your assessment may be amended to disallow the deduction.
375‑870 How this Subdivision applies to partners and partnerships
Application
(1) This section applies to allocate to you, for the purposes of this Subdivision, money paid for *shares issued by a *FLIC during an income year if:
(a) you are a partner in a partnership; and
(b) the shares have been issued to you and your partners jointly; and
(c) the partnership has paid for the shares.
Allocation of payments to partners
(2) For the purposes of this Subdivision, you are taken to have paid for the shares during that income year:
(a) the amount of the payment for the *shares that the partners agreed is attributable to you; or
(b) if there was no such agreement—the proportion of the payment for the shares that is equal to the proportion of your individual interest in the net income or partnership loss of the partnership for that income year.
This Subdivision does not apply to net income or partnership loss
(3) Disregard this Subdivision when working out the net income or partnership loss of the partnership under section 90 of the Income Tax Assessment Act 1936.
375‑872 Distribution of FLIC concessional capital is instead taken to be a dividend
(1) For the purposes of this Act, an amount that a *FLIC pays to you by way of distribution of *FLIC concessional capital, on a liquidation or a share buy back or other return of capital, is instead taken to be a dividend that the FLIC pays to you out of profits the FLIC *derived from sources in Australia.
Dividend cannot exceed amount of deductions
(2) Subsection (1) does not apply to the extent that the total of the payments the *FLIC makes by way of such distribution of *FLIC concessional capital in respect of particular *shares exceeds the total of the deductions under section 375‑855 for the shares (whether it was you or a previous owner of the shares who got the deductions).
FLIC must comply with Corporations Act rules about dividends
(3) Subsection (1) applies only if the requirements of the Corporations Act 2001 (except section 254T) relating to declaring and paying a *dividend are satisfied (as well as any requirements relating to the distribution).
Paragraph 202‑45(e) does not apply
(4) Paragraph 202‑45(e) does not apply to a payment that is taken to be a dividend under this section.
Note: Paragraph 202‑45(e) provides that a distribution that is sourced, directly or indirectly, from a company’s share capital account is unfrankable.
Provisions affecting film licensed investment companies
375‑875 Tax losses cannot be transferred to or from FLICs
(1) A *FLIC cannot transfer to another company a *tax loss or a *net capital loss for an income year if the FLIC’s concessional capital licence is in force during some or all of that income year.
(2) A company cannot transfer to a *FLIC a *tax loss or a *net capital loss for an income year if the FLIC’s concessional capital licence is in force during some or all of that income year.
Note 1: A FLIC’s concessional capital licence is granted under the Film Licensed Investment Company Act 2005.
Note 2: These 2 rules are exceptions to the general rules about transfer of losses between companies in Subdivisions 170‑A and 170‑B.
375‑880 FLIC cannot claim deductions for concessional capital
(1) If a *FLIC has spent an amount of *FLIC concessional capital in respect of a *film, the FLIC cannot deduct the amount under this Act.
(2) FLIC concessional capital means money paid to the FLIC by a person for the issue, during the period the FLIC’s concessional capital licence is in force, of *shares to that person.
Division 376—Films generally (tax offsets for Australian production expenditure)
Table of Subdivisions
376‑A Guide to Division 376
376‑B Tax offsets for Australian expenditure in making a film
376‑C Production expenditure and qualifying Australian production expenditure
376‑D Certificates for films and other matters
Subdivision 376‑A—Guide to Division 376
376‑1 What this Division is about
Companies may be entitled to 1 of 3 refundable tax offsets in relation to Australian expenditure incurred in making films. The offsets are designed to support and develop the Australian screen media industry by providing concessional tax treatment for Australian expenditure.
Table of sections
376‑2 Key features of the tax offsets for Australian production expenditure on films
376‑5 Structure of this Division
376‑2 Key features of the tax offsets for Australian production expenditure on films
(1) The 3 tax offsets are:
(a) a refundable tax offset for Australian expenditure in making an Australian film (the producer offset); and
(b) a refundable tax offset for Australian expenditure in making any film (the location offset); and
(c) a refundable tax offset for Australian expenditure on post, digital and visual effects production for any film (the PDV offset).
(2) A company is only entitled to one of these offsets in relation to a film.
(3) The amount of the offset is determined as a percentage of certain Australian expenditure incurred by a company in producing the film:
(a) the amount of the producer offset is 40% of the company’s qualifying Australian production expenditure on the film if the film is a feature film, and 20% of such expenditure if the film is not a feature film; and
(b) the amount of the location offset is 15% of the company’s qualifying Australian production expenditure on the film; and
(c) the amount of the PDV offset is 15% of the company’s qualifying Australian production expenditure on the film that relates to post, digital and visual effects production for the film.
(4) One of the requirements for entitlement to these offsets is that a company must be issued with a certificate for the film. The certificate will state the amount of Australian expenditure on which the offset will be determined.
(5) The offset is claimed by a company in its income tax return.
376‑5 Structure of this Division
(1) Subdivision 376‑B tells you about the different tax offsets available for films, who can get each offset and what conditions must be met to get each offset. It also tells you how to work out the amount of each offset.
(2) Subdivision 376‑C explains what is meant by:
(a) production expenditure on a film; and
(b) qualifying Australian production expenditure on a film.
It also contains some rules for quantifying expenditure.
(3) Subdivision 376‑D deals with a number of administrative matters:
(a) applying for a certificate for a film; and
(b) the issue and revocation of a certificate for a film; and
(c) the making of rules by the Arts Minister (including rules for the establishment of the Film Certification Advisory Board) and the film authority; and
(d) review of decisions of the Arts Minister and the film authority; and
(e) amendment of assessments following the revocation of a certificate for a film.
Subdivision 376‑B—Tax offsets for Australian expenditure in making a film
Table of sections
Refundable tax offset for Australian expenditure in making a film (location offset)
376‑10 Film production company entitled to refundable tax offset for Australian expenditure in making a film (location offset)
376‑15 Amount of the location offset
376‑20 Minister must issue certificate for a film for the location offset
376‑25 Company may nominate one individual whose remuneration is to be disregarded for the location offset
376‑30 Minister to determine a company’s qualifying Australian production expenditure for the location offset
Refundable tax offset for post, digital and visual effects production for a film (PDV offset)
376‑35 Film production company entitled to refundable tax offset for post, digital and visual effects production for a film (PDV offset)
376‑40 Amount of the PDV offset
376‑45 Minister must issue certificate for a film for the PDV offset
376‑50 Minister to determine a company’s qualifying Australian production expenditure for the PDV offset
Refundable tax offset for Australian expenditure in making an Australian film (producer offset)
376‑55 Film production company entitled to refundable tax offset for Australian expenditure in making an Australian film (producer offset)
376‑60 Amount of the producer offset
376‑65 Film authority must issue certificate for an Australian film for the producer offset
376‑70 Determination of content of film
376‑75 Film authority to determine a company’s qualifying Australian production expenditure for the producer offset
Refundable tax offset for Australian expenditure in making a film (location offset)
(1) A company is entitled to a *tax offset under this section (the location offset) for an income year in respect of a *film if:
(a) if the total of the company’s *qualifying Australian production expenditure on the film (as determined by the *Arts Minister under section 376‑30) is less than $50 million—the company’s *production expenditure on the film ceased being incurred in the income year; and
(b) if the total of the company’s qualifying Australian production expenditure on the film (as determined by the *Arts Minister under section 376‑30) is at least $50 million—the company’s qualifying Australian production expenditure on the film ceased being incurred in the income year; and
(c) the *Arts Minister has issued a certificate to the company for the film under section 376‑20 (certificate for the location offset); and
(d) the company claims the offset in its *income tax return for the income year; and
(e) the company:
(i) is an Australian resident; or
(ii) is a foreign resident but does have a *permanent establishment in Australia and does have an *ABN;
when the company lodges the income tax return and when the tax offset is due to be credited to the company.
The claim referred to in paragraph (d) is irrevocable.
Note: The location offset is a refundable tax offset: see subsection 67‑25(2A).
(2) The company is not entitled to the location offset if:
(a) the company or someone else claims a deduction in relation to a unit of industrial property that relates to copyright in the *film under Division 10B of Part III of the Income Tax Assessment Act 1936; or
(b) a final certificate for the film has been issued at any time under Division 10BA of Part III of the Income Tax Assessment Act 1936 (whether or not the certificate is still in force); or
(c) a certificate for the film has been issued at any time under section 376‑45 (certificate for the PDV offset) (whether or not the certificate is still in force); or
(d) a certificate for the film has been issued at any time under section376‑65 (certificate for the producer offset) (whether or not the certificate is still in force).
376‑15 Amount of the location offset
The amount of the location offset is 15% of the total of the company’s *qualifying Australian production expenditure on the *film (as determined by the *Arts Minister under section 376‑30).
376‑20 Minister must issue certificate for a film for the location offset
(1) The *Arts Minister must issue a certificate to a company for a *film in relation to the location offset if the Minister is satisfied that the conditions in subsections (2), (3) and (5) are met.
Type of film
(2) The conditions in this subsection are that:
(a) the *film was produced for:
(i) exhibition to the public in cinemas or by way of television broadcasting (including broadcasting by way of the delivery of a television program by a broadcasting service within the meaning of the Broadcasting Services Act 1992); or
(ii) distribution to the public as a video recording (whether on video tapes, digital video disks or otherwise); and
(b) the film is:
(i) a *feature film or a film of a like nature; or
(ii) a mini‑series of television drama; or
(iii) a television series that is not covered by subparagraph (i) or (ii); and
(c) the film is not, or is not to a substantial extent:
(i) if the film is covered by subparagraph (b)(i) or (ii)—a documentary; or
(ii) a film for exhibition as an advertising program or a commercial; or
(iii) a film for exhibition as a discussion program, a quiz program, a panel program, a variety program or a program of a like nature; or
(iv) a film of a public event; or
(v) if the film is covered by subparagraph (b)(i) or (ii)—a film forming part of a drama program series that is, or is intended to be, of a continuing nature; or
(vi) a training film; or
(vii) a computer game (within the meaning of the Classification (Publications, Films and Computer Games) Act 1995).
Television series
(3) The conditions in this subsection are that:
(a) if the *film is a television series that is not covered by subparagraph (2)(b)(i) or (ii), it is made up of 2 or more episodes that:
(i) are produced wholly or principally for exhibition to the public on television under a single title; and
(ii) contain a common theme or themes; and
(iii) contain dramatic elements that form a narrative structure; and
(iv) are produced wholly or principally for exhibition together, for a national market or national markets; and
Note: A documentary can be a television series.
(b) if the film is a television series that is not covered by subparagraph (2)(b)(i) or (ii):
(i) for a television series that is predominantly a digital animation or other animation—the *making of the television series (other than a pilot episode, if any, or activities mentioned in paragraph 376‑125(3)(a)) takes place within a period of not longer than 36 months; or
(ii) otherwise—all principal photography for the television series (other than a pilot episode, if any) takes place within a period of not longer than 12 months; and
(c) if the film is a television series that is not covered by subparagraph (2)(b)(i) or (ii)—the amount worked out for the film under subsection (6) is at least $1 million.
(4) To avoid doubt, and without limiting subparagraph (3)(a)(iii), a *film satisfies the requirement in that subparagraph if:
(a) the sole or dominant purpose of the film is to depict actual events, people or situations; and
(b) the film depicts those events, people or situations in a dramatic or entertaining way, with a heavy emphasis on dramatic impact or entertainment value.
Conditions relating to expenditure thresholds
(5) The conditions in this subsection are that:
(a) the total of the company’s *qualifying Australian production expenditure on the *film (as determined by the *Arts Minister under section 376‑30) is at least $15 million; and
(b) if the total of the company’s qualifying Australian production expenditure on the film is less than $50 million:
(i) the total of the company’s qualifying Australian production expenditure on the film is at least 70% of the total of all the company’s *production expenditure on the film; and
(ii) the company either carried out, or made the *arrangements for the carrying out of, all the activities that were necessary for the *making of the film; and
(c) if the total of the company’s qualifying Australian production expenditure on the film is at least $50 million, the company either carried out, or made the arrangements for the carrying out of, all the activities in Australia that were necessary for the making of the film.
Note: The operation of subparagraph (b)(ii) and paragraph (c) is affected by paragraph 376‑180(1)(d) (which deals with the situation where one company takes over the making of a film from another company).
(6) For the purposes of paragraph (3)(c), the amount for a *film is worked out by using the formula:
where:
duration of film in hours means the total length of the *film, measured in hours.
total QAPE means the total of the company’s *qualifying Australian production expenditure on the *film (as determined by the *Arts Minister under section 376‑30).
(1) In its application for the certificate under section 376‑230, the company may nominate one individual as an individual to whom this section applies.
(2) If the company nominates an individual under subsection (1), disregard the following for the purposes of this Division, to the extent that it relates to the location offset:
(a) the remuneration and other benefits provided to the individual for the individual’s services in relation to the *making of the *film;
(b) travel and other costs associated with the services the individual provides in relation to the making of the film.
Note: This means that, for the purposes of the location offset, the individual’s remuneration and benefits, and associated costs, are disregarded both in working out the total of the company’s qualifying Australian production expenditure on the film and in working out the company’s total production expenditure on the film.
(1) If a company applies to the *Arts Minister for the issue of a certificate to the company for a *film under section 376‑20 (certificate for the location offset), the Arts Minister must, as soon as practicable after receiving the application, determine in writing the total of the company’s *qualifying Australian production expenditure on the film for the purposes of the location offset.
(2) In making a determination under subsection (1), the *Arts Minister must have regard to the matters in Subdivision 376‑C.
(3) The *Arts Minister must give the company written notice of the determination.
(4) A determination made under subsection (1) is not a legislative instrument.
Refundable tax offset for post, digital and visual effects production for a film (PDV offset)
(1) A company is entitled to a *tax offset under this section (the PDV offset) for an income year in respect of a *film if:
(a) the company’s *qualifying Australian production expenditure on the film, to the extent that it relates to *post, digital and visual effects production for the film, ceased being incurred in the income year; and
(b) the *Arts Minister has issued a certificate to the company for the post, digital and visual effects production for the film under section 376‑45 (certificate for the PDV offset); and
(c) the company claims the offset in its *income tax return for the income year; and
(d) the company:
(i) is an Australian resident; or
(ii) is a foreign resident but does have a *permanent establishment in Australia and does have an *ABN;
when the company lodges the income tax return and when the tax offset is due to be credited to the company.
The claim referred to in paragraph (c) is irrevocable.
Note: The PDV offset is a refundable tax offset: see subsection 67‑25(2A).
(2) Post, digital and visual effects production for a *film means:
(a) the creation of audio or visual elements (other than principal photography, pick ups or the creation of physical elements such as sets, props or costumes) for the film; and
(b) the manipulation of audio or visual elements (other than pick ups or physical elements such as sets, props or costumes) for the film; and
(c) activities that are necessarily related to the activities mentioned in paragraph (a) or (b).
Note: 3D animation, digital compositing and music composition and recording are examples of post, digital and visual effects production.
(3) The company is not entitled to the PDV offset if:
(a) the company or someone else claims a deduction in relation to a unit of industrial property that relates to copyright in the *film under Division 10B of Part III of the Income Tax Assessment Act 1936; or
(b) a final certificate for the film has been issued at any time under Division 10BA of Part III of the Income Tax Assessment Act 1936 (whether or not the certificate is still in force); or
(c) a certificate for the film has been issued at any time under section 376‑20 (certificate for the location offset) (whether or not the certificate is still in force); or
(d) a certificate for the film has been issued at any time under section 376‑65 (certificate for the producer offset) (whether or not the certificate is still in force).
376‑40 Amount of the PDV offset
The amount of the PDV offset is 15% of the total of the company’s *qualifying Australian production expenditure (as determined by the *Arts Minister under section 376‑50) on a *film, to the extent that it relates to *post, digital and visual effects production for the film.
376‑45 Minister must issue certificate for a film for the PDV offset
(1) The *Arts Minister must issue a certificate to a company for the *post, digital and visual effects production for a *film in relation to the PDV offset if the Minister is satisfied that the conditions in subsections (2), (3) and (5) are met.
Type of film
(2) The conditions in this subsection are that:
(a) the *film was produced for:
(i) exhibition to the public in cinemas or by way of television broadcasting (including broadcasting by way of the delivery of a television program by a broadcasting service within the meaning of the Broadcasting Services Act 1992); or
(ii) distribution to the public as a video recording (whether on video tapes, digital video disks or otherwise); and
(b) the film is:
(i) a *feature film or a film of a like nature; or
(ii) a mini‑series of television drama; or
(iii) a television series that is not covered by subparagraph (i) or (ii); and
(c) the film is not, or is not to a substantial extent:
(i) if the film is covered by subparagraph (b)(i) or (ii)—a documentary; or
(ii) a film for exhibition as an advertising program or a commercial; or
(iii) a film for exhibition as a discussion program, a quiz program, a panel program, a variety program or a program of a like nature; or
(iv) a film of a public event; or
(v) if the film is covered by subparagraph (b)(i) or (ii)—a film forming part of a drama program series that is, or is intended to be, of a continuing nature; or
(vi) a training film; or
(vii) a computer game (within the meaning of the Classification (Publications, Films and Computer Games) Act 1995).
Television series
(3) The condition in this subsection is that, if the *film is a television series that is not covered by subparagraph (2)(b)(i) or (ii), it is made up of 2 or more episodes that:
(a) are produced wholly or principally for exhibition to the public on television under a single title; and
(b) contain a common theme or themes; and
(c) contain dramatic elements that form a narrative structure; and
(d) are produced wholly or principally for exhibition together, for a national market or national markets.
Note: A documentary can be a television series.
(4) To avoid doubt, and without limiting paragraph (3)(c), a *film satisfies the requirement in that paragraph if:
(a) the sole or dominant purpose of the film is to depict actual events, people or situations; and
(b) the film depicts those events, people or situations in a dramatic or entertaining way, with a heavy emphasis on dramatic impact or entertainment value.
Conditions relating to expenditure thresholds
(5) The conditions of this subsection are that:
(a) the total of the company’s *qualifying Australian production expenditure on the *film (as determined by the *Arts Minister under section 376‑50), to the extent that it relates to *post, digital and visual effects production for the film, is at least $5 million; and
(b) the company either carried out, or made the arrangements for the carrying out of, all the activities in Australia that were necessary for the post, digital and visual effects production for the film.
Note: The operation of paragraph (b) is affected by paragraph 376‑180(1)(d) (which deals with the situation where one company takes over the making of a film from another company).
(1) If a company applies to the *Arts Minister for the issue of a certificate to the company for the *post, digital and visual effects production for a *film under section 376‑45 (certificate for the PDV offset), the Arts Minister must, as soon as practicable after receiving the application, determine in writing the total of the company’s *qualifying Australian production expenditure, to the extent that it relates to post, digital and visual effects production for the film, for the purposes of the PDV offset.
(2) In making a determination under subsection (1), the *Arts Minister must have regard to the matters in Subdivision 376‑C.
(3) The *Arts Minister must give the company written notice of the determination.
(4) A determination made under subsection (1) is not a legislative instrument.
Refundable tax offset for Australian expenditure in making an Australian film (producer offset)
(1) A company is entitled to a *tax offset under this section (the producer offset) for an income year in respect of a *film if:
(a) the film was *completed in the income year; and
(b) the *film authority has issued a certificate to the company under section 376‑65 (certificate for the producer offset) for the film; and
(c) the company claims the offset in its *income tax return for the income year; and
(d) the company:
(i) is an Australian resident; or
(ii) is a foreign resident but does have a *permanent establishment in Australia and does have an *ABN;
when the company lodges the income tax return and when the tax offset is due to be credited to the company.
The claim referred to in paragraph (c) is irrevocable.
Note: The producer offset is a refundable tax offset: see subsection 67‑25(2A).
(2) A *film is completed:
(a) for a film that is not a series or a season of a series—when it is first in a state where it could reasonably be regarded as ready to be distributed, broadcast or exhibited to the general public; or
(b) for a series—at the earlier of:
(i) the time when the 65th episode is first in a state where it could reasonably be regarded as ready to be distributed, broadcast or exhibited to the general public; and
(ii) the time when the series is first in such a state; and
(c) for a season of a series—at the earlier of:
(i) the time when the 65th episode of the series is first in a state where it could reasonably be regarded as ready to be distributed, broadcast or exhibited to the general public; and
(ii) the time when the season is first in such a state.
(3) Film authority means the Film Finance Corporation Australia Limited (incorporated under the Companies Act 1981 on 12 July 1988).
(4) The company is not entitled to the producer offset if:
(a) the company or someone else claims a deduction in relation to a unit of industrial property that relates to copyright in the *film under Division 10B of Part III of the Income Tax Assessment Act 1936; or
(b) a final certificate for the film has been issued at any time under Division 10BA of Part III of the Income Tax Assessment Act 1936 (whether or not the certificate is still in force); or
(c) a certificate for the film has been issued at any time under section 376‑20 (certificate for the location offset) (whether or not the certificate is still in force); or
(d) a certificate for the film has been issued at any time under section 376‑45 (certificate for the PDV offset) (whether or not the certificate is still in force); or
(e) the company or someone else has deducted money paid for *shares in a *film licensed investment company under Subdivision 375‑H and the film licensed investment company has invested in the film; or
(f) production assistance (other than *development assistance) for the film has been received by the company or anyone else before 1 July 2007 from any of the following bodies:
(i) the Film Finance Corporation Australia Limited;
(ii) Film Australia Limited;
(iii) the Australian Film Commission;
(iv) the Australian Film, Television and Radio School.
(5) Development assistance for a *film means financial assistance provided to assist with meeting the development costs for the film, and includes assistance to the extent to which it is provided in relation to any of the following:
(a) location surveys and other activities undertaken to assess locations for possible use in the film;
(b) storyboarding for the film;
(c) scriptwriting for the film;
(d) research for the film;
(e) casting actors for the film;
(f) developing a budget for the film;
(g) developing a shooting schedule for the film.
376‑60 Amount of the producer offset
The amount of the producer offset is:
(a) if the *film is a *feature film—40%; or
(b) if the film is not a feature film—20%;
of the total of the company’s *qualifying Australian production expenditure on the film (as determined by the *film authority under section 376‑75).
376‑65 Film authority must issue certificate for an Australian film for the producer offset
(1) The *film authority must issue a certificate to a company for a *film in relation to the producer offset if the film authority is satisfied that:
(a) the company either carried out, or made the arrangements for the carrying out of, all the activities that were necessary for the *making of the film; and
(b) the conditions in subsections (2) to (6) are met.
Note: The operation of paragraph (a) is affected by paragraph 376‑180(1)(d) (which deals with the situation where one company takes over the making of a film from another company).
Type of film
(2) The conditions in this subsection are that:
(a) the *film:
(i) has a significant Australian content (see section 376‑70); or
(ii) has been made under an *arrangement entered into between the Commonwealth or an authority of the Commonwealth and a foreign country or an authority of the foreign country; and
(b) the film was produced for:
(i) exhibition to the public in cinemas or by way of television broadcasting (including broadcasting by way of the delivery of a television program by a broadcasting service within the meaning of the Broadcasting Services Act 1992); or
(ii) distribution to the public as a video recording (whether on video tapes, digital video disks or otherwise); and
(c) the film is:
(i) a *feature film; or
(ii) a single episode program; or
(iii) a series; or
(iv) a season of a series; or
(v) a short form animated drama that is not covered by subparagraph (i), (ii), (iii) or (iv); and
(d) the film is not, or is not to a substantial extent:
(i) a film for exhibition as an advertising program or a commercial; or
(ii) a film for exhibition as a discussion program, a quiz program, a panel program, a variety program or a program of a like nature; or
(iii) a film of a public event (other than a documentary); or
(iv) a training film; or
(v) a computer game (within the meaning of the Classification (Publications, Films and Computer Games) Act 1995); or
(vi) a news or current affairs program; or
(vii) a reality program (other than a documentary).
Single episode programs
(3) The conditions in this subsection are that, if the *film is a single episode program, it:
(a) is of a like nature to a *feature film; and
(b) is produced for:
(i) exhibition to the public by way of television broadcasting (including broadcasting by way of the delivery of a television program by a broadcasting service within the meaning of the Broadcasting Services Act 1992); or
(ii) distribution to the public as a video recording (whether on video tapes, digital video disks or otherwise); and
(c) if the program is a documentary—is of at least one half of a commercial hour in duration; and
(d) if the program is not a documentary—is of at least one commercial hour in duration.
Short form animated drama
(4) The conditions in this subsection are that, if the *film is a short form animated drama, it:
(a) is a drama program comprising one or more episodes which are produced wholly or principally for exhibition together, for a national market or national markets under a single title; and
(b) is predominantly made using cell, stop motion, digital or other animation; and
(c) contains a common theme or themes; and
(d) is of at least one quarter of a commercial hour in duration.
Series and seasons of series
(5) The conditions in this subsection are that:
(a) if the application for the certificate is for a *film that is a series and not for a film that is a season of that series:
(i) the series is made up of at least 2 episodes; and
(ii) each episode of the series is at least one half of a commercial hour in duration, except where the film is predominantly made using cell, stop motion, digital or other animation, in which case each episode is at least one quarter of a commercial hour in duration; and
(iii) the series has a new creative concept (see section 376‑70); and
(b) if the application for the certificate is for a film that is a season of a series:
(i) the season is made up of at least 2 episodes; and
(ii) each episode of the series is at least one half of a commercial hour in duration, except where the film is predominantly made using cell, stop motion, digital or other animation, in which case each episode is at least one quarter of a commercial hour in duration; and
(iii) the series has a new creative concept (see section 376‑70).
Expenditure thresholds
(6) The conditions in this subsection are as set out in the table.
Expenditure thresholds | |||
Item | For this type of film ... | The total of the company’s qualifying Australian production expenditure on the film (as determined by the film authority under section 376‑75) is at least ... | and the amount for the film worked out under subsection (7) is at least ... |
1 | A *feature film | $1 million | not applicable |
2 | A single episode program other than a documentary | $1 million | $800,000 |
3 | A single episode program that is a documentary | not applicable | $250,000 |
4 | A short form animated drama that is not a *feature film, a single episode program, a series or a season of a series | $250,000 | $1,000,000 |
5 | A *film where the application for the certificate is for a series and not for a season of that series, and the series is not a documentary | $1 million | $500,000 |
6 | A *film where the application for the certificate is for a series and not for a season of that series, and the series is a documentary | not applicable | $250,000 |
7 | A* film where the application for the certificate is for a season of a series, and the series is not a documentary | $1 million | $500,000 |
8 | A *film where the application for the certificate is for a season of a series, and the series is a documentary | not applicable | $250,000 |
(7) The amount worked out for a *film under this subsection is the amount worked out using the formula:
where:
duration of film in hours means the total length of the *film, measured in hours.
total QAPE means the total of the company’s *qualifying Australian production expenditure on the *film (as determined by the *film authority under section 376‑75).
376‑70 Determination of content of film
(1) In determining for the purposes of section 376‑65 (certificate for the producer offset) whether a *film has a significant Australian content, the *film authority must have regard to the following:
(a) the subject matter of the film;
(b) the place where the film was made;
(c) the nationalities and places of residence of the persons who took part in the *making of the film;
(d) the details of the *production expenditure incurred in respect of the film;
(e) any other matters that the film authority considers to be relevant.
(2) In determining for the purposes of section 376‑65 (certificate for the producer offset) whether a *film that is a series has a new creative concept, the *film authority must have regard to the following:
(a) the title of the series;
(b) whether the series has substantially different characters, settings, production locations and individuals involved in the *making of the series than any other series;
(c) any other matters that the film authority considers to be relevant.
(1) If a company applies to the *film authority for the issue of a certificate to the company for a *film under section 376‑65 (certificate for the producer offset), the film authority must, as soon as practicable after receiving the application, determine in writing the total of the company’s *qualifying Australian production expenditure on the film for the purposes of the producer offset.
(2) In making a determination under subsection (1), the *film authority must have regard to the matters in Subdivision 376‑C.
(3) The *film authority must give the company written notice of the determination.
(4) A determination made under subsection (1) is not a legislative instrument.
