Income Tax Assessment Act 1997

No. 38, 1997 as amended

Compilation start date:  1 July 2013

Includes amendments up to: Act No. 124, 2013

This compilation has been split into 10 volumes

Volume 1: sections 1‑1 to 36‑55

Volume 2: sections 40‑1 to 55‑10

Volume 3: sections 58‑1 to 122‑205

Volume 4: sections 124‑1 to 152‑430

Volume 5: sections 160‑1 to 220‑800

Volume 6: sections 230‑1 to 420‑70

Volume 7: sections 620‑5 to 727‑910

Volume 8: sections 768‑100 to 995‑1

Volume 9: Endnotes 1 to 3

Volume 10: Endnotes 4 to 8

Each volume has its own contents

About this compilation

This compilation

This is a compilation of the Income Tax Assessment Act 1997 as in force on 1 July 2013. It includes any commenced amendment affecting the legislation to that date.

This compilation was prepared on 24 October 2013.

The notes at the end of this compilation (the endnotes) include information about amending laws and the amendment history of each amended provision.

Uncommenced amendments

The effect of uncommenced amendments is not reflected in the text of the compiled law but the text of the amendments is included in the endnotes.

Application, saving and transitional provisions for provisions and amendments

If the operation of a provision or amendment is affected by an application, saving or transitional provision that is not included in this compilation, details are included in the endnotes.

Modifications

If a provision of the compiled law is affected by a modification that is in force, details are included in the endnotes.

Provisions ceasing to have effect

If a provision of the compiled law has expired or otherwise ceased to have effect in accordance with a provision of the law, details are included in the endnotes.

Contents

Chapter 4—International aspects of income tax

Part 4‑5—General

Division 768—Exempt foreign income and gains

Subdivision 768‑B—Some items of income that are exempt from income tax

768‑100 Foreign government officials in Australia

768‑105 Compensation arising out of Second World War

Subdivision 768‑G—Reduction in capital gains and losses arising from CGT events in relation to certain voting interests in active foreign companies

Guide to Subdivision 768‑G

768‑500 What this Subdivision is about

Operative provisions

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

Active foreign business asset percentage

768‑510 Active foreign business asset percentage

768‑515 Choices to apply market value method or book value method

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

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

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

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

768‑535 Modified rules for foreign wholly‑owned groups

Types of assets of a foreign company

768‑540 Active foreign business assets of a foreign company

768‑545 Assets included in the total assets of a foreign company

Voting percentages in a company

768‑550 Direct voting percentage in a company

768‑555 Indirect voting percentage in a company

768‑560 Total voting percentage in a company

Subdivision 768‑R—Temporary residents

Guide to Subdivision 768‑R

768‑900 What this Subdivision is about

Operative provisions

768‑905 Objects

768‑910 Income derived by temporary resident

768‑915 Certain capital gains and capital losses of temporary resident to be disregarded

768‑950 Individual becoming an Australian resident

768‑955 Temporary resident who ceases to be temporary resident but remains an Australian resident

768‑960 Temporary resident not attributable taxpayer for purposes of controlled foreign companies rules

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

768‑980 Interest paid by temporary resident

Division 770—Foreign income tax offsets

Guide to Division 770

770‑1 What this Division is about

770‑5 Object

Subdivision 770‑A—Entitlement rules for foreign income tax offsets

Basic entitlement rule for foreign income tax offset

770‑10 Entitlement to foreign income tax offset

770‑15 Meaning of foreign income tax, credit absorption tax and unitary tax

Subdivision 770‑B—Amount of foreign income tax offset

Guide to Subdivision 770‑B

770‑65 What this Subdivision is about

Operative provisions

770‑70 Amount of foreign income tax offset

770‑75 Foreign income tax offset limit

770‑80 Increase in offset limit for tax paid on amounts to which section 23AI or 23AK of the Income Tax Assessment Act 1936 apply

Subdivision 770‑C—Rules about payment of foreign income tax

Rules about when foreign tax is paid

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

770‑135 Foreign income tax paid by CFCs on attributed amounts

Rules about when foreign tax is considered not paid

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

Subdivision 770‑D—Administration

770‑190 Amendment of assessments

Division 775—Foreign currency gains and losses

Guide to Division 775

775‑5 What this Division is about

Subdivision 775‑A—Objects of this Division

775‑10 Objects of this Division

Subdivision 775‑B—Realisation of forex gains or losses

775‑15 Forex realisation gains are assessable

775‑20 Certain forex realisation gains are exempt income

775‑25 Certain forex realisation gains are non‑assessable non‑exempt income

775‑27 Certain forex realisation gains are non‑assessable non‑exempt income

775‑30 Forex realisation losses are deductible

775‑35 Certain forex realisation losses are disregarded

775‑40 Disposal of foreign currency or right to receive foreign currency—forex realisation event 1

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

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

775‑55 Ceasing to have an obligation to pay foreign currency—forex realisation event 4

775‑60 Ceasing to have a right to pay foreign currency—forex realisation event 5

775‑65 Only one forex realisation event to be counted

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

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

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

775‑85 Forex cost base of a right to receive foreign currency

775‑90 Forex entitlement base of a right to pay foreign currency

775‑95 Proceeds of assuming an obligation to pay foreign currency

775‑100 Net costs of assuming an obligation to receive foreign currency

775‑105 Currency exchange rate effect

775‑110 Constructive receipts and payments

775‑115 Economic set‑off to be treated as legal set‑off

775‑120 Non‑arm’s length transactions

775‑125 CGT consequences of the acquisition of foreign currency as a result of forex realisation event 2 or 3

775‑130 Certain deductions not allowable

775‑135 Right to receive or pay foreign currency

775‑140 Obligation to pay or receive foreign currency

775‑145 Application of forex realisation events to currency and fungible rights and obligations

775‑150 Transitional election

775‑155 Applicable commencement date

775‑160 Exception—event happens before the applicable commencement date

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

775‑168 Exception—disposal or redemption of traditional securities

775‑175 Application to things happening before commencement

Subdivision 775‑C—Roll‑over relief for facility agreements

Guide to Subdivision 775‑C

775‑180 What this Subdivision is about

Operative provisions

775‑185 What is a facility agreement?

775‑190 What is an eligible security?

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

775‑200 Forex realisation event 4 does not apply

775‑205 What is a roll‑over?

775‑210 Notional loan

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

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

Subdivision 775‑D—Qualifying forex accounts that pass the limited balance test

Guide to Subdivision 775‑D

775‑225 What this Subdivision is about

Operative provisions

775‑230 Election to have this Subdivision apply to one or more qualifying forex accounts

775‑235 Variation of election

775‑240 Withdrawal of election

775‑245 When does a qualifying forex account pass the limited balance test?

775‑250 Tax consequences of passing the limited balance test

775‑255 Notional realisation when qualifying forex account starts to pass the limited balance test

775‑260 Modification of tax recognition time

Subdivision 775‑E—Retranslation for qualifying forex accounts

Guide to Subdivision 775‑E

775‑265 What this Subdivision is about

Operative provisions

775‑270 You may choose retranslation for a qualifying forex account

775‑275 Withdrawal of choice

775‑280 Tax consequences of choosing retranslation for an account

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

Subdivision 775‑F—Retranslation under foreign exchange retranslation election under Subdivision 230‑D

Guide to Subdivision 775‑F

775‑290 What this Subdivision is about

775‑295 When this Subdivision applies

775‑300 Tax consequences of choosing retranslation for arrangement

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

775‑310 When election ceases to apply to arrangement

775‑315 Balancing adjustment when election ceases to apply to arrangement

Division 802—Foreign residents’ income with an underlying foreign source

Subdivision 802‑A—Conduit foreign income

Guide to Subdivision 802‑A

802‑5 What this Subdivision is about

Operative provisions

802‑10 Objects

802‑15 Foreign residents—exempting CFI from Australian tax

802‑17 Trust estates and foreign resident beneficiaries—exempting CFI from Australian tax

802‑20 Distributions between Australian corporate tax entities—non‑assessable non‑exempt income

802‑25 Conduit foreign income of an Australian corporate tax entity

802‑30 Foreign source income amounts

802‑35 Capital gains and losses

802‑40 Effect of foreign income tax offset on conduit foreign income

802‑45 Previous declarations of conduit foreign income

802‑50 Receipt of an unfranked distribution from another Australian corporate tax entity

802‑55 No double benefits

802‑60 No streaming of distributions

Division 815—Cross‑border transfer pricing

Subdivision 815‑A—Treaty‑equivalent cross‑border transfer pricing rules

Guide to Subdivision 815‑A

815‑1 What this Subdivision is about

Operative provisions

815‑5 Object

815‑10 Transfer pricing benefit may be negated

815‑15 When an entity gets a transfer pricing benefit

815‑20 Cross‑border transfer pricing guidance

815‑25 Modified transfer pricing benefit for thin capitalisation

815‑30 Determinations negating transfer pricing benefit

815‑35 Consequential adjustments

815‑40 No double taxation

Subdivision 815‑B—Arm’s length principle for cross‑border conditions between entities

Guide to Subdivision 815‑B

815‑101 What this Subdivision is about

Operative provisions

815‑105 Object

815‑110 Operation of Subdivision

815‑115 Substitution of arm’s length conditions

815‑120 When an entity gets a transfer pricing benefit

815‑125 Meaning of arm’s length conditions

815‑130 Relevance of actual commercial or financial relations

815‑135 Guidance

815‑140 Modification for thin capitalisation

815‑145 Consequential adjustments

815‑150 Amendment of assessments

Subdivision 815‑C—Arm’s length principle for permanent establishments

Guide to Subdivision 815‑C

815‑201 What this Subdivision is about

Operative provisions

815‑205 Object

815‑210 Operation of Subdivision

815‑215 Substitution of arm’s length profits

815‑220 When an entity gets a transfer pricing benefit

815‑225 Meaning of arm’s length profits

815‑230 Source rules for certain arm’s length profits

815‑235 Guidance

815‑240 Amendment of assessments

Subdivision 815‑D—Special rules for trusts and partnerships

Guide to Subdivision 815‑D

815‑301 What this Subdivision is about

Operative provisions

815‑305 Special rule for trusts

815‑310 Special rules for partnerships

Division 820—Thin capitalisation rules

Guide to Division 820

820‑1 What this Division is about

820‑5 Does this Division apply to an entity?

820‑10 Map of Division

Subdivision 820‑A—Preliminary

820‑30 Object of Division

820‑32 Exemption for private or domestic assets and non‑debt liabilities

820‑35 Application—$250,000 threshold

820‑37 Application—assets threshold

820‑39 Exemption of certain special purpose entities

820‑40 Meaning of debt deduction

Subdivision 820‑B—Thin capitalisation rules for outward investing entities (non‑ADI)

Guide to Subdivision 820‑B

820‑65 What this Subdivision is about

Operative provisions

820‑85 Thin capitalisation rule for outward investing entities (non‑ADI)

820‑90 Maximum allowable debt

820‑95 Safe harbour debt amount—outward investor (general)

820‑100 Safe harbour debt amount—outward investor (financial)

820‑105 Arm’s length debt amount

820‑110 Worldwide gearing debt amount

820‑115 Amount of debt deduction disallowed

820‑120 Application to part year periods

Subdivision 820‑C—Thin capitalisation rules for inward investing entities (non‑ADI)

Guide to Subdivision 820‑C

820‑180 What this Subdivision is about

Operative provisions

820‑185 Thin capitalisation rule for inward investing entities (non‑ADI)

820‑190 Maximum allowable debt

820‑195 Safe harbour debt amount—inward investment vehicle (general)

820‑200 Safe harbour debt amount—inward investment vehicle (financial)

820‑205 Safe harbour debt amount—inward investor (general)

820‑210 Safe harbour debt amount—inward investor (financial)

820‑215 Arm’s length debt amount

820‑220 Amount of debt deduction disallowed

820‑225 Application to part year periods

Subdivision 820‑D—Thin capitalisation rules for outward investing entities (ADI)

Guide to Subdivision 820‑D

820‑295 What this Subdivision is about

Operative provisions

820‑300 Thin capitalisation rule for outward investing entities (ADI)

820‑305 Minimum capital amount

820‑310 Safe harbour capital amount

820‑315 Arm’s length capital amount

820‑320 Worldwide capital amount

820‑325 Amount of debt deduction disallowed

820‑330 Application to part year periods

Subdivision 820‑E—Thin capitalisation rules for inward investing entities (ADI)

Guide to Subdivision 820‑E

820‑390 What this Subdivision is about

Operative provisions

820‑395 Thin capitalisation rule for inward investing entities (ADI)

820‑400 Minimum capital amount

820‑405 Safe harbour capital amount

820‑410 Arm’s length capital amount

820‑415 Amount of debt deduction disallowed

820‑420 Application to part year periods

Subdivision 820‑EA—Some financial entities may choose to be treated as ADIs

820‑430 When choice can be made, and what effect it has

820‑435 Conditions

820‑440 Revocation of choice

820‑445 How this Subdivision interacts with Subdivision 820‑FA

Subdivision 820‑FA—How the thin capitalisation rules apply to consolidated groups and MEC groups

Guide to Subdivision 820‑FA

820‑579 What this Subdivision is about

Operative provisions

820‑581 How this Division applies to head company for income year in which group comes into existence or ceases to exist

820‑583 Classification of head company

820‑584 Exempt special purpose entities treated as not being member of group

820‑585 Exemption for consolidated group headed by foreign‑controlled Australian ADI or its holding company

820‑587 Additional application of Subdivision 820‑D to MEC group that includes foreign‑controlled Australian ADI

820‑588 Choice to treat specialist credit card institutions as being financial entities and not ADIs

820‑589 How Subdivision 820‑D applies to a MEC group

Subdivision 820‑FB—Grouping branches of foreign banks and foreign financial entities with a consolidated group, MEC group or single Australian resident company

Guide to Subdivision 820‑FB

820‑595 What this Subdivision is about

Choice to group with branches of foreign banks and foreign financial entities

820‑597 Choice by head company of consolidated group or MEC group

820‑599 Choice by Australian resident company outside consolidatable group and MEC group

Effect of choice

820‑601 Application

820‑603 General

820‑605 Effect on establishment entity if certain debt deductions disallowed

820‑607 Effect on test periods under this Division

820‑609 Effect on classification of head company or single company

820‑610 Choice not to be outward investing entity (ADI) or inward investing entity (ADI)

820‑611 Values to be based on what would be in consolidated accounts for group

820‑613 How Subdivision 820‑D applies

820‑615 How Subdivision 820‑E applies

Subdivision 820‑G—Calculating the average values

Guide to Subdivision 820‑G

820‑625 What this Subdivision is about

How to calculate the average values

820‑630 Methods of calculating average values

820‑635 The opening and closing balances method

820‑640 The 3 measurement days method

820‑645 The frequent measurement method

Special rules about values and valuation

820‑675 Amount to be expressed in Australian currency

820‑680 Valuation of assets, liabilities and equity capital

820‑682 Recognition of assets and liabilities—modifying application of accounting standards

820‑683 Recognition of internally generated intangible items—modifying application of accounting standards

820‑684 Valuation of intangible assets if no active market—modifying application of accounting standards

820‑685 Valuation of debt capital

820‑690 Commissioner’s power

Subdivision 820‑H—Control of entities

Guide to Subdivision 820‑H

820‑740 What this Subdivision is about

Australian controller of a foreign entity

820‑745 What is an Australian controlled foreign entity?

820‑750 What is an Australian controller of a controlled foreign company?

820‑755 What is an Australian controller of a controlled foreign trust?

820‑760 What is an Australian controller of a controlled foreign corporate limited partnership?

Foreign controlled Australian entity

820‑780 What is a foreign controlled Australian entity?

820‑785 What is a foreign controlled Australian company?

820‑790 What is a foreign controlled Australian trust?

820‑795 What is a foreign controlled Australian partnership?

Thin capitalisation control interest

820‑815 General rule about thin capitalisation control interest in a company, trust or partnership

820‑820 Special rules about calculating TC control interest held by an entity

820‑825 Special rules about calculating TC control interests held by a group of entities

820‑830 Special rules about determining percentage of TC control interest

820‑835 Commissioner’s power

TC direct control interest, TC indirect control interest and TC control tracing interest

820‑855 TC direct control interest in a company

820‑860 TC direct control interest in a trust

820‑865 TC direct control interest in a partnership

820‑870 TC indirect control interest in a company, trust or partnership

820‑875 TC control tracing interest in a company, trust or partnership

Subdivision 820‑HA—Controlled foreign entity debt and controlled foreign entity equity

Guide to Subdivision 820‑HA

820‑880 What this Subdivision is about

820‑881 Application

820‑885 What is controlled foreign entity debt?

820‑890 What is controlled foreign entity equity?

Subdivision 820‑I—Associate entities

Guide to Subdivision 820‑I

820‑900 What this Subdivision is about

820‑905 Associate entity

820‑910 Associate entity debt

820‑915 Associate entity equity

820‑920 Associate entity excess amount

Subdivision 820‑J—Equity interest in a trust or partnership

Guide to Subdivision 820‑J

820‑925 What this Subdivision is about

820‑930 Equity interest in a trust or partnership

Subdivision 820‑K—Zero‑capital amount

Guide to Subdivision 820‑K

820‑940 What this Subdivision is about

820‑942 How to work out the zero‑capital amount

Subdivision 820‑KA—Cost‑free debt capital and excluded equity interests

Guide to Subdivision 820‑KA

820‑945 What this Subdivision is about

820‑946 Cost‑free debt capital and excluded equity interest

Subdivision 820‑L—Record keeping requirements

Guide to Subdivision 820‑L

820‑950 What this Subdivision is about

Records about Australian permanent establishments

820‑960 Records about Australian permanent establishments

820‑965 Review of Commissioner’s decision

Records about arm’s length amounts

820‑980 Records about arm’s length debt amount and arm’s length capital amount

Records about asset revaluations

820‑985 Methodology of revaluation and independence of valuer

Offences committed by certain entities

820‑990 Offences—treatment of partnerships

820‑995 Offences—treatment of unincorporated companies

Division 830—Foreign hybrids

Guide to Division 830

830‑1 What this Division is about

Subdivision 830‑A—Meaning of “foreign hybrid”

830‑5 Foreign hybrid

830‑10 Foreign hybrid limited partnership

830‑15 Foreign hybrid company

Subdivision 830‑B—Extension of normal partnership provisions to foreign hybrid companies

830‑20 Treatment of company as a partnership

830‑25 Partners are the shareholders in the company

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

830‑35 Partner’s interest in assets

830‑40 Control and disposal of share in partnership income

Subdivision 830‑C—Special rules applicable while an entity is a foreign hybrid

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

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

830‑55 Meaning of foreign hybrid net capital loss amount

830‑60 Meaning of loss exposure amount

830‑65 Meaning of outstanding foreign hybrid revenue loss amount

830‑70 Meaning of outstanding foreign hybrid net capital loss amount

830‑75 Extended meaning of subject to foreign tax

Subdivision 830‑D—Special rules applicable when an entity becomes or ceases to be a foreign hybrid

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

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

830‑90 What the expression tax cost is set means

830‑95 What the expression tax cost setting amount means

830‑100 What the expression tax cost means

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

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

830‑115 Tax losses cannot be transferred to a foreign hybrid

830‑120 End of CFC’s last statutory accounting period

830‑125 How long interest in asset, or asset, held

Division 840—Withholding taxes

Guide to Division 840

840‑1 What this Division is about

Subdivision 840‑M—Managed investment trust withholding tax

Guide to Subdivision 840‑M

840‑800 What this Subdivision is about

Operative provisions

840‑805 Liability for managed investment trust withholding tax

840‑810 When managed investment trust withholding tax is payable

840‑815 Certain income is non‑assessable non‑exempt income

840‑820 Agency rules

Subdivision 840‑S—Seasonal Labour Mobility Program withholding tax

Guide to Subdivision 840‑S

840‑900 What this Subdivision is about

Operative provisions

840‑905 Liability for Seasonal Labour Mobility Program withholding tax

840‑910 When Seasonal Labour Mobility Program withholding tax is payable

840‑915 Certain income is non‑assessable non‑exempt income

840‑920 Overpayment of Seasonal Labour Mobility Program withholding tax

Division 842—Exempt Australian source income and gains of foreign residents

Subdivision 842‑B—Some items of Australian source income of foreign residents that are exempt from income tax

Guide to Subdivision 842‑B

842‑100 What this Subdivision is about

842‑105 Amounts of Australian source ordinary income and statutory income that are exempt

Subdivision 842‑I—Investment manager regime

Guide to Subdivision 842‑I

842‑200 What this Subdivision is about

Operative provisions

842‑205 Objects of this Subdivision

842‑210 Treatment of IMR foreign fund that is a corporate tax entity

842‑215 Treatment of foreign resident beneficiary that is not a trust or partnership

842‑220 Treatment of foreign resident partner that is not a trust or partnership

842‑225 Treatment of trustee of an IMR foreign fund

842‑230 IMR foreign fund

842‑235 Wind‑down phases

842‑240 Widely held test and concentration test

842‑245 Financial arrangements covered by this section

842‑250 IMR income and IMR deduction

842‑255 IMR capital gain and IMR capital loss

842‑260 Non‑IMR net income, non‑IMR Division 6E net income and non‑IMR net capital gain

842‑265 Non‑IMR partnership net income and non‑IMR partnership loss

842‑270 Pre‑2012 IMR income and pre‑2012 IMR capital gain

Division 855—Capital gains and foreign residents

Guide to Division 855

855‑1 What this Division is about

Subdivision 855‑A—Disregarding a capital gain or loss by foreign residents

855‑5 Objects of this Subdivision

855‑10 Disregarding a capital gain or loss from CGT events

855‑15 When an asset is taxable Australian property

855‑20 Taxable Australian real property

855‑25 Indirect Australian real property interests

855‑30 Principal asset test

855‑35 Reducing a capital gain or loss from a business asset—Australian permanent establishments

855‑40 Capital gains and losses of foreign residents through fixed trusts

Subdivision 855‑B—Becoming an Australian resident

855‑45 Individual or company becomes an Australian resident

855‑50 Trust becomes a resident trust

855‑55 CFC becomes an Australian resident

Chapter 5—Administration

Part 5‑30—Record‑keeping and other obligations

Division 900—Substantiation rules

Guide to Division 900

900‑1 What this Division is about

Subdivision 900‑A—Application of Division

900‑5 Application of the requirements of Division 900

900‑10 Substantiation requirement

900‑12 Application to recipients and payers of certain withholding payments

Subdivision 900‑B—Substantiating work expenses

900‑15 Getting written evidence

900‑20 Keeping travel records

900‑25 Retaining the written evidence and travel records

900‑30 Meaning of work expense

900‑35 Exception for small total of expenses

900‑40 Exception for laundry expenses below a certain limit

900‑45 Exception for work expense related to award transport payment

900‑50 Exception for domestic travel allowance expenses

900‑55 Exception for overseas travel allowance expenses

900‑60 Exception for reasonable overtime meal allowance

900‑65 Crew members on international flights need not keep travel records

Subdivision 900‑C—Substantiating car expenses

900‑70 Getting written evidence

900‑75 Retaining the written evidence and odometer records

Subdivision 900‑D—Substantiating business travel expenses

900‑80 Getting written evidence

900‑85 Keeping travel records

900‑90 Retaining the written evidence and travel records

900‑95 Meaning of business travel expense

Subdivision 900‑E—Written evidence

Guide to Subdivision 900‑E

900‑100 What this Subdivision is about

Operative provisions

900‑105 Ways of getting written evidence

900‑110 Time limits

900‑115 Written evidence from supplier

900‑120 Written evidence of depreciating asset expense

900‑125 Evidence of small expenses

900‑130 Evidence of expenses considered otherwise too hard to substantiate

900‑135 Evidence on a payment summary

Subdivision 900‑F—Travel records

Guide to Subdivision 900‑F

900‑140 What this Subdivision is about

900‑145 Purpose of a travel record

Operative provisions

900‑150 Recording activities in travel records

900‑155 Showing which of your activities were income‑producing activities

Subdivision 900‑G—Retaining and producing records

Guide to Subdivision 900‑G

900‑160 What this Subdivision is about

900‑165 The retention period

Operative provisions

900‑170 Extending the retention period if an expense is disputed

900‑175 Commissioner may tell you to produce your records

900‑180 How to comply with a notice

900‑185 What happens if you don’t comply

Subdivision 900‑H—Relief from effects of failing to substantiate

900‑195 Commissioner’s discretion to review failure to substantiate

900‑200 Reasonable expectation that substantiation would not be required

900‑205 What if your documents are lost or destroyed?

Subdivision 900‑I—Award transport payments

Guide to Subdivision 900‑I

900‑210 What this Subdivision is about

Operative provisions

900‑215 Deducting an expense related to an award transport payment

900‑220 Definition of award transport payment

900‑225 Substituted industrial instruments

900‑230 Changes to industrial instruments applied for before 29 October 1986

900‑235 Changes to industrial instruments solely referable to matters in the instrument

900‑240 Deducting in anticipation of receiving award transport payment

900‑245 Effect of exception in this Subdivision on exception for small total of expenses

900‑250 Effect of exception in this Subdivision on methods of calculating car expense deductions

Part 5‑35—Miscellaneous

Division 905—Offences

905‑5 Application of the Criminal Code

Division 909—Regulations

909‑1 Regulations

Chapter 6—The Dictionary

Part 6‑1—Concepts and topics

Division 950—Rules for interpreting this Act

950‑100 What forms part of this Act

950‑105 What does not form part of this Act

950‑150 Guides, and their role in interpreting this Act

Division 960—General

Subdivision 960‑B—Utilisation of tax attributes

960‑20 Utilisation

Subdivision 960‑C—Foreign currency

960‑49 Objects of this Subdivision

960‑50 Translation of amounts into Australian currency

960‑55 Application of translation rules

Subdivision 960‑D—Functional currency

Guide to Subdivision 960‑D

960‑56 What this Subdivision is about

Operative provisions

960‑59 Object of this Subdivision

960‑60 You may choose a functional currency

960‑61 Functional currency for calculating capital gains and losses on indirect Australian real property interests

960‑65 Backdated startup choice

960‑70 What is the applicable functional currency?

960‑75 What is a transferor trust?

960‑80 Translation rules

960‑85 Special rule about translation—events that happened before the current choice took effect

960‑90 Withdrawal of choice

Subdivision 960‑E—Entities

960‑100 Entities

960‑105 Certain entities treated as agents

Subdivision 960‑F—Distribution by corporate tax entities

960‑115 Meaning of corporate tax entity

960‑120 Meaning of distribution

Subdivision 960‑G—Membership of entities

960‑130 Members of entities

960‑135 Membership interest in an entity

960‑140 Ordinary membership interest

Subdivision 960‑GP—Participation interests in entities

960‑180 Total participation interest

960‑185 Indirect participation interest

960‑190 Direct participation interest

960‑195 Non‑portfolio interest test

Subdivision 960‑H—Abnormal trading in shares or units

960‑220 Meaning of trading

960‑225 Abnormal trading

960‑230 Abnormal trading—5% of shares or units in one transaction

960‑235 Abnormal trading—suspected 5% of shares or units in a series of transactions

960‑240 Abnormal trading—suspected acquisition or merger

960‑245 Abnormal trading—20% of shares or units traded over 60 day period

Subdivision 960‑J—Family relationships

Guide to Subdivision 960‑J

960‑250 What this Subdivision is about

Operative provisions

960‑252 Object of this Subdivision

960‑255 Family relationships

Subdivision 960‑M—Indexation

Guide to Subdivision 960‑M

960‑260 What this Subdivision is about

960‑265 The provisions for which indexation is relevant

Operative provisions

960‑270 Indexing amounts

960‑275 Indexation factor

960‑280 Index number

960‑285 Indexation—superannuation and employment termination

Subdivision 960‑S—Market value

Guide to Subdivision 960‑S

960‑400 What this Subdivision is about

Operative provisions

960‑405 Effect of GST on market value of an asset

960‑410 Market value of non‑cash benefits

960‑415 Amounts that depend on market value

Division 974—Debt and equity interests

Subdivision 974‑A—General

Guide to Division 974

974‑1 What this Division is about

974‑5 Overview of Division

Operative provisions

974‑10 Object

Subdivision 974‑B—Debt interests

974‑15 Meaning of debt interest

974‑20 The test for a debt interest

974‑25 Exceptions to the debt test

974‑30 Providing a financial benefit

974‑35 Valuation of financial benefits—general rules

974‑40 Valuation of financial benefits—rights and options to terminate early

974‑45 Valuation of financial benefits—convertible interests

974‑50 Valuation of financial benefits—value in present value terms

974‑55 The debt interest and its issue

974‑60 Debt interest arising out of obligations owed by a number of entities

974‑65 Commissioner’s power

Subdivision 974‑C—Equity interests in companies

974‑70 Meaning of equity interest in a company

974‑75 The test for an equity interest

974‑80 Equity interest arising from arrangement funding return through connected entities

974‑85 Right or return contingent on economic performance

974‑90 Right or return at discretion of company or connected entity

974‑95 The equity interest

Subdivision 974‑D—Common provisions

974‑100 Treatment of convertible and converting interests

974‑105 Effect of action taken in relation to interest arising from related schemes

974‑110 Effect of material change

974‑112 Determinations by Commissioner

Subdivision 974‑E—Non‑share distributions by a company

974‑115 Meaning of non‑share distribution

974‑120 Meaning of non‑share dividend

974‑125 Meaning of non‑share capital return

Subdivision 974‑F—Related concepts

974‑130 Financing arrangement

974‑135 Effectively non‑contingent obligation

974‑140 Ordinary debt interest

974‑145 Benchmark rate of return

974‑150 Schemes

974‑155 Related schemes

974‑160 Financial benefit

974‑165 Convertible and converting interests

Division 975—Concepts about companies

Subdivision 975‑A—General

975‑150 Position to affect rights in relation to a company

975‑155 When is an entity a controller (for CGT purposes) of a company?

975‑160 When an entity has an associate‑inclusive control interest

Subdivision 975‑G—What is a company’s share capital account?

975‑300 Meaning of share capital account

Subdivision 975‑W—Wholly‑owned groups of companies

975‑500 Wholly‑owned groups

975‑505 What is a 100% subsidiary?

Division 977—Realisation events, and the gains and losses they realise for income tax purposes

CGT assets 

977‑5 Realisation event

977‑10 Loss realised for income tax purposes

977‑15 Gain realised for income tax purposes

Trading stock 

977‑20 Realisation event

977‑25 Disposal of trading stock: loss realised for income tax purposes

977‑30 Ending of an income year: loss realised for income tax purposes

977‑35 Disposal of trading stock: gain realised for income tax purposes

977‑40 Ending of an income year: gain realised for income tax purposes

Revenue assets 

977‑50 Meaning of revenue asset

977‑55 Loss or gain realised for income tax purposes

Division 976—Imputation

976‑1 Franked part of a distribution

976‑5 Unfranked part of a distribution

976‑10 The part of a distribution that is franked with an exempting credit

976‑15 The part of a distribution that is franked with a venture capital credit

Part 6‑5—Dictionary definitions

Division 995—Definitions

995‑1 Definitions

Chapter 4—International aspects of income tax

Part 4‑5—General

Division 768—Exempt foreign income and gains

Table of Subdivisions

768‑B Some items of income that are exempt from income tax

768‑G Reduction in capital gains and losses arising from CGT events in relation to certain voting interests in active foreign companies

768‑R Temporary residents

Subdivision 768‑B—Some items of income that are exempt from income tax

Table of sections

768‑100 Foreign government officials in Australia

768‑105 Compensation arising out of Second World War

768‑100  Foreign government officials in Australia

 (1) The amounts of *ordinary income and *statutory income covered by the table are exempt from income tax. In some cases, the exemption is subject to exceptions or special conditions, or both.

Note 1: Ordinary and statutory income that is exempt from income tax is called exempt income: see section 6‑20. The note to subsection 6‑15(2) describes some of the other consequences of it being exempt income.

Note 2: Even if an exempt payment is made to you, the Commissioner can still require you to lodge an income tax return or information under section 161 of the Income Tax Assessment Act 1936.

 (2) The Conventions are:

 (a) the Vienna Convention on Diplomatic Relations, as having the force of law because of the Diplomatic Privileges and Immunities Act 1967;

 (b) the Vienna Convention on Consular Relations, as having the force of law because of the Consular Privileges and Immunities Act 1972.

Note: Those Conventions have the force of law in Australia because of those Acts and achieve substantially the same effect as item 1 of the table: see Article 34 of the Vienna Convention on Diplomatic Relations and Article 49 of the Vienna Convention on Consular Relations.

768‑105  Compensation arising out of Second World War

 (1) A payment to you is exempt from income tax if:

 (a) you are an Australian resident at the time when it would otherwise be included in your assessable income; and

 (b) the payment is from a source in a foreign country; and

 (c) the payment is in connection with:

 (i) any wrong or injury; or

 (ii) any loss of, or damage to, property; or

 (iii) any other detriment;

  suffered by you or another individual as a result of:

 (iv) persecution by the National Socialist regime of Germany during the National Socialist period; or

 (v) persecution during the Second World War by any other enemy of the Commonwealth or by a regime covered by subsection (3); or

 (vi) flight from persecution mentioned in subparagraph (iv) or (v); or

 (vii) participation in a resistance movement during the Second World War against forces of the National Socialist regime of Germany or against forces of any other enemy of the Commonwealth; and

 (d) the payment is not directly or indirectly from any of your *associates.

Note: An example of a detriment covered by subparagraph (c)(iii) is if you lost the opportunity to qualify for a pension because your period of contribution was cut short because you had to flee persecution by the National Socialist regime.

Duration of Second World War

 (2) Subsection (1) applies to:

 (a) the period immediately before the Second World War; and

 (b) the period immediately after the Second World War;

in the same way as it applies to the period of the Second World War.

Regimes associated with an enemy of the Commonwealth

 (3) This subsection covers a regime that was:

 (a) in alliance with; or

 (b) occupied by; or

 (c) effectively controlled by; or

 (d) under duress from; or

 (e) surrounded by;

either or both of the following:

 (f) the National Socialist regime of Germany;

 (g) any other enemy of the Commonwealth.

Legal personal representative

 (4) Subsection (1) applies to a payment to:

 (a) your *legal personal representative; or

 (b) a trust established by your will;

in a corresponding way to the way in which it would have applied if:

 (c) the payment had been to you; and

 (d) if the payment is made after your death—you were still alive.

Subdivision 768‑G—Reduction in capital gains and losses arising from CGT events in relation to certain voting interests in active foreign companies

Guide to Subdivision 768‑G

768‑500  What this Subdivision is about

If:

the gain or loss is reduced by a percentage that reflects the degree to which the assets of the foreign company are used in an active business.

Table of sections

Operative provisions

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

Active foreign business asset percentage

768‑510 Active foreign business asset percentage

768‑515 Choices to apply market value method or book value method

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

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

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

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

768‑535 Modified rules for foreign wholly‑owned groups

Types of assets of a foreign company

768‑540 Active foreign business assets of a foreign company

768‑545 Assets included in the total assets of a foreign company

Voting percentages in a company

768‑550 Direct voting percentage in a company

768‑555 Indirect voting percentage in a company

768‑560 Total voting percentage in a company

Operative provisions

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

 (1) The *capital gain or *capital loss a company (the holding company) that is an Australian resident makes from a *CGT event that happened at a particular time (the time of the CGT event) to a *share in a company (the foreign disposal company) that is a foreign resident is reduced if:

 (a) the holding company held a *direct voting percentage of 10% or more in the foreign disposal company throughout a 12 month period that:

 (i) began no earlier than 24 months before the time of the CGT event; and

 (ii) ended no later than that time; and

 (b) the share is not:

 (i) an eligible finance share (within the meaning of Part X of the Income Tax Assessment Act 1936); or

 (ii) a widely distributed finance share (within the meaning of that Part); and

 (c) the CGT event is CGT event A1, B1, C2, E1, E2, G3, J1, K4, K6, K10 or K11.

 (2) The gain or loss is reduced by the *active foreign business asset percentage (see sections 768‑510, 768‑530 and 768‑535) of the foreign disposal company in relation to the holding company at the time of the CGT event.

Active foreign business asset percentage

768‑510  Active foreign business asset percentage

 (1) The active foreign business asset percentage of a company (the foreign company) that is a foreign resident, in relation to the holding company mentioned in section 768‑505, at the time of the CGT event mentioned in that section, is worked out in accordance with this section.

Market value method

 (2) Work out that percentage under section 768‑520 if:

 (a) the holding company has made a choice under subsection 768‑515(1) in relation to the foreign company for that time; and

 (b) there is sufficient evidence of the *market value at that time of:

 (i) all *assets included in the total assets of the foreign company at that time; and

 (ii) all *active foreign business assets of the foreign company at that time.

Book value method

 (3) Work out that percentage under section 768‑525 if:

 (a) the holding company has made a choice under subsection 768‑515(2) in relation to the foreign company for that time; and

 (b) there are *recognised company accounts of the foreign company for a period that ends no later than that time, but no more than 12 months before that time; and

 (c) if the foreign company was in existence before the start of the period mentioned in paragraph (b)—there are recognised company accounts of the foreign company for a period that ends at least 6 months, but no more than 18 months, before the end of the period mentioned in paragraph (b).

Default method

 (4) Otherwise, that percentage is:

 (a) 100% (if this section is being applied for the purposes of section 768‑505 to reduce a *capital loss of the holding company); or

 (b) zero (in any other case).

768‑515  Choices to apply market value method or book value method

Choice for market value method

 (1) The holding company may choose to work out the *active foreign business asset percentage of the foreign company for the time of the CGT event under section 768‑520.

Choice for book value method

 (2) The holding company may choose to work out the *active foreign business asset percentage of the foreign company for the time of the CGT event under section 768‑525.

Method of making choice

 (3) The way an entity making a choice under subsection (1) or (2) prepares its *income tax return is sufficient evidence of the making of the choice.

Note: If an entity does not make a choice under subsection (1) or (2), it will work out the active foreign business asset percentage of the foreign company in accordance with the default method in subsection 768‑510(4).

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

 (1) The active foreign business asset percentage of the foreign company in relation to the holding company, at the time of the CGT event, is worked out under this section in this way.

Note 1: If the foreign company is a foreign life insurance company or a foreign general insurance company, the result of step 2 is modified under section 768‑530.

Note 2: If the foreign company is a member of a wholly‑owned group, section 768‑535 may modify the way in which this section operates.

 (2) If, at the time of the CGT event:

 (a) an *active foreign business asset of the foreign company is a *share in another company (the subsidiary company); and

 (b) the subsidiary company is a foreign resident;

then, in working out the *market value of all *active foreign business assets of the foreign company at that time for the purposes of step 2 of the method statement in subsection (1), treat the *market value of the share at that time according to the following table.

Note: For the purposes of item 1 of the table, it is necessary to work out the active foreign business asset percentage of the subsidiary company before working out the active foreign business asset percentage of the foreign company.

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

 (1) The active foreign business asset percentage of the foreign company in relation to the holding company, at the time of the CGT event, is worked out under this section in this way.

Note: If the foreign company is a member of a wholly‑owned group, section 768‑535 may modify the way in which this section operates.

 (2) The foreign company’s average value of total assets at the time of the CGT event is worked out in this way.

 (3) The foreign company’s average value of active foreign business assets at that time is worked out in this way.

Note: If the foreign company is a foreign life insurance company or a foreign general insurance company, the results of steps 1 and 2 are modified under section 768‑530.

 (4) If an *active foreign business asset of the foreign company is a *share in another company (the subsidiary company) that is a foreign resident, then, for the purposes of steps 1 and 2 of the method statement in subsection (3), treat the value of the share at a particular time according to the following table.

Note: For the purposes of item 1 of the table, it is necessary to work out the active foreign business asset percentage of the subsidiary company before working out the active foreign business asset percentage of the foreign company.

 (5) For the purposes of this section, the value of an asset of a foreign company at the end of a period is taken to be:

 (a) the value of the asset as shown in the *recognised company accounts of the foreign company for that period; or

 (b) if the value of the asset is not shown in the recognised company accounts of the foreign company for that period—zero.

 (6) The result of:

 (a) step 2 of the method statement in subsection (2); and

 (b) step 2 of the method statement in subsection (3);

is taken to be zero if the foreign company does not have *recognised company accounts for a period mentioned in those steps.

Note: This will only be the case if the foreign company was not in existence before the start of the period mentioned in step 1 of those method statements (see paragraph 768‑510(3)(c)).

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

 (1) If the foreign company is a *foreign life insurance company or a *foreign general insurance company, work out its *active foreign business asset percentage according to section 768‑510, but with the modifications set out in subsections (2) and (3).

 (2) Treat a reference in the following provisions to a period as a reference to a *statutory accounting period of the foreign company:

 (a) paragraphs 768‑510(3)(b) and (c);

 (b) section 768‑525.

 (3) Apply the modifications set out in the following table.

 (4) The amount applicable under this subsection for a *statutory accounting period of the foreign company is worked out using the following formula:

where:

active insurance amount means:

 (a) if the foreign company is a *foreign life insurance company—the untainted policy liabilities (within the meaning of subsection 446(2) of the Income Tax Assessment Act 1936) of the foreign company for the statutory accounting period; or

 (b) if the foreign company is a *foreign general insurance company—the active general insurance amount worked out under subsection (5) for the statutory accounting period.

total insurance assets means:

 (a) if the foreign company is a *foreign life insurance company—the total assets (within the meaning of subsection 446(2) of the Income Tax Assessment Act 1936) of the foreign company for the statutory accounting period; or

 (b) if the foreign company is a *foreign general insurance company—the total assets (within the meaning of subsection 446(4) of that Act) of the foreign company for the statutory accounting period.

value of non‑active foreign business assets means:

 (a) for the purposes of item 1 of the table in subsection (3)—the difference between:

 (i) the result of step 1 of the method statement in subsection 768‑520(1); and

 (ii) the result of step 2 of that method statement (apart from this section); or

 (b) for the purposes of item 2 of the table in subsection (3)—the difference between:

 (i) the result of step 1 of the method statement in subsection 768‑525(2); and

 (ii) the result of step 1 of the method statement in subsection 768‑525(3) (apart from this section); or

 (c) for the purposes of item 3 of the table in subsection (3)—the difference between:

 (i) the result of step 2 of the method statement in subsection 768‑525(2); and

 (ii) the result of step 2 of the method statement in subsection 768‑525(3) (apart from this section).

Active insurance amount for foreign general insurance company

 (5) The active general insurance amount under this subsection for a *statutory accounting period of the foreign company is worked out using the following formula:

where:

net assets means the net assets (within the meaning of subsection 446(4) of the Income Tax Assessment Act 1936) of the foreign company for the statutory accounting period.

solvency amount means the solvency amount (within the meaning of subsection 446(4) of the Income Tax Assessment Act 1936) of the foreign company for the statutory accounting period.

tainted outstanding claims means the tainted outstanding claims (within the meaning of subsection 446(4) of the Income Tax Assessment Act 1936) of the foreign company for the statutory accounting period.

total general insurance assets means the total assets (within the meaning of subsection 446(4) of the Income Tax Assessment Act 1936) of the foreign company for the statutory accounting period.

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

 (1) This section applies if:

 (a) the foreign company is a FIF (within the meaning of former section 481 of the Income Tax Assessment Act 1936); and

 (b) the holding company has made a choice under former subsection 559A(1) of the Income Tax Assessment Act 1936 in relation to the foreign company in respect of a notional accounting period (within the meaning of former section 486 of that Act) of the foreign company that ends in the 2009‑10 income year; and

 (c) because of the choice, the foreign company has been treated under former paragraph 559A(3)(c) of that Act as an AFI subsidiary (within the meaning of that Act) in relation to that holding company; and

 (d) the holding company makes a choice under subsection (1A) in relation to the foreign company; and

 (e) the holding company has not failed to make a choice under that subsection for the 2010‑11 income year or any later income year.

 (1A) A holding company may make a choice under this subsection in relation to a foreign company if the holding company could have made a choice in relation to the foreign company under former section 559A of the Income Tax Assessment Act 1936 if it had not been repealed by item 37 of Schedule 1 to the Tax Laws Amendment (Foreign Source Income Deferral) Act (No. 1) 2010.

 (2) For the purposes of this Subdivision, treat the foreign company as an AFI subsidiary in relation to that holding company at that time.

768‑535  Modified rules for foreign wholly‑owned groups

 (1) This section applies if:

 (a) for the purposes of section 768‑505, it is necessary to work out the *active foreign business asset percentage of a company (the top foreign company) in relation to the holding company mentioned in that section, at the time of the CGT event mentioned in that section; and

 (b) the top foreign company is not:

 (i) an AFI subsidiary (within the meaning of Part X of the Income Tax Assessment Act 1936); or

 (ii) a *foreign life insurance company; or

 (iii) a *foreign general insurance company; and

 (c) for the purposes of section 768‑505, it is also necessary (apart from this section) to work out the active foreign business asset percentage at that time of 1 or more other companies in relation to the holding company, at that time, where:

 (i) the top foreign company and 1 or more of those other companies (the subsidiary foreign companies) are members of a *wholly‑owned group; and

 (ii) each of the subsidiary foreign companies is a *100% subsidiary of the top foreign company.

 (2) The holding company may choose to work out the *active foreign business asset percentage of the top foreign company in accordance with subsections (4) and (6).

 (3) The way an entity making a choice under subsection (2) prepares its *income tax return is sufficient evidence of the making of the choice.

 (4) If the holding company has made a choice under subsection (2), the provisions mentioned in subsection (5) operate, for the purposes of section 768‑505, as if each subsidiary foreign company were a part of the top foreign company, rather than a separate entity.

Note 1: This subsection means that certain assets are not treated as active foreign business assets, or as assets included in the total assets, of any of the subsidiary foreign companies or of the top foreign company. For example:

(a) a share owned by one of those companies in another of those companies; and

(b) a debt owed by one of those companies to another of those companies.

Note 2: If an asset (other than an asset mentioned in Note 1) is actually an active foreign business asset, or an asset included in the total assets, of a subsidiary foreign company, it is treated under this subsection as an active foreign business asset, or as an asset included in the total assets, of the top foreign company.

 (5) For the purposes of subsection (4), the provisions are:

 (a) section 768‑540 (active foreign business assets of a foreign company); and

 (b) section 768‑545 (assets included in the total assets of a foreign company).

 (6) If the holding company has made a choice under subsection (2), then for the purposes of sections 768‑510 and 768‑525, treat the *recognised consolidated accounts of the top foreign company and all of the subsidiary foreign companies as the *recognised company accounts of the top foreign company.

Types of assets of a foreign company

768‑540  Active foreign business assets of a foreign company

 (1) An asset is, at a particular time, an active foreign business asset of a company (the foreign company) that is a foreign resident if, at that time:

 (a) the asset is an *asset included in the total assets of the company; and

 (b) the asset satisfies any of these conditions:

 (i) the asset is used, or held ready for use, by the company in the course of carrying on a *business;

 (ii) the asset is goodwill;

 (iii) the asset is a *share; and

 (c) the asset is not any of the following:

 (i) *taxable Australian property;

 (ii) a *membership interest in a company that is an Australian resident;

 (iii) a membership interest in a *resident trust for CGT purposes;

 (iv) an option or right to acquire a membership interest mentioned in subparagraph (ii) or (iii); and

 (d) the asset is not covered by subsection (2); and

 (e) if the foreign company is an AFI subsidiary (within the meaning of Part X of the Income Tax Assessment Act 1936) whose sole or principal business is financial intermediary business—the asset is not covered under subsection (4).

 (2) An asset is covered by this subsection if it is:

 (a) a financial instrument (other than a *share or a trade debt); or

 (b) either:

 (i) an eligible finance share (within the meaning of Part X of the Income Tax Assessment Act 1936); or

 (ii) a widely distributed finance share (within the meaning of that Part); or

 (c) an interest in a trust or *partnership; or

 (d) a *life insurance policy; or

 (e) a right or option in respect of:

 (i) a financial instrument; or

 (ii) an interest in a company, trust or partnership; or

 (iii) a life insurance policy; or

 (f) cash or cash equivalent; or

 (g) an asset whose main use in the course of carrying on the *business mentioned in subparagraph (1)(b)(i) is to *derive interest, an *annuity, rent, *royalties or foreign exchange gains unless:

 (i) the asset is an intangible asset and has been substantially developed, altered or improved by the foreign company so that its *market value has been substantially enhanced; or

 (ii) its main use for deriving rent was only temporary.

 (3) If, at the time mentioned in subsection (1), the foreign company is an AFI subsidiary (within the meaning of Part X of the Income Tax Assessment Act 1936) whose sole or principal business is financial intermediary business (within the meaning of that Part), subsection (2) operates as if:

 (a) paragraphs (2)(a) and (f) were omitted; and

 (b) paragraph (2)(g) did not contain a reference to interest, an *annuity or foreign exchange gains; and

 (c) subparagraph (2)(e)(i) were omitted and the following subparagraph were substituted:

 (i) a financial instrument, other than an asset mentioned in paragraph 450(1)(b) of the Income Tax Assessment Act 1936; or

 (4) The asset is covered under this subsection if:

 (a) all of these conditions are satisfied:

 (i) the asset is an asset mentioned in subparagraph 450(4)(b)(i) or (ii) of the Income Tax Assessment Act 1936;

 (ii) the asset was acquired from another entity;

 (iii) either of the conditions mentioned in subparagraph 450(6)(c)(i) and (ii) of the Income Tax Assessment Act 1936 were satisfied in relation to the other entity at the time of the acquisition; or

 (b) both of these conditions are satisfied:

 (i) the asset relates to a debt to which factoring income (within the meaning of Part X of the Income Tax Assessment Act 1936) of the foreign company relates;

 (ii) the condition in paragraph 450(8)(b) of the Income Tax Assessment Act 1936 is satisfied in relation to the debt.

768‑545  Assets included in the total assets of a foreign company

 (1) At a particular time, an asset is an asset included in the total assets of a company (the foreign company) that is a foreign resident if:

 (a) the asset is a *CGT asset at that time; and

 (b) the foreign company owns the asset at that time; and

 (c) if at that time the foreign company is not an AFI subsidiary (within the meaning of Part X of the Income Tax Assessment Act 1936) whose sole or principal business is financial intermediary business (within the meaning of that Part)—the asset is not a foreign company derivative asset covered by subsection (2).

 (2) An asset is a foreign company derivative asset covered by this subsection if:

 (a) the asset is an *arrangement covered by subsection (3), unless the regulations declare the asset not to be a foreign company derivative asset covered by this subsection; or

 (b) the regulations declare the asset to be a foreign company derivative asset covered by this subsection.

 (3) An *arrangement is covered by this subsection if:

 (a) under the arrangement, a party to the arrangement must, or may be required to, provide at some future time consideration of a particular kind or kinds to someone; and

 (b) that future time is not less than the number of days, prescribed by regulations made for the purposes of paragraph 761D(1)(b) of the Corporations Act 2001, after the day on which the arrangement is entered into; and

 (c) the amount of the consideration, or the value of the arrangement, is ultimately determined, *derived from or varies by reference to (wholly or in part) the value or amount of something else (of any nature whatsoever and whether or not deliverable), including, for example, one or more of the following:

 (i) an asset;

 (ii) a rate (including an interest rate or exchange rate);

 (iii) an index;

 (iv) a commodity; and

 (d) subsection (4) does not apply in relation to the arrangement.

 (4) An *arrangement under which one person has an obligation to buy, and another person has an obligation to sell, property is not an arrangement covered by subsection (3) merely because the arrangement provides for the consideration to be varied by reference to a general inflation index such as the Consumer Price Index.

Voting percentages in a company

768‑550  Direct voting percentage in a company

 (1) An entity’s direct voting percentage at a particular time in a company is:

 (a) if the entity has a voting interest (within the meaning of section 334A of the Income Tax Assessment Act 1936) in the foreign company at that time amounting to a percentage of the voting power of the company—that percentage; or

 (b) otherwise—zero.

 (2) In applying section 334A of the Income Tax Assessment Act 1936 for the purposes of subsection (1) of this section, assume that:

 (a) the entity is a company; and

 (b) the entity is not the beneficial owner of a *share in the company if a trust or partnership is interposed between the entity and the company.

768‑555  Indirect voting percentage in a company

 (1) An entity’s indirect voting percentage at a particular time in a company (the subsidiary company) is worked out by multiplying:

 (a) the entity’s *direct voting percentage (if any) in another company (the intermediate company) at that time;

by:

 (b) the sum of:

 (i) the intermediate company’s direct voting percentage (if any) in the subsidiary company at that time; and

 (ii) the intermediate company’s indirect voting percentage (if any) in the subsidiary company at that time (as worked out under one or more other applications of this section).

 (2) If there is more than one intermediate company to which subsection (1) applies at that time, the entity’s indirect voting percentage is the sum of the percentages worked out under subsection (1) in relation to each of those intermediate companies.

768‑560  Total voting percentage in a company

  An entity’s total voting percentage at a particular time in a company is the sum of:

 (a) the entity’s *direct voting percentage in the company at that time; and

 (b) the entity’s *indirect voting percentage in the company at that time.

Subdivision 768‑R—Temporary residents

Guide to Subdivision 768‑R

768‑900  What this Subdivision is about

Table of sections

Operative provisions

768‑905 Objects

768‑910 Income derived by temporary resident

768‑915 Certain capital gains and capital losses of temporary resident to be disregarded

768‑950 Individual becoming an Australian resident

768‑955 Temporary resident who ceases to be temporary resident but remains an Australian resident

768‑960 Temporary resident not attributable taxpayer for purposes of controlled foreign companies rules

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

768‑980 Interest paid by temporary resident

Operative provisions

768‑905  Objects

  The objects of this Subdivision are to:

 (a) provide *temporary residents with tax relief on most foreign source income and capital gains; and

 (b) relieve the burdens associated with complying with certain record‑keeping obligations and interest withholding tax obligations.

768‑910  Income derived by temporary resident

 (1) The following are *non‑assessable non‑exempt income:

 (a) the *ordinary income you *derive directly or indirectly from a source other than an *Australian source if you are a *temporary resident when you derive it;

 (b) your *statutory income (other than a *net capital gain) from a source other than an Australian source if you are a temporary resident when you derive it.

This subsection has effect subject to subsections (3) and (5).

Note: A capital gain or loss you make may be disregarded under section 768‑915.

 (2) For the purposes of paragraph (1)(b):

 (a) if you have statutory income because a particular circumstance occurs, you derive the statutory income at the time when the circumstance occurs; and

 (b) if you have statutory income because a number of circumstances occur, you derive the statutory income at the time when the last of those circumstances occurs.

Exception to subsection (1)

 (3) However, the following are not *non‑assessable non‑exempt income under subsection (1):

 (a) the *ordinary income you *derive directly or indirectly from a source other than an *Australian source to the extent that it is remuneration, for employment undertaken, or services provided, while you are a *temporary resident;

 (b) your *statutory income (other than a *net capital gain) from a source other than an Australian source to the extent that it relates to employment undertaken, or services provided, while you are a temporary resident;

 (c) an amount included in your assessable income under Division 86.

Note: This subsection only makes an amount not non‑assessable non‑exempt income under subsection (1). It does not prevent that amount from being non‑assessable non‑exempt income under some other provision of this Act or the Income Tax Assessment Act 1936.

768‑915  Certain capital gains and capital losses of temporary resident to be disregarded

  A *capital gain or *capital loss you make from a *CGT event is disregarded if:

 (a) you are a *temporary resident when, or immediately before, the CGT event happens; and

 (b) you would not make a capital gain or loss from the CGT event, or the capital gain or loss from the CGT event would have been disregarded under Division 855, if you were a foreign resident when, or immediately before, the CGT event happens.

768‑950  Individual becoming an Australian resident

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

768‑955  Temporary resident who ceases to be temporary resident but remains an Australian resident

 (1) If you are a *temporary resident and you then cease to be a temporary resident (but remain, at that time, an Australian resident), there are rules relevant to each *CGT asset that:

 (a) you owned just before you ceased to be a temporary resident; and

 (b) is not *taxable Australian property; and

 (c) you *acquired on or after 20 September 1985.

 (2) The first element of the *cost base and *reduced cost base of the asset (at the time you cease to be a *temporary resident) is its *market value at that time.

 (3) Also, Parts 3‑1 and 3‑3 apply to the asset as if you had *acquired it at the time you ceased to be a *temporary resident.

 (4) This section does not apply to an *ESS interest if:

 (a) Subdivision 83A‑C (about employee share schemes) applies to the interest; and

 (b) the *ESS deferred taxing point for the interest has not yet occurred.

768‑960  Temporary resident not attributable taxpayer for purposes of controlled foreign companies rules

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

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

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

768‑980  Interest paid by temporary resident

  Interest that is paid by a *temporary resident:

 (a) is an amount to which section 128B (liability to withholding tax) of the Income Tax Assessment Act 1936 does not apply; and

 (b) is *non‑assessable non‑exempt income if the interest is:

 (i) *derived by a foreign resident; and

 (ii) is not derived from carrying on *business in Australia at or through a *permanent establishment in Australia.

Division 770—Foreign income tax offsets

Table of Subdivisions

 Guide to Division 770

770‑A Entitlement rules for foreign income tax offsets

770‑B Amount of foreign income tax offset

770‑C Rules about payment of foreign income tax

770‑D Administration

Guide to Division 770

770‑1  What this Division is about

770‑5  Object

 (1) The object of this Division is to relieve double taxation where:

 (a) you have paid foreign income tax on amounts included in your assessable income; and

 (b) you would, apart from this Division, pay Australian income tax on the same amounts.

 (2) To achieve this object, this Division gives you a tax offset to reduce or eliminate Australian income tax otherwise payable on those amounts.

Note 1: This Division applies in relation to Medicare levy and Medicare levy (fringe benefits) surcharge in the same way as it applies to Australian income tax. See section 90‑1 in Schedule 1 to the Taxation Administration Act 1953.

Note 2: The tax offset under this Division can be applied against your Medicare levy and Medicare levy (fringe benefits) surcharge liability for the year, if an amount of it remains after you apply it against your basic income tax liability. See item 22 of the table in subsection 63‑10(1).

Subdivision 770‑A—Entitlement rules for foreign income tax offsets

Table of sections

Basic entitlement rule for foreign income tax offset

770‑10 Entitlement to foreign income tax offset

770‑15 Meaning of foreign income tax, credit absorption tax and unitary tax

Basic entitlement rule for foreign income tax offset

770‑10  Entitlement to foreign income tax offset

 (1) You are entitled to a *tax offset for an income year for *foreign income tax. An amount of foreign income tax counts towards the tax offset for the year if you paid it in respect of an amount that is all or part of an amount included in your assessable income for the year.

Note 1: The offset is for the income year in which your assessable income included an amount in respect of which you paid foreign income tax—even if you paid the foreign income tax in another income year.

Note 2: If the foreign income tax has been paid on an amount that is part non‑assessable non‑exempt income and part assessable income for you for the income year, only a proportionate share of the foreign income tax (the share that corresponds to the part that is assessable income) will count towards the tax offset (excluding the operation of subsection (2)).

Note 3: For offshore banking units, the amount of foreign income tax paid in respect of offshore banking income is reduced: see subsection 121EG(3A) of the Income Tax Assessment Act 1936.

Taxes paid on section 23AI or 23AK amounts

 (2) An amount of *foreign income tax counts towards the *tax offset for you for the year if you paid it in respect of an amount that is your *non‑assessable non‑exempt income under either section 23AI or 23AK of the Income Tax Assessment Act 1936 for the year.

Note 1: Sections 23AI and 23AK of the Income Tax Assessment Act 1936 provide that amounts paid out of income previously attributed from a controlled foreign company or a foreign investment fund are non‑assessable non‑exempt income.

Note 2: Foreign income taxes covered by this subsection are direct taxes (for example, a withholding tax on a dividend payment) and not underlying taxes, only some of which are covered by section 770‑135.

Exception for certain residence‑based foreign income taxes

 (3) An amount of *foreign income tax you paid does not count towards the *tax offset for the year if you paid it:

 (a) to a foreign country because you are a resident of that country for the purposes of a law relating to the foreign income tax; and

 (b) in respect of an amount derived from a source outside that country.

Exception for previously complying funds and previously foreign funds

 (4) An amount of *foreign income tax paid by a *superannuation provider in relation to a *superannuation fund does not count towards the *tax offset for the year if:

 (a) the tax was paid in respect of an amount included in the fund’s assessable income under table item 2 or 3 in section 295‑320; and

 (b) the provider paid the tax before the start of the income year.

Note: Table items 2 and 3 in section 295‑320 include additional amounts in the assessable income of superannuation funds that change their status from complying to non‑complying or from foreign to Australian.

Exception for credit absorption tax and unitary tax

 (5) An amount of *credit absorption tax or *unitary tax you paid does not count towards the *tax offset for the year.

770‑15  Meaning of foreign income tax, credit absorption tax and unitary tax

 (1) Foreign income tax means tax that:

 (a) is imposed by a law other than an *Australian law; and

 (b) is:

 (i) tax on income; or

 (ii) tax on profits or gains, whether of an income or capital nature; or

 (iii) any other tax, being a tax that is subject to an agreement having the force of law under the International Tax Agreements Act 1953.

Note: Foreign income tax includes only that which has been correctly imposed in accordance with the relevant foreign law or, where the foreign jurisdiction has a tax treaty with Australia (having the force of law under the International Tax Agreements Act 1953), has been correctly imposed in accordance with that tax treaty.

 (2) Credit absorption tax means a tax imposed by a law of a foreign country, or of any part of, or place in, a foreign country to the extent that the tax would not have been payable if the entity concerned or another entity had not been entitled to an offset in respect of the tax under this Division.

 (3) Unitary tax means a tax imposed by a law of a foreign country, or of any part of, or place in, a foreign country, being a law which, for the purposes of taxing income, profits or gains of a company derived from sources within that country, takes into account, or is entitled to take into account, income, losses, outgoings or assets of the company (or of a company that for the purposes of that law is treated as being associated with the company) derived, incurred or situated outside that country, but does not include tax imposed by that law if that law only takes those matters into account:

 (a) if such an associated company is a resident of the foreign country for the purposes of the law of the foreign country; or

 (b) for the purposes of granting any form of relief in relation to tax imposed on dividends received by one company from another company.

Subdivision 770‑B—Amount of foreign income tax offset

Guide to Subdivision 770‑B

770‑65  What this Subdivision is about

Table of sections

Operative provisions

770‑70 Amount of foreign income tax offset

770‑75 Foreign income tax offset limit

770‑80 Increase in offset limit for tax paid on amounts to which section 23AI or 23AK of the Income Tax Assessment Act 1936 apply

Operative provisions

770‑70  Amount of foreign income tax offset

  The amount of your *tax offset for the year is the sum of the *foreign income tax you paid that counts towards the offset for the year.

Note 1: The amount of foreign income tax you paid may be affected by Subdivision 770‑C.

Note 2: The amount of the offset might be increased under section 770‑230 of the Income Tax (Transitional Provisions) Act 1997, if you have pre‑commencement excess foreign income tax.

770‑75  Foreign income tax offset limit

 (1) There is a limit (the offset limit) on the amount of your *tax offset for a year. If your tax offset exceeds the offset limit, reduce the offset by the amount of the excess.

 (2) Your offset limit is the greater of:

 (a) $1,000; and

 (b) this amount:

 (i) the amount of income tax payable by you for the income year; less

 (ii) the amount of income tax that would be payable by you for the income year if the assumptions in subsection (4) were made.

Note 1: If you do not intend to claim a foreign income tax offset of more than $1,000 for the year, you do not need to work out the amount under paragraph (b).

Note 2: The amount of the offset limit might be increased under section 770‑80.

 (3) For the purposes of paragraph (2)(b), work out the amount of income tax payable by you, or that would be payable by you, disregarding any *tax offsets.

 (4) Assume that:

 (a) your assessable income did not include:

 (i) so much of any amount included in your assessable income as represents an amount in respect of which you paid *foreign income tax that counts towards the *tax offset for the year; and

 (ii) any other amounts of *ordinary income or *statutory income from a source other than an *Australian source; and

 (b) you were not entitled to any deductions that:

 (i) are *debt deductions that are attributable to an *overseas permanent establishment of yours; or

 (ii) are deductions (other than debt deductions) that are reasonably related to amounts covered by paragraph (a) for that year.

Note: You must also assume you were not entitled to any deductions for certain converted foreign losses: see section 770‑35 of the Income Tax (Transitional Provisions) Act 1997.

Example: If an entity has paid foreign income tax on a capital gain that comprises part of its net capital gain, only that capital gain on which foreign income tax has been paid is disregarded.

770‑80  Increase in offset limit for tax paid on amounts to which section 23AI or 23AK of the Income Tax Assessment Act 1936 apply

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

Subdivision 770‑C—Rules about payment of foreign income tax

Table of sections

Rules about when foreign tax is paid

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

770‑135 Foreign income tax paid by CFCs on attributed amounts

Rules about when foreign tax is considered not paid

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

Rules about when foreign tax is paid

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

 (1) This Act applies to you as if you had paid an amount of *foreign income tax in respect of an amount (a taxed amount) that is all or part of an amount included in your *ordinary income or *statutory income if you are covered by subsection (2) or (3) for an amount of foreign income tax paid in respect of the taxed amount.

 (2) You are covered by this subsection for an amount of *foreign income tax paid in respect of a taxed amount if that foreign income tax has been paid in respect of the taxed amount by another entity under an *arrangement with you or under the law relating to the foreign income tax.

Example: You are a partner in a partnership and the partnership pays foreign income tax on the partnership income.

 (3) You are covered by this subsection for an amount of *foreign income tax paid in respect of the taxed amount to the extent that:

 (a) the taxed amount is taken, because of section 6B of the Income Tax Assessment Act 1936 (the 1936 Act), to be attributable to another amount of income of a particular kind or source; and

 (b) foreign income tax has been paid in respect of the other amount of income; and

 (c) the taxed amount is less than it would have been if that tax had not been paid.

Example: Aust Co (an Australian resident) is the sole beneficiary of an Australian resident trust H and is presently entitled to all the income of trust H. Trust H owns shares in For Co (a foreign company). For Co pays a dividend to trust H and the dividend is subject to withholding tax in For Co’s country of residence.

 Trust H allocates to Aust Co, the dividend, as well as other Australian source income trust H earned in the year (none of which was subject to foreign income tax). Aust Co is treated as having paid the foreign income tax paid by For Co under subsection 770‑130(3). The foreign income tax is treated as paid in respect of the amount included in Aust Co’s assessable income that is attributable to the dividend.

770‑135  Foreign income tax paid by CFCs on attributed amounts

 (1) This Division applies to an entity (other than a *CFC) as if it had paid an amount of *foreign income tax worked out under subsection (7) in respect of an amount included in its assessable income if:

 (a) the amount is included in its assessable income as described in subsection (2); and

 (b) the conditions in subsections (3), (5) and (6) are satisfied.

 (2) An amount is included in an entity’s assessable income as described in this subsection if the entity is a company and the amount is included under:

 (a) section 456 (a section 456 case) of the 1936 Act in relation to a *CFC and a statutory accounting period; or

 (b) section 457 (a section 457 case) of that Act in relation to a CFC.

Note: Section 456 of the 1936 Act includes, in the assessable income of certain Australian shareholders, amounts that are attributable to the profits of an Australian‑controlled foreign company.

 Section 457 does likewise when a controlled foreign company changes residence from an unlisted to a listed country or to Australia.

Tax paid condition

 (3) An amount of *foreign income tax, income tax or *withholding tax (the tax amount) must have been paid:

 (a) for a section 456 case—by the *CFC in respect of an amount included in the notional assessable income of the CFC for the statutory accounting period; or

 (b) for a section 457 case—by the CFC.

Note: Section 770‑130 deems foreign income tax to have been paid in certain circumstances.

 (4) For the purposes of paragraphs (3)(a) and (b), the tax amount includes an amount that is taken to have been paid by the *CFC under subsection 393(4) of the 1936 Act (about tax paid on reinsurance premiums).

Association condition

 (5) If the entity is a company, it must have an *attribution percentage of 10% or more:

 (a) for a section 456 case—in relation to the *CFC at the end of the statutory accounting period; or

 (b) for a section 457 case—in relation to the CFC at the residence‑change time (within the meaning of section 457 of the 1936 Act).

Amount of foreign income tax

 (7) The amount worked out under this subsection is: