Federal Register of Legislation - Australian Government

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A Bill for an Act to amend the law relating to taxation
For authoritative information on the progress of bills and on amendments proposed to them, please see the House of Representatives Votes and Proceedings, and the Journals of the Senate as available on the Parliament House website.
Introduced HR 03 Dec 1998

Taxation Laws Amendment Bill (No. 4) 1998
First Reading

1996-97-98
The Parliament of the
Commonwealth of Australia
HOUSE OF REPRESENTATIVES
Presented and read a first time
Taxation Laws Amendment Bill (No. 4) 1998
No. , 1998
(Treasury)
A Bill for an Act to amend the law relating to taxation



9804820 - 1,147/31.3.1998 - (48/97) Cat. No. 97 2875 9 ISBN 0644 519436
Contents
Fringe Benefits Tax Assessment Act 1986
Income Tax Assessment Act 1936
Taxation Administration Act 1953
Income Tax Assessment Act 1997
Airports (Transitional) Act 1996
Income Tax (Transitional Provisions) Act 1997
Tax Law Improvement Act 1997
Part 1 - Amendment of the Income Tax Assessment Act 1997
Part 2 - Amendment of the Income Tax Assessment Act 1936
Part 1 - Income Tax Assessment Act 1997
Part 2 - Income Tax (Transitional Provisions) Act 1997
Part 3 - Income Tax Assessment Act 1936
Part 1 - Insertion of Divisions 240 and 243
Income Tax Assessment Act 1997
Part 2 - Consequential amendments: arrangements treated as a sale and loan
Income Tax Assessment Act 1936
Income Tax Assessment Act 1997
Part 3 - Consequential amendments: limited recourse debt
Income Tax Assessment Act 1936
Income Tax Assessment Act 1997
Part 4 - Property transferred by way of security
Income Tax Assessment Act 1997
Income Tax Assessment Act 1936
Part 5 - Application of amendments
Part 1 - Fringe Benefits Tax Assessment Act 1986
Part 2 - Application and transitional
Income Tax Assessment Act 1936
A Bill for an Act to amend the law relating to taxation
The Parliament of Australia enacts:

1 Short title

This Act may be cited as the Taxation Laws Amendment Act (No. 4) 1998.

2 Commencement

(1) Subject to this section, this Act commences on the day on which it receives the Royal Assent.
(2) Unless this Act receives the Royal Assent on a day after the day on which the Tax Law Improvement Act (No. 1) 1998 receives the Royal Assent, items 35, 74, 81 and 88 of Schedule 11 commence on the day after the Tax Law Improvement Act (No. 1) 1998 receives the Royal Assent.
(3) Item 66 of Schedule 11 commences immediately after item 22 of that Schedule.

3 Schedule(s)

Subject to section 2, each Act that is specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this Act has effect according to its terms.

4 Amendment of income tax assessments

Section 170 of the Income Tax Assessment Act 1936 does not prevent the amendment of an assessment made before the commencement of this section for the purposes of giving effect to this Act.

Schedule 1 - Sales Tax (Exemptions and Classifications) Act 1992


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1 At the end of Item 192 of Schedule 1
Add:
(4) However, this Item only applies if the property is housing provided by, or on behalf of, an always-exempt person at a rate below the market rate or:
(a) the property is:
(i) occupied principally by an always-exempt person or the government of a foreign country; or
(ii) used principally by a person who is providing services to an always-exempt person, or the government of a foreign country, for the provision of those services; and
(b) the property is not ineligible Item 192 property.
(5) The following are ineligible Item 192 properties:
(a) shops and shopping centres;
(b) hotels;
(c) casinos;
(d) apartment blocks;
(e) properties mainly consisting of, or of a kind similar to, properties covered by one or more of the preceding paragraphs;
(f) properties of a kind prescribed for the purposes of this definition.
2 Application
The amendment made by this Part applies to dealings after 2 April 1998.

Schedule 2 - FBT exemption for approved student exchange programs

Fringe Benefits Tax Assessment Act 1986
1 At the end of Division 13 of Part III
Add:

58ZB Exempt benefits - approved student exchange programs

(1) Where:
(a) a benefit is provided in, or in respect of, a year of tax in respect of the employment of an employee of an employer; and
(b) the benefit is in respect of participation in an approved student exchange program by the employee or an associate of the employee; and
(c) the employer or an associate of the employer did not select, or take part in the selection of, the employee or associate as a participant in the program;
the benefit is an exempt benefit in relation to the year of tax.
(2) An approved student exchange program is a student exchange program run by a body that is registered as a student exchange body with the relevant State or Territory body in accordance with the National Guidelines for Student Exchange that are published by the National Co-ordinating Committee for International Secondary Student Exchange.
2 Application
The amendment made by this Schedule applies to the year of tax commencing on 1 April 1996 and all later years of tax.

Schedule 3 - Commercial debt forgiveness

Income Tax Assessment Act 1936
1 Subsection 160ZC(4E)
Omit "the immediately preceding year of income", substitute "an earlier year of income".
2 Subsection 245-105(6) in Schedule 2C
Omit "the year of income immediately preceding the forgiveness year of income", substitute "years of income before the forgiveness year of income".
3 Application of amendments
The amendments made by this Schedule apply in relation to debts forgiven after 2 April 1998.

Schedule 4 - New South Wales Police Integrity Commission

Taxation Administration Act 1953
1 Section 2 (after paragraph (dad) of the definition of head)
Insert:
(dae) in the case of the New South Wales Police Integrity Commission - the Commissioner for the New South Wales Police Integrity Commission;
2 Section 2 (after paragraph (dad) of the definition of law enforcement agency)
Insert:
(dae) the New South Wales Police Integrity Commission;


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Schedule 5 - Deductions for gifts

Income Tax Assessment Act 1997
1 Subsection 30-40(2) (at the end of the table)
Add:

3.2.4

The Menzies Research Centre Public Fund

the gift must be made after 2 April 1998

2 Subsection 30-315(2) (after table item 72)
Insert:

72A

Menzies Research Centre Public Fund

item 3.2.4

Schedule 6 - Technical amendment of the Income Tax Assessment Act 1997

1 Section 2-30
Omit "Except where the gaps follow a regular pattern, notes are", substitute "Where the reason for a gap is not apparent, a note is".
2 Subsection 4-10(3) (step 4 of the method statement)
After "other liability", insert ", unless a provision of this Act says you can".
3 Subsection 4-10(3) (note)
Omit "Note", substitute "Note 1".
4 At the end of subsection 4-10(3)
Add:
Note 2: In a few cases you can get a refund of excess tax offsets. See:
* Subsection 98A(2) of the Income Tax Assessment Act 1936 (trustee and beneficiary assessed on the same trust income)
* Section 126 of the Income Tax Assessment Act 1936 (about interest on bearer debentures).
5 Subsection 20-20(2)
Omit "An amount you receive", substitute "An amount you have received".
6 Paragraph 20-20(2)(a)
Omit "receive", substitute "received".
7 Subsection 20-20(3)
Omit "An amount you receive", substitute "An amount you have received".
8 After subsection 41-30(2)
Insert:
(2A) If the transferee gains the entitlement, the transferee cannot also deduct under the rules for the *capital allowance any expenditure incurred in order for the transferee to acquire the property or otherwise become its owner or *quasi-owner.
9 Section 42-315
After "over land", insert "granted by an *exempt Australian government agency or an *exempt foreign government agency".
10 Section 42-315
After "a grant", insert "(by such an agency)".
11 Section 50-25 (item 5.2 of the table)
Omit "a *Commonwealth law", substitute "an *Australian law".
12 Before section 70-1
Insert:

Guide to Division 70

13 Paragraph 70-100(10)(a)
Omit "transferee", substitute "transferor".
14 Section 70-110 (example 2)

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Omit "purposes: see Subdivision 42-B", substitute "purposes (see Subdivision 42-B) and the item's cost base for CGT purposes (see Division 110)".
15 Section 385-5 (item 1 of the table)
Omit "60-D", substitute "70-D".
16 Section 385-5 (item 2 of the table)
Omit "60-D", substitute "70-D".
17 Subsection 387-305(1) (note 2)
Repeal the note, substitute:
Note 2: If an amount of the expenditure is recouped, the amount may be included in your assessable income. See Subdivision 20-A.
18 Subsection 387-355(2) (note 1)
Omit "sections 387-370", substitute "section 387-370".
19 Application
The amendments made by this Schedule apply to assessments for the 1997-98 income year and later income years.

Schedule 7 - Technical amendment of the Income Tax Assessment Act 1936

1 After subsection 75B(3C)
Insert:
(3D) Subsection (4) does not apply to an amount received in the 1997-98 year of income or a later year of income if the amount is received as recoupment as defined by section 20-25 of the Income Tax Assessment Act 1997.
Note: Subdivision 20-A of the Income Tax Assessment Act 1997 applies instead.
2 Subsection 82KH(1ABA)
Omit "63 of this Act or section 8-1", substitute "8-1 or 25-35".
3 Subsection 110(1) (definition of modified 51/52 amount)
Omit "52 of this Act or section 8-1", substitute "8-1 or 25-40".
4 Subsection 110(1) (definition of ordinary 51/52 amount)
Omit "52 of this Act or section 8-1", substitute "8-1 or 25-40".
5 Subsection 116E(1) (definition of modified 51/52 amount)
Omit "52 of this Act or section 8-1", substitute "8-1 or 25-40".
6 Subsection 116E(1) (definition of ordinary 51/52 amount)
Omit "52 of this Act or section 8-1", substitute "8-1 or 25-40".
7 Before subsection 122T(1)
Insert:
(1A) This section does not apply to an amount received in the 1997-98 year of income or a later year of income if the amount is received as recoupment as defined by section 20-25 of the Income Tax Assessment Act 1997.
Note: Subdivision 20-A of the Income Tax Assessment Act 1997 applies instead.
8 Before subsection 123A(2)
Insert:
(1H) Subsections (2) and (3) do not apply to an amount received in the 1997-98 year of income or a later year of income if the amount is received as recoupment as defined by section 20-25 of the Income Tax Assessment Act 1997.
Note: Subdivision 20-A of the Income Tax Assessment Act 1997 applies instead.
9 Before subsection 123BD(4)
Insert:
(3A) Subsections (4) and (5) do not apply to an amount received in the 1997-98 year of income or a later year of income if the amount is received as recoupment as defined by section 20-25 of the Income Tax Assessment Act 1997.
Note: Subdivision 20-A of the Income Tax Assessment Act 1997 applies instead.
10 Before subsection 124AQ(1)
Insert:
(1A) This section does not apply to an amount received in the 1997-98 year of income or a later year of income if the amount is received as recoupment as defined by section 20-25 of the Income Tax Assessment Act 1997.
Note: Subdivision 20-A of the Income Tax Assessment Act 1997 applies instead.
11 Paragraph 160ZK(1A)(a)
After "Part III", insert "of".
12 Paragraph 399A(2)(a)
Omit "63 of this Act or section 8-1", substitute "8-1 or 25-35".
13 Subsection 399A(5)
Omit "63 of this Act or section 8-1", substitute "8-1 or 25-35".
14 Subsection 413(3)
Omit "Division 10C or 10D of Part III", substitute "Division 43 of the Income Tax Assessment Act 1997 or Division 10C or 10D of Part III of this Act".
15 Application
The amendments made by this Schedule apply to assessments for the 1997-98

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income year and later income years.

Schedule 8 - Amendment of other Acts

Airports (Transitional) Act 1996
1 Subparagraph 49A(2)(a)(ii)
Omit "under subsection 42-310(2) of the Income Tax Assessment Act 1997".
2 Paragraph 49A(2)(d)
Omit "42-310(2)(b) of that Act", substitute "42-310(1)(b) of the Income Tax Assessment Act 1997".
3 Paragraph 49A(3)(c)
Omit "42-310(2)(b)", substitute "42-310(1)(b)".
4 Paragraph 49A(3)(e)
Omit "acquisition of the lease", substitute "acquisition of the right".
5 Application
The amendments made by items 1 to 4 apply to assessments for the 1997-98 income year and later income years.
Income Tax (Transitional Provisions) Act 1997
6 Section 20-5 (after table item 2)
Insert:

2A

122T

General mining and quarrying expenditure

2B

123A(2) and (3)

Expenditure on transporting minerals

2C

123BD(4) and (5)

Expenditure on transporting quarry materials

2D

124AQ

Petroleum mining expenditure

7 Subsection 42-2(2)
Repeal the subsection, substitute:
(2) However, section 42-15 of the 1997 Act does not apply to allow you to deduct an amount for depreciation of a ship for an income year if you calculate the amount of a deduction in accordance with section 57AM of the 1936 Act for the ship for that year.
Note: Depreciation deductions for these ships are allowable under the 1936 Act: see subsection 53I(2) of the 1936 Act.
8 Paragraph 330-75(1)(d)
Repeal the paragraph.
9 After subsection 330-75(1)
Insert:
(1A) If:
(a) Common rule 1 applies as mentioned in subsection (1) of this section; and
(b) any of the old recoupment provisions has applied to:
(i) the transferor; or
(ii) if there have been 2 or more prior applications of that Common rule - any

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of the prior transferors of the property;
section 170 of the Income Tax Assessment Act 1936 does not stop the Commissioner amending, at any time, an assessment of the transferee.
10 Application
The amendments made by items 6 to 9 apply to assessments for the 1997-98 income year and later income years.
Tax Law Improvement Act 1997
11 Items 120, 125, 126, 128, 129, 134 and 135 of Schedule 4
The items are taken never to have commenced.
Note: Those items are superseded by the amendments made by items 2 to 6, 12 and 13 of Schedule 7 to this Act.
12 Item 43 of Schedule 8
The item is taken never to have commenced.
Note: The item is superseded by the amendment made by item 1 of Schedule 7 to this Act.

Schedule 9 - "Catch-up" amendments

Part 1 - Amendment of the Income Tax Assessment Act 1997
1 Section 11-15 (table item headed "education")
Repeal the item, substitute:

education


bursary, educational allowance etc.

51-10 and 51-35

CRAFT scheme, employer's income from

51-10

foreign student, scholarship and bursary to

23(ya)

full-time student, income from a scholarship, bursary, other educational allowance or educational assistance


51-10 and 51-35

isolated child, income for the provision of education of

51-10 and 51-40

secondary student, income for the provision
of education of


51-10 and 51-40

2 Section 11-15 (table item headed "social security or like payments")
Before

disability services payment


53-10

insert

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Commonwealth education or training payment



Subdivision 52-E

3 Section 51-10 (before table item 2.1)
Insert:

2.1A

a full-time student at a school, college or university

a scholarship, bursary, educational allowance or educational assistance

see section 51-35

2.1B

(a) a student; or
(b) a recipient of a payment in respect of a student

a payment under a Commonwealth scheme for assistance of:
(a) secondary education; or
(b) the education of isolated children

see section 51-40

4 Section 51-30 (link note)
Repeal the link note.
5 After section 51-30
Insert:

51-35 Payments to a full-time student at a school, college or university

The following payments made to or on behalf of a full-time student at a school, college or university are not exempt from income tax under item 2.1 of the table in section 51-10:
(a) a payment by the Commonwealth for assistance for secondary education or in connection with education of isolated children;
(b) a *Commonwealth education or training payment;
(c) a payment by a person or an authority on the condition that the student will (or will if required) become, or continue to be, an employee of the person or authority;
(d) a payment by a person or an authority on the condition that the student will (or will if required) enter into, or continue to be a party to, a contract with the person or authority that is wholly or principally for the labour of the student;
(e) a payment under a scholarship where the scholarship is not provided principally for educational purposes;
(f) an education entry payment under Part 2.13A of the Social Security Act 1991.
Note: The whole or part of a Commonwealth education or training payment may be exempt under Subdivision 52-E.

51-40 Payments to a secondary student

The following payments made to or on behalf of a student are not exempt from income tax under item 2.2 of the table in section 51-10:
(a) a *Commonwealth education or training payment;
(b) an education entry payment under Part 2.13A of the Social Security Act 1991.

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Note: The whole or part of a Commonwealth education or training payment may be exempt under Subdivision 52-E.
6 At the end of Division 52
Add:

Subdivision 52-E - Exemption of Commonwealth education or training payments

Table of sections
52-120 Supplementary amount of a Commonwealth education or training payment is exempt
52-125 Meaning of Commonwealth education or training payment

52-120 Supplementary amount of a Commonwealth education or training payment is exempt

(1) This section tells you about the income tax treatment of a *Commonwealth education or training payment.
(2) The *supplementary amount of the payment is exempt from income tax.
(3) The supplementary amount is the total of:
(a) so much of the payment as is included to assist you with, or to reimburse you for, the costs of any one or more of the following:
(i) rent;
(ii) living in a remote area;
(iii) commencing employment;
(iv) travel to, or participation in, courses, interviews, education or training;
(v) a child or children wholly or substantially dependent on you;
(vi) telephone bills;
(vii) living away from your usual residence;
(viii) maintaining your usual residence while living away from that residence;
(ix) accommodation, books or equipment;
(x) discharging a HEC assessment debt (within the meaning of Chapter 4 of the Higher Education Funding Act 1988);
(xi) transport in travelling to undertake education or training, or to visit your usual residence when undertaking education or training away from that residence;
(xii) if you are disabled - acquiring any special equipment, services or transport as a result of the disability;
(xiii) anything that would otherwise prevent you from beginning, continuing or completing any education or training; and
(b) so much of the payment as is included by way of pharmaceutical allowance.

52-125 Meaning of Commonwealth education or training payment

(1) A Commonwealth education or training payment is a payment by the Commonwealth, or in connection with a payment by the Commonwealth, of an allowance or reimbursement:
(a) to or on behalf of a participant in a *Commonwealth labour market program; or
(b) to or on behalf of a student under:
(i) the scheme known as ABSTUDY; or
(ii) the scheme known as the Assistance for Isolated Children Scheme; or
(iii) the scheme known as the Veterans' Children Education Scheme;
in respect of a period commencing at a time when the student was at least 16 years old.
(2) A Commonwealth labour market program is a program administered by the Commonwealth under which:
(a) unemployed persons are given training in skills to improve their employment prospects; or
(b) unemployed persons are assisted in obtaining employment or to become self-employed; or
(c) employed persons are given training in skills and other assistance to aid them in continuing to be employed by their current employer or in obtaining other employment.
7 Subsection 995-1(1)
Insert:
Commonwealth education or training payment has the meaning given by section 52-125.
8 Subsection 995-1(1)
Insert:
Commonwealth labour market program has the meaning given by section 52-125.
9 Subsection 995-1(1) (table in the definition of supplementary amount)
Repeal the table, substitute:

Supplementary amount of a payment

Supplementary amount of this kind of payment:

has the meaning given by:

1

Commonwealth education or training payment

section 52-120

2

Drought relief payment

section 53-15

3

Payment made because of the Veterans' Entitlements (Transitional Provisions and Consequential Amendments) Act 1986

section 52-105

4

Social security payment

section 52-15

5

Veterans' affairs payment

section 52-70

10

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Application of amendments

The amendments made by this Part apply to assessments for the 1998-99 income year and later income years.
Part 2 - Amendment of the Income Tax Assessment Act 1936
11 At the end of section 22A
Add:
Provisions cut off from 1998-99
(2) A provision of this Act set out in the second column of the table does not apply to an assessment for the 1998-99 year of income or a later year of income.
Note: The last column of the table shows the provision of the Income Tax Assessment Act 1997 that applies instead.

Old exempt income provisions that no longer apply


Item


Provision of this Act

Corresponding provision of the Income Tax Assessment Act 1997

1

Paragraph 23(z)

table item 2.1A in section 51-10

2

Paragraph 23(zaa)

table item 2.1B in section 51-10

12 At the end of section 24
Add:
(2) Subdivision BA does not apply to an assessment for the 1998-99 year of income or a later year of income.
Note: For the law applying to the 1998-99 year of income and later years of income, see Subdivision 52-E of the Income Tax Assessment Act 1997.
13 Subsection 159ZR(1) (paragraph (e) of the definition of eligible income)
Repeal the paragraph, substitute:
(e) a payment that is covered by Division 52, 53 or 55 of the Income Tax Assessment Act 1997, but that is not exempt from income tax under that Division.
14 Subsection 221A(1) (definition of salary or wages)
Omit "Subdivision BA of Division 1AA of Part III of this Act or".
15 Application
The amendment made by item 13 applies for the purpose of determining whether a lump sum payment is eligible income in the 1998-99 year of income or a later year of income.

Schedule 10 - Depreciation of plant previously owned by an exempt entity

Part 1 - Income Tax Assessment Act 1997
1 Section 42-65 (at the end of the table)
Add:

15

in relation to which Division 58 applies

the amount applicable under section 58-40, 58-95, 58-160 or 58-220, as the case may be

2

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Paragraph 42-175(d)

Repeal the paragraph, substitute:
(d) if Common rule 1 applied to your acquisition of the plant and you acquired the plant from a *transition entity to which Subdivision 58-B applies - the sum of the amounts that are to be deducted under paragraphs 58-80(a), (b) and (c) in calculating the *notional written down value of the plant in relation to the transition entity or are to be deducted under paragraphs 58-145(5)(a) and (b) in calculating the *undeducted cost of the plant in relation to the transition entity, as the case may be; and
(e) if Common rule 1 applied to your acquisition of the plant - the sum of the amounts that would apply under paragraphs (a), (b), (c) and (d) to the transferor and earlier successive transferors.
(2) This section has effect subject to Subdivision 58-B in relation to *plant to which that Subdivision applies.
3 At the end of section 42-190
Add:
(4) The operation of subsection (2) is affected, in relation to certain *plant to which Division 58 applies, by subsections 58-85(7), 58-145(7), 58-215(2) and 58-270(2).
(5) If a *transition entity or a *tax exempt vendor had at any previous time been the owner or a *quasi-owner of the *plant and either of the following paragraphs applies:
(a) the transferor was the transition entity or the purchaser from the tax exempt vendor and Common rule 1 applied to your acquisition of the plant;
(b) the transferor was not the transition entity or the purchaser from the tax exempt vendor and Common rule 1 applied to:
(i) your acquisition of the plant; and
(ii) all earlier successive acquisitions of the plant by entities that acquired it from, or became the owners or quasi-owners of it after it was acquired from, the transition entity or the purchaser from the tax exempt vendor;
subsection (2) has effect in relation to the plant as if paragraph (a) of that subsection were omitted and replaced by whichever of the paragraphs mentioned in subsections 58-85(7), 58-145(7), 58-215(2) or 58-270(2) would have applied to the transition entity or the purchaser from the tax exempt vendor, as the case may be.
4 At the end of section 42-195
Add:
(4) The operation of subsection (3) is affected, in relation to certain *plant to which Division 58 applies, by subsections 58-85(5) and 58-145(4).
5 At the end of section 42-200
Add:
(2) The operation of subsection (1) is affected, in relation to certain *plant to which Division 58 applies, by subsection 58-85(6).
(3) If a *transition entity had at any previous time been the owner or *quasi-owner of the *plant and had made a choice under paragraph 58-20(1)(a) in relation to the plant and either of the following paragraphs applies:
(a) the transferor was the transition entity and Common rule 1 applied to your acquisition of the plant;
(b) the transferor was not the transition entity and Common rule 1 applied to your acquisition of the plant and all earlier successive acquisitions of the plant by entities that acquired it from, or became the owners or quasi-owners of it after it was acquired from, the transition entity;
the cost of the plant is taken to be its *notional written down value at the transition time.
6 Section 55-10 (link note)
Repeal the link note, substitute:
[The next Division is Division 58.]
7 At the end of Part 2-15
Add:

Division 58 - Depreciation of plant previously owned by an exempt entity

Table of Subdivisions
Guide to Division 58
58-A Interpretation
58-B Plant of exempt entities that become taxable
58-C Plant acquired from exempt entities in connection with the acquisition of a business

Guide to Division 58

58-1 What this Division is about

This Division sets out special rules that apply in calculating depreciation deductions and balancing adjustments in respect of plant previously owned by an exempt entity if the plant:

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* continues to be owned by that entity after the entity becomes taxable; or
* is acquired from that entity, in connection with the acquisition of a business, by a purchaser that is a taxable entity.

58-2 Diagram showing the operation of this Division

The following diagram shows the operation of this Division.
Click here for Picture

Subdivision 58-A - Application and interpretation

Table of sections
58-5 Application of Division to quasi-owners of plant
58-10 Pre-existing audited book value of unit of plant

58-5 Application of Division to quasi-owners of plant

This Division applies in relation to a unit of *plant of which an entity has been or is, or becomes, a *quasi-owner in the same way as it applies in relation to a unit of plant that has been or is owned by, or is acquired by, an entity.

58-10 Pre-existing audited book value of unit of plant

(1) If:
(a) a balance sheet, as at the end of an annual accounting period (the balance date), that was prepared as part of an *exempt entity's final accounts for that period showed a unit of *plant (the unit) as an asset of the exempt entity and specified a value for the unit; and
(b) a qualified independent auditor who was engaged, or was required by law, to undertake an audit of those accounts had prepared and signed, before 4 August 1997, a final audit report on those accounts; and
(c) the report did not state that the auditor was not satisfied that the specified value fairly represented the value of the unit;
the unit is taken to have had a pre-existing audited book value at the balance date of an amount equal to the specified value.
(2) If a balance sheet did not specify a value for the unit but specified a total value for 2 or more units of plant including the unit, the balance sheet is taken to have specified as the value of the unit so much of that total value as is reasonably attributable to the unit.
(3) The latest time at which a unit of *plant is taken to have had a *pre-existing audited book value is the test time in relation to the unit.

Subdivision 58-B - Plant of exempt entities that become taxable

Table of sections
58-15 Transition entities etc.
58-20 Choice by entity
Provisions applying where depreciation of the unit is calculated by reference to notional written down value
58-25 Exclusion of certain provisions
58-30 Undeducted cost of unit
58-35 Ownership of unit
58-40 Cost of unit to transition entity
58-45 Effective life of unit
58-50 Choice or election to calculate assumed effective life
58-55 Use of unit for producing assessable income
58-60 Method of depreciation
58-65 Application of certain provisions in calculating depreciation rates
58-70 Choice of rate
58-75 Nomination or election of depreciation percentage
58-80 Notional written down value
58-85 Calculation of depreciation deductions and balancing adjustments
Provisions applying where depreciation of the unit is calculated by reference to undeducted pre-existing audited book value
58-90 Exclusion of certain provisions
58-95 Cost of unit to transition entity
58-100 Ownership of unit
58-105 Assumed cost of unit to transition entity for purpose of calculating undeducted pre-existing audited book value
58-110 Effective life of unit
58-115 Election to calculate assumed effective life
58-120 Use of unit for producing assessable income
58-125 Method of depreciation
58-130 Application of certain provisions in calculating depreciation rates

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58-135 Nomination or election of depreciation percentage
58-140 Undeducted pre-existing audited book value
58-145 Calculation of depreciation deductions and balancing adjustments

58-15 Transition entities etc.

If:
(a) at a particular time on or after 4 August 1997, an entity is an *exempt entity; and
(b) immediately after that time, the entity's *ordinary income or *statutory income becomes to any extent assessable income;
then:
(c) the entity is a transition entity; and
(d) the time when the entity's ordinary income or statutory income becomes to that extent assessable is the transition time; and
(e) the income year in which the *transition time occurs is the transition year for the entity.

58-20 Choice by entity

(1) A *transition entity must, in relation to every unit of *plant (the unit) that was owned by it at the *transition time, do either of the following:
(a) choose that depreciation deductions and balancing adjustments for periods after the transition time are to be calculated by reference to the *notional written down value of the unit;
(b) choose that depreciation deductions and balancing adjustments for periods after the transition time are to be calculated by reference to the *undeducted pre-existing audited book value (if any) of the unit.
(2) A choice under subsection (1) must be made:
(a) by the day on which the *transition entity lodges its *income tax return for the *transition year; or
(b) within a further period allowed by the Commissioner.
(3) A choice, once made, applies to *the transition year and all later income years.
(4) If the *transition entity makes a choice under paragraph (1)(a), sections 58-25 to 58-85 have effect in relation to the unit.
(5) If the *transition entity makes a choice under paragraph (1)(b), sections 58-90 to 58-145 have effect in relation to the unit.

Provisions applying where depreciation of the unit is calculated by reference to notional written down value

58-25 Exclusion of certain provisions

The following provisions do not apply in respect of the unit in relation to the *transition entity:
(a) Subdivision 57-I of the Income Tax Assessment Act 1936;
(b) Subdivision 57-K of that Act in so far as that Subdivision deals with depreciation balancing adjustments.

58-30 Undeducted cost of unit

(1) Section 42-175 has effect in relation to the unit as if that section provided that the *undeducted cost of the unit were the *notional written down value of the unit.
(2) Sections 58-35 to 58-75 have effect for the purpose of the calculation of that value under section 58-80.

58-35 Ownership of unit

(1) If the *transition entity was an *exempt Australian government agency immediately before the *transition time and had acquired the unit from another exempt Australian government agency:
(a) assume that the transition entity acquired it at the time when it was acquired or constructed by the other exempt Australian government agency; or
(b) if it had, before its acquisition by the transition entity, been successively owned by 2 or more exempt Australian government agencies - assume that the transition entity acquired it at the time when it was acquired or constructed by the first of those exempt Australian government agencies that owned it.
(2) To avoid doubt, if subsection (1) does not apply, the *transition entity is taken to have acquired the unit at the time when the transition entity acquired or constructed it.


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58-40 Cost of unit to transition entity

(1) To avoid doubt, Subdivision 42-B applies for the purpose of determining the cost of the unit to the *transition entity.
(2) However, if the *transition entity was an *exempt Australian government agency immediately before the *transition time and had acquired the unit from another exempt Australian government agency:
(a) assume that its cost to the transition entity is the amount that was its cost to the other exempt Australian government agency; or
(b) if it had, before its acquisition by the transition entity, been successively owned by 2 or more exempt Australian government agencies, assume that its cost to the transition entity is the amount that was its cost to the first of those exempt Australian government agencies that owned it.

58-45 Effective life of unit

Assume that the *effective life of the unit is the period that would have been calculated to be its effective life:
(a) if subsection 58-35(1) applies - at the time when it is assumed under that subsection to have been acquired by the *transition entity; or
(b) if subsection 58-35(2) applies - at the time when it was acquired or constructed by the transition entity.

58-50 Choice or election to calculate assumed effective life

For the purpose of calculating the assumed *effective life of the unit under section 58-45:
(a) if the *transition entity would have been required to make a choice under subsection 42-100(1) at a particular time during the period for which the transition entity owned, or is assumed to have owned, it - assume that the transition entity made a choice at that time under paragraph 42-100(1)(b) to adopt the effective life specified by the Commissioner; or
(b) if the transition entity could have made an election under subsection 54A(1) of the Income Tax Assessment Act 1936 at a particular time during the period for which the transition entity owned, or is assumed to have owned, it - assume that the transition entity made the election at that time.

58-55 Use of unit for producing assessable income

Assume that the unit had, at all times during the period beginning when it was acquired or constructed, or is assumed to have been acquired, by the *transition entity and ending immediately before the *transition time, been used wholly for the purpose of producing assessable income by the transition entity, and assume that deductions for depreciation in respect of it had been allowed to the transition entity during that period.

58-60 Method of depreciation

Assume that the *method of depreciation selected by the *transition entity in relation to the unit for:
(a) the *transition year; or
(b) if the transition entity does not claim depreciation for the transition year - the first income year after the transition year in which the transition entity claims depreciation;
was also used by the transition entity in each income year before the transition year.

58-65 Application of certain provisions in calculating depreciation rates

In calculating the rate of depreciation in relation to the unit in each income year before the *transition year:
(a) if section 57AG of the Income Tax Assessment Act 1936 as in force at any time before its repeal had applied in respect of that income year - that section is to be taken into account; and
(b) if subsection 55(6) of the Income Tax Assessment Act 1936 as in force immediately before the commencement of section 7 of the Taxation Laws Amendment Act (No. 2) 1992 had applied in respect of that income year - that subsection is to be taken into account; and
(c) if section 57AL of the Income Tax Assessment Act 1936 as in force at any time before its repeal had applied in respect of that income year - that section is to be disregarded.

58-70 Choice of rate

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(1) If the *transition entity could have made a choice under subsection 42-120(1) at a particular time (the relevant time) during the period for which the transition entity owned, or is assumed to have owned, the unit, the transition entity may make the choice and, if the choice is made, it is taken to have been made at the relevant time.
(2) A *diminishing value rate chosen must not be less than the percentage worked out by using the formula:
Click here for Picture
where:
number of years in effective life means the number of years in the assumed *effective life of the unit under section 58-45.
(3) A *prime cost rate chosen must not be less than two-thirds of the percentage that would be worked out under subsection (2) if a *diminishing value rate had been chosen.

58-75 Nomination or election of depreciation percentage

(1) If the *transition entity could have made a nomination or election under subsection 55(8) of the Income Tax Assessment Act 1936 as in force at a particular time (the relevant time) during the period for which the transition entity owned, or is assumed to have owned, the unit, the transition entity may make the nomination or election, as the case may be, and, if the nomination or election is made, it is taken to have been made at the relevant time.
(2) If the *transition entity makes a nomination under subsection 55(8) of the Income Tax Assessment Act 1936 as in force immediately before the commencement of section 23 of the Taxation Laws Amendment Act 1993, the following paragraphs apply:
(a) the nomination applies to the income year for which it is taken to have been made and all later income years;
(b) a *diminishing value rate nominated must not be less than the percentage worked out by using the formula:
Click here for Picture
where:
number of years in effective life means the number of years in the assumed *effective life of the unit under section 58-45;
(c) a *prime cost rate nominated must not be less than two-thirds of the percentage that would be worked out under paragraph (b) if a diminishing value rate had been nominated.
(3) If the *transition entity makes an election under subsection 55(8) of the Income Tax Assessment Act 1936 as in force immediately before the commencement of section 7 of the Taxation Laws Amendment Act (No. 2) 1992, the election applies to the income year in which it is taken to have been made and all later income years.

58-80 Notional written down value

The notional written down value of the unit in relation to the *transition entity is the amount of its cost or assumed cost to the transition entity under section 58-40 less the sum of:
(a) the amounts in respect of which deductions for depreciation are assumed under section 58-55 to have been allowed to the transition entity in respect of it; and
Note: Sections 58-35 to 58-50, and sections 58-60 to 58-75, have effect for the purpose of determining the amounts referred to in paragraph (a).
(b) the amounts the transition entity has deducted or can deduct for depreciation of it; and
(c) any further amounts the transition entity could have deducted for depreciation of it for any period after the *transition time during which the transition entity was its owner and used it, or had it *installed ready for use, assuming that:
(i) the transition entity used it wholly for the purpose of producing assessable income during that period; and
(ii) the transition entity used the same rate of depreciation and the same method of depreciation during that period as the transition entity used for the income year in which a depreciation deduction was first allowable to the transition entity for it.

58-85 Calculation of depreciation deductions and balancing adjustments

(1) The rules otherwise applying in calculating depreciation deductions and balancing adjustments in respect of the unit have effect in relation to the *transition entity subject to this section and section 58-30.
(2) Sections 58-35 to 58-50 and sections 58-65 to 58-75 apply in the same way

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as they apply in calculating the deductions for depreciation assumed under section 58-55 to have been allowed to the *transition entity.
(3) The rate of depreciation is to be the same as the rate that was used in calculating the deduction for depreciation assumed under section 58-55 to have been allowed to the *transition entity in respect of the latest income year in the period referred to in that section.
(4) Subdivision 42-L, and sections 62AAB to 62AAV of the Income Tax Assessment Act 1936, do not apply in respect of the unit.
(5) Subsection 42-195(3) does not apply to any period in which the unit was used, or *installed ready for use, before the *transition time.
(6) For the purposes of section 42-200, the cost of the unit is taken to be its *notional written down value at the *transition time.
(7) If a *balancing adjustment event has occurred, subsection 42-190(2) has effect in relation to the unit as if paragraph (a) of that subsection were omitted and replaced by the following paragraph:
(a) the amount by which the higher of:
(i) the cost base of the *plant for the purposes of Part IIIA of the Income Tax Assessment Act 1936; or
(ii) the *notional written down value of the plant at the *transition time;
exceeds its *written down value; and

Provisions applying where depreciation of the unit is calculated by reference to undeducted pre-existing audited book value

58-90 Exclusion of certain provisions

The following provisions do not apply in respect of the unit in relation to the *transition entity:
(a) Subdivision 57-I of the Income Tax Assessment Act 1936;
(b) Subdivision 57-K of that Act in so far as that Subdivision deals with depreciation balancing adjustments.

58-95 Cost of unit to transition entity

(1) The cost of the unit to the *transition entity is taken to be the *undeducted pre-existing audited book value of the unit.
(2) Sections 58-100 to 58-135 have effect for the purpose of the calculation of that value under section 58-140.

58-100 Ownership of unit

(1) If the *transition entity was an *exempt Australian government agency immediately before the *transition time and had acquired the unit from another exempt Australian government agency:
(a) assume that the transition entity acquired it at the time when it was acquired or constructed by the other exempt Australian government agency; or
(b) if it had, before its acquisition by the transition entity, been successively owned by 2 or more exempt Australian government agencies - assume that the transition entity acquired it at the time when it was acquired or constructed by the first of those exempt Australian government agencies that owned it.
(2) To avoid doubt, if subsection (1) does not apply, the *transition entity is taken to have acquired the unit at the time when the transition entity acquired or constructed it.

58-105 Assumed cost of unit to transition entity for purpose of calculating undeducted pre-existing audited book value

Assume that the cost of the unit to the *transition entity is the sum of:
(a) its *pre-existing audited book value at the test time; and
(b) the amounts of any capital expenditure on improving it incurred by the transition entity, or by an earlier owner that was an *exempt Australian government agency, during the period beginning immediately after the test time and ending immediately before the *transition time.

58-110 Effective life of unit

Assume that the *effective life of the unit is the period that would have been calculated to be its effective life:
(a) if subsection 58-100(1) applies - at the time when it is assumed under that subsection to have been acquired by the *transition entity; or
(b) if subsection 58-100(2) applies - at the time when it was acquired or constructed by the transition entity.

58-115 Election to calculate assumed effective life

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For the purpose of calculating the assumed *effective life of the unit under section 58-110, if the *transition entity could have made an election under subsection 54A(1) of the Income Tax Assessment Act 1936 at a particular time during the period for which the transition entity owned, or is assumed to have owned, it, assume that the transition entity made the election at that time.

58-120 Use of unit for producing assessable income

Assume that the unit had, at all times during the period beginning at the test time and ending immediately before the *transition time, been used wholly for the purpose of producing assessable income by the *transition entity, and assume that deductions for depreciation in respect of it had been allowed to the transition entity during that period.

58-125 Method of depreciation

Assume that the *method of depreciation selected by the *transition entity in relation to the unit for:
(a) the *transition year; or
(b) if the transition entity does not claim depreciation for the transition year - the first income year after the transition year in which the transition entity claims depreciation;
was also used by the transition entity for each income year in the period referred to in section 58-120.

58-130 Application of certain provisions in calculating depreciation rates

In calculating the rate of depreciation in relation to the unit in each income year in the period referred to in section 58-120:
(a) if section 57AG of the Income Tax Assessment Act 1936 as in force at any time before its repeal had applied in respect of that income year - that section is to be taken into account; and
(b) if subsection 55(6) of the Income Tax Assessment Act 1936 as in force immediately before the commencement of section 7 of the Taxation Laws Amendment Act (No. 2) 1992 had applied in respect of that income year - that subsection is to be taken into account; and
(c) if section 57AL of the Income Tax Assessment Act 1936 as in force at any time before its repeal had applied in respect of that income year - that section is to be disregarded.

58-135 Nomination or election of depreciation percentage

(1) If the *transition entity could have made a nomination or election under subsection 55(8) of the Income Tax Assessment Act 1936 as in force at a particular time (the relevant time) during the period referred to in section 58-120, the transition entity may make the nomination or election, as the case may be, and, if the nomination or election is made, it is taken to have been made at the relevant time.
(2) If the *transition entity makes a nomination under subsection 55(8) of the Income Tax Assessment Act 1936 as in force immediately before the commencement of section 23 of the Taxation Laws Amendment Act 1993, the following paragraphs apply:
(a) the nomination applies to the income year in which it is taken to have been made and all later income years;
(b) a *diminishing value rate nominated must not be less than the percentage worked out by using the formula:
Click here for Picture
where:
number of years in effective life means the number of years in the assumed *effective life of the unit under section 58-110;
(c) a *prime cost rate nominated must not be less than two-thirds of the percentage that would be worked out under paragraph (b) if a diminishing value rate had been nominated.
(3) If the *transition entity makes an election under subsection 55(8) of the Income Tax Assessment Act 1936 as in force immediately before the commencement of section 7 of the Taxation Laws Amendment Act (No. 2) 1992, the election applies to the income year in which it is taken to have been made and all later income years.

58-140 Undeducted pre-existing audited book value

The undeducted pre-existing audited book value of the unit in relation to the *transition entity is:

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(a) if the test time in relation to the unit is less than one year before the *transition time - the amount of its assumed cost under section 58-105; or
(b) if the test time in relation to the unit is one year or more before the transition time - the amount of its assumed cost under section 58-105 less any amounts in respect of which deductions for depreciation are assumed under section 58-120 to have been allowed to the transition entity in respect of it.
Note: Sections 58-100 to 58-135 have effect for the purpose of determining the amounts referred to in paragraph (b).

58-145 Calculation of depreciation deductions and balancing adjustments

(1) The rules otherwise applying in calculating depreciation deductions and balancing adjustments in respect of the unit have effect in relation to the *transition entity subject to this section and section 58-95.
(2) Sections 58-100, 58-110 and 58-115 apply in the same way as they apply in calculating the *undeducted pre-existing audited book value of the unit.
(3) Subdivision 42-L, and sections 62AAB to 62AAV of the Income Tax Assessment Act 1936, do not apply in respect of the unit.
(4) Subsection 42-195(3) does not apply to any period in which the unit was used, or *installed ready for use, before the *transition time.
(5) Section 42-175 has effect in relation to the unit as if that section provided that the *undeducted cost of the unit were the *undeducted pre-existing audited book value of the unit less the sum of:
(a) the amounts the *transition entity has deducted or can deduct for depreciation of it; and
(b) any further amounts the transition entity could have deducted for depreciation of it for any period after the *transition time during which the transition entity was its owner and used it, or had it *installed ready for use, assuming that:
(i) the transition entity used it wholly for the purpose of producing assessable income during that period; and
(ii) the transition entity used the same rate of depreciation and method of depreciation during that period as the transition entity used for the income year in which a depreciation deduction was first allowable to the transition entity for it.
(6) If the test time in relation to the unit is one year or more before the *transition time, the rate of depreciation is to be the same as the rate that was used in calculating the deduction for depreciation assumed under section 58-120 to have been allowed to the *transition entity in respect of the latest income year in the period referred to in that section.
(7) If a *balancing adjustment event has occurred, subsection 42-190(2) has effect in relation to the unit as if paragraph (a) of that subsection were omitted and replaced by the following paragraph:
(a) the amount by which the higher of:
(i) the cost base of the *plant for the purposes of Part IIIA of the Income Tax Assessment Act 1936; or
(ii) the cost of the plant to you;
exceeds its *written down value; and

Subdivision 58-C - Plant acquired from exempt entities in connection with the acquisition of a business

Table of sections
58-150 Purchase of unit of plant from tax exempt vendor in connection with acquisition of a business
58-155 Choice by purchaser
Provisions applying where depreciation of the unit is calculated by reference to notional written down value
58-160 Cost of unit to purchaser
58-165 Ownership of unit
58-170 Cost of unit to tax exempt vendor
58-175 Effective life of unit
58-180 Choice or election to calculate assumed effective life
58-185 Use of unit for producing assessable income
58-190 Method of depreciation
58-195 Application of certain provisions in calculating depreciation rates
58-200 Choice of rate
58-205 Nomination or election of depreciation percentage
58-210 Notional written down value
58-215 Calculation of depreciation deductions and balancing adjustments
Provisions applying where depreciation of the unit is calculated by reference to undeducted pre-existing audited book value
58-220 Cost of unit to purchaser
58-225 Ownership of unit
58-230 Assumed cost of unit to tax exempt vendor for purpose of calculating undeducted pre-existing audited book value
58-235 Effective life of unit
58-240 Election to calculate assumed effective life

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58-245 Use of unit for producing assessable income
58-250 Method of depreciation
58-255 Application of certain provisions in calculating depreciation rates
58-260 Nomination or election of depreciation percentage
58-265 Undeducted pre-existing audited book value
58-270 Calculation of depreciation deductions and balancing adjustments

58-150 Purchase of unit of plant from tax exempt vendor in connection with acquisition of business

(1) If:
(a) at a particular time on or after 4 August 1997, an entity whose *ordinary income or *statutory income is to any extent assessable acquires a unit of *plant from an *exempt entity; and
(b) the unit of plant is acquired in connection with the acquisition of a *business from the exempt entity;
then:
(c) the exempt entity is the tax exempt vendor; and
(d) the time when the unit of plant is acquired is the acquisition time; and
(e) the income year in which the *acquisition time occurs is the acquisition year; and
(f) the entity that acquired the unit of plant is the purchaser; and
(g) the unit of plant is the unit.
(2) The unit is taken to be acquired in connection with the acquisition of a *business from the *exempt entity if:
(a) the unit was used by the exempt entity in carrying on a business and the purchaser or another person uses the unit in carrying on the business; or
(b) both of the following subparagraphs apply:
(i) the unit was used by the exempt entity in performing functions, or engaging in activities, that did not constitute the carrying on of a business by the exempt entity;
(ii) the unit is used by the purchaser or another person in performing those functions or engaging in those activities as part of carrying on a business; or
(c) all of the following subparagraphs apply:
(i) the acquisition by the purchaser of the unit was connected with the acquisition of another asset by the purchaser or another person from the exempt entity or from an *associate of the exempt entity;
(ii) ownership of the other asset gives the purchaser or other person a right, or imposes on the purchaser or other person an obligation, to perform functions or engage in activities as part of the carrying on of a business or confers on the purchaser or other person a commercial advantage or opportunity in connection with performing functions or engaging in activities as part of the carrying on of a business;
(iii) the unit is used by the purchaser or other person in performing those functions or engaging in those activities pursuant to the right or obligation or in taking the benefit of the advantage or opportunity, as the case may be; or
(d) the unit was acquired by the purchaser under an arrangement under which the purchaser or another person acquired another asset from the exempt entity or from an associate of the exempt entity and:
(i) the other asset is taken by paragraph (a), (b) or (c); or
(ii) where the other asset is not a unit of plant, it would, if it were a unit of plant, be taken by paragraph (a), (b) or (c);
to be acquired in connection with the acquisition of a business from the exempt entity.
(3) Paragraphs (2)(b), (c) and (d) do not apply if the unit is used by the purchaser solely to derive assessable income from the provision of office or residential accommodation.

58-155 Choice by purchaser

(1) The purchaser must, in relation to the unit, do either of the following:
(a) choose that depreciation deductions and balancing adjustments are to be calculated by reference to the *notional written down value of the unit;
(b) choose that depreciation deductions and balancing adjustments are to be calculated by reference to the *undeducted pre-existing audited book value (if any) of the unit.
(2) A choice under subsection (1) must be made:
(a) by the day on which the purchaser lodges the purchaser's *income tax return for the *acquisition year; or
(b) within a further period allowed by the Commissioner.
(3) A choice, once made, applies to the *acquisition year and all later income years.
(4) If the purchaser makes a choice under paragraph (1)(a), sections 58-160 to 58-215 have effect in relation to the unit.
(5) If the purchaser makes a choice under paragraph (1)(b), sections 58-220 to

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58-270 have effect in relation to the unit.

Provisions applying where depreciation of the unit is calculated by reference to notional written down value

58-160 Cost of unit to purchaser

(1) The cost of the unit to the purchaser is taken to be the amount that is the sum of:
(a) the *notional written down value of the unit in relation to the *tax exempt vendor; and
(b) the amount of any incidental costs to the purchaser in respect of the acquisition of the unit.
(2) Sections 58-165 to 58-205 have effect for the purpose of the calculation under section 58-210 of the *notional written down value referred to in paragraph (1)(a).

58-165 Ownership of unit

(1) If the *tax exempt vendor was an *exempt Australian government agency immediately before the *acquisition time and had acquired the unit from another exempt Australian government agency:
(a) assume that the tax exempt vendor acquired it at the time when it was acquired or constructed by the other exempt Australian government agency; or
(b) if it had, before its acquisition by the tax exempt vendor, been successively owned by 2 or more exempt Australian government agencies - assume that the tax exempt vendor acquired it at the time when it was acquired or constructed by the first of those exempt Australian government agencies that owned it.
(2) To avoid doubt, if subsection (1) does not apply, the *tax exempt vendor is taken to have acquired the unit at the time when the tax exempt vendor acquired or constructed it.

58-170 Cost of unit to tax exempt vendor

(1) To avoid doubt, Subdivision 42-B applies for the purpose of determining the cost of the unit to the *tax exempt vendor.
(2) However, if the *tax exempt vendor was an *exempt Australian government agency immediately before the *acquisition time and had acquired the unit from another exempt Australian government agency:
(a) assume that its cost to the tax exempt vendor is the amount that was its cost to the other exempt Australian government agency; or
(b) if the unit had, before its acquisition by the tax exempt vendor, been successively owned by 2 or more exempt Australian government agencies, assume that its cost to the tax exempt vendor is the amount that was its cost to the first of those exempt Australian government agencies that owned it.

58-175 Effective life of unit

Assume that the *effective life of the unit is the period that would have been calculated to be its *effective life:
(a) if subsection 58-165(1) applies - at the time when it is assumed under that subsection to have been acquired by the *tax exempt vendor; or
(b) if subsection 58-165(2) applies - at the time when it was acquired or constructed by the tax exempt vendor.

58-180 Choice or election to calculate assumed effective life

For the purpose of calculating the assumed *effective life of the unit under section 58-175:
(a) if the *tax exempt vendor would have been required to make a choice under subsection 42-100(1) at a particular time during the period for which the tax exempt vendor owned, or is assumed to have owned, it - assume that the tax exempt vendor made a choice at that time under paragraph 42-100(1)(b) to adopt the effective life specified by the Commissioner; or
(b) if the tax exempt vendor could have made an election under subsection 54A(1) of the Income Tax Assessment Act 1936 at a particular time during the period for which the tax exempt vendor owned, or is assumed to have owned, it - assume that the tax exempt vendor made the election at that time.

58-185 Use of unit for producing assessable income

Assume that the unit had, at all times during the period beginning when it was acquired or constructed, or is assumed to have been acquired, by the *tax

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exempt vendor and ending immediately before the *acquisition time, been used wholly for the purpose of producing assessable income by the tax exempt vendor, and assume that deductions for depreciation in respect of it had been allowed to the tax exempt vendor during that period.

58-190 Method of depreciation

(1) Assume that the *tax exempt vendor could have selected a *method of depreciation to use in relation to the unit for the income years included in the period referred to in section 58-185.
(2) The purchaser must make the selection that the *tax exempt vendor could have made.
(3) Assume that the *method of depreciation selected was used by the *tax exempt vendor for each of the income years referred to in subsection (1).

58-195 Application of certain provisions in calculating depreciation rates

In calculating the rate of depreciation in relation to the unit in each income year included in the period referred to in section 58-185:
(a) if section 57AG of the Income Tax Assessment Act 1936 as in force at any time before its repeal had applied in respect of that income year - that section is to be taken into account; and
(b) if subsection 55(6) of the Income Tax Assessment Act 1936 as in force immediately before the commencement of section 7 of the Taxation Laws Amendment Act (No. 2) 1992 had applied in respect of that income year - that subsection is to be taken into account; and
(c) if section 57AL of the Income Tax Assessment Act 1936 as in force at any time before its repeal had applied in respect of that income year - that section is to be disregarded.

58-200 Choice of rate

(1) If the *tax exempt vendor could have made a choice under subsection 42-120(1) at a particular time (the relevant time) during the period referred to in section 58-185, the purchaser may make the choice and, if the choice is made, it is taken to have been made by the tax exempt vendor at the relevant time.
(2) A *diminishing value rate chosen must not be less than the percentage worked out by using the formula:
Click here for Picture
where:
number of years in effective life means the number of years in the assumed *effective life of the unit under section 58-175.
(3) A *prime cost rate chosen must not be less than two-thirds of the percentage that would be worked out under subsection (2) if a *diminishing value rate had been chosen.

58-205 Nomination or election of depreciation percentage

(1) If the *tax exempt vendor could have made a nomination or election under subsection 55(8) of the Income Tax Assessment Act 1936 as in force at a particular time (the relevant time) during the period referred to in section 58-185, the purchaser may make the nomination or election, as the case may be, and, if the nomination or election is made, it is taken to have been made by the tax exempt vendor at the relevant time.
(2) If the purchaser makes a nomination under subsection 55(8) of the Income Tax Assessment Act 1936 as in force immediately before the commencement of section 23 of the Taxation Laws Amendment Act 1993, the following paragraphs apply:
(a) the nomination applies to the income year in which it is taken to have been made and all later income years in the period referred to in section 58-185;
(b) a *diminishing value rate nominated must not be less than the percentage worked out by using the formula:
Click here for Picture
where:
number of years in effective life means the number of years in the assumed *effective life of the unit under section 58-175;
(c) a *prime cost rate nominated must not be less than two-thirds of the percentage that would be worked out under paragraph (b) if a diminishing value rate had been nominated.
(3) If the purchaser makes an election under subsection 55(8) of the Income Tax Assessment Act 1936 as in force immediately before the commencement of section 7 of the Taxation Laws Amendment Act (No. 2) 1992, the election

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applies to the income year in which it is taken to have been made and all later income years in the period referred to in section 58-185.

58-210 Notional written down value

The notional written down value of the unit in relation to the *tax exempt vendor is the amount of its cost or assumed cost to the tax exempt vendor under section 58-170 less the sum of the amounts in respect of which deductions for depreciation are assumed under section 58-185 to have been allowed to the tax exempt vendor in respect of it.
Note: Sections 58-165 to 58-180, and sections 58-190 to 58-205, have effect for the purpose of determining the amounts referred to in this section.

58-215 Calculation of depreciation deductions and balancing adjustments

(1) The rules otherwise applying to the purchaser in the calculation of depreciation deductions and balancing adjustments in respect of the unit have effect in relation to the purchaser subject to subsection (2) and section 58-160.
(2) If a *balancing adjustment event has occurred, subsection 42-190(2) has effect in relation to the unit as if paragraph (a) of that subsection were omitted and replaced by the following paragraph:
(a) the amount by which the higher of:
(i) the cost of the *plant to you; or
(ii) the amount that would be that cost if section 58-160 did not apply to you and had not applied to any previous owner or *quasi-owner of the plant;
exceeds its *written down value; and

Provisions applying where depreciation of the unit is calculated by reference to undeducted pre-existing audited book value

58-220 Cost of unit to purchaser

(1) The cost of the unit to the purchaser is taken to be the amount that is the sum of:
(a) the *undeducted pre-existing audited book value of the unit in relation to the *tax exempt vendor; and
(b) the amount of any incidental costs to the purchaser in respect of the acquisition of the unit.
(2) Sections 58-225 to 58-260 have effect for the purpose of the calculation under section 58-265 of the *undeducted pre-existing audited book value referred to in paragraph (1)(a).

58-225 Ownership of unit

(1) If the *tax exempt vendor was an *exempt Australian government agency immediately before the *acquisition time and had acquired the unit from another exempt Australian government agency:
(a) assume that the tax exempt vendor acquired it at the time when it was acquired or constructed by the other exempt Australian government agency; or
(b) if it had, before its acquisition by the tax exempt vendor, been successively owned by 2 or more exempt Australian government agencies - assume that the tax exempt vendor acquired it at the time when it was acquired or constructed by the first of those exempt Australian government agencies that owned it.
(2) To avoid doubt, if subsection (1) does not apply, the *tax exempt vendor is taken to have acquired the unit at the time when the tax exempt vendor acquired or constructed it.

58-230 Assumed cost of unit to tax exempt vendor for purpose of calculating undeducted pre-existing audited book value

Assume that the cost of the unit to the *tax exempt vendor is the sum of:
(a) its *pre-existing audited book value at the test time; and
(b) the amounts of any capital expenditure on improving it incurred by the tax exempt vendor, or by an earlier owner that was an *exempt Australian government agency, during the period beginning immediately after the test time and ending immediately before the *acquisition time.

58-235 Effective life of unit

Assume that the *effective life of the unit is the period that would have been calculated to be its effective life:
(a) if subsection 58-225(1) applies - at the time when it is assumed under that subsection to have been acquired by the *tax exempt vendor; or

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(b) if subsection 58-225(2) applies - at the time when it was acquired or constructed by the tax exempt vendor.

58-240 Election to calculate assumed effective life

For the purpose of calculating the assumed *effective life of the unit under section 58-235, if the *tax exempt vendor could have made an election under subsection 54A(1) of the Income Tax Assessment Act 1936 at a particular time during the period for which the tax exempt vendor owned, or is assumed to have owned, it, assume that the tax exempt vendor made the election at that time.

58-245 Use of unit for producing assessable income

Assume that the unit had, at all times during the period beginning at the test time and ending immediately before the *acquisition time, been used wholly for the purpose of producing assessable income by the *tax exempt vendor, and assume that deductions for depreciation in respect of it had been allowed to the tax exempt vendor during that period.

58-250 Method of depreciation

(1) Assume that the *tax exempt vendor could have selected a *method of depreciation to use in relation to the unit for the income years included in the period referred to in section 58-245.
(2) The purchaser must make the selection that the *tax exempt vendor could have made.
(3) Assume that the *method of depreciation selected was used by the *tax exempt vendor for each of the income years referred to in subsection (1).

58-255 Application of certain provisions in calculating depreciation rates

In calculating the rate of depreciation in relation to the unit in each income year included in the period referred to in section 58-245:
(a) if section 57AG of the Income Tax Assessment Act 1936 as in force at any time before its repeal had applied in respect of that income year - that section is to be taken into account; and
(b) if subsection 55(6) of the Income Tax Assessment Act 1936 as in force immediately before the commencement of section 7 of the Taxation Laws Amendment Act (No. 2) 1992 had applied in respect of that income year - that subsection is to be taken into account; and
(c) if section 57AL of the Income Tax Assessment Act 1936 as in force at any time before its repeal had applied in respect of that income year - that section is to be disregarded.

58-260 Nomination or election of depreciation percentage

(1) If the *tax exempt vendor could have made a nomination or election under subsection 55(8) of the Income Tax Assessment Act 1936 as in force at a particular time (the relevant time) during the period referred to in section 58-245, the purchaser may make the nomination or election, as the case may be, and, if the nomination or election is made, it is taken to have been made by the tax exempt vendor at the relevant time.
(2) If the purchaser makes a nomination under subsection 55(8) of the Income Tax Assessment Act 1936 as in force immediately before the commencement of section 23 of the Taxation Laws Amendment Act 1993, the following paragraphs apply:
(a) the nomination applies to the income year in which it is taken to have been made and all later income years in the period referred to in section 58-245;
(b) a *diminishing value rate nominated must not be less than the percentage worked out by using the formula:
Click here for Picture
where:
number of years in effective life means the number of years in the assumed *effective life of the unit under section 58-235;
(c) a *prime cost rate nominated must not be less than two-thirds of the percentage that would be worked out under paragraph (b) if a diminishing value rate had been nominated.
(3) If the purchaser makes an election under subsection 55(8) of the Income Tax Assessment Act 1936 as in force immediately before the commencement of section 7 of the Taxation Laws Amendment Act (No. 2) 1992, the election applies to the income year in which it is taken to have been made and all later income years in the period referred to in section 58-245.


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58-265 Undeducted pre-existing audited book value

The undeducted pre-existing audited book value of the unit in relation to the *tax exempt vendor is:
(a) if the test time in relation to the unit is less than one year before the *acquisition time - the amount of its assumed cost to the tax exempt vendor under section 58-230; or
(b) if the test time in relation to the unit is one year or more before the acquisition time - the amount of its assumed cost to the tax exempt vendor under section 58-230 less any amounts in respect of which deductions for depreciation are assumed under section 58-245 to have been allowed to the tax exempt vendor in respect of it.
Note: Sections 58-225 to 58-260 have effect for the purpose of determining the amounts referred to in paragraph (b).

58-270 Calculation of depreciation deductions and balancing adjustments

(1) The rules otherwise applying to the purchaser in the calculation of depreciation deductions and balancing adjustments in respect of the unit have effect in relation to the purchaser subject to subsection (2) and section 58-220.
(2) If a *balancing adjustment event has occurred, subsection 42-190(2) has effect in relation to the unit as if paragraph (a) of that subsection were omitted and replaced by the following paragraph:
(a) the amount by which the higher of:
(i) the cost of the *plant to you; or
(ii) the amount that would have been that cost if section 58-220 did not apply to you and had not applied to any previous owner or *quasi-owner of the plant;
exceeds its *written down value; and
[The next Part is Part 2-20.]
8 At the end of section 330-375
Add:
(4) Transport capital expenditure also does not include expenditure on *plant to which Subdivision 58-B or 58-C applies.
(5) Transport capital expenditure also does not include expenditure on *plant if:
(a) at any time a *transition entity or a purchaser from a *tax exempt vendor had been the owner or a *quasi-owner of the plant; and
(b) Subdivision 58-B or 58-C had applied to the plant at that time; and
(c) either of the following subparagraphs applies:
(i) the transferor was the transition entity or the purchaser from the tax exempt vendor and Common rule 1 applied to your acquisition of the plant;
(ii) the transferor was not the transition entity or the purchaser from the tax exempt vendor and Common rule 1 applied to your acquisition of the plant and all earlier successive acquisitions of the plant by entities that acquired it from, or became the owners or quasi-owners of it after it was acquired from, the transition entity or the purchaser from the tax exempt vendor.
9 Subsection 995-1(1)
Insert:
acquisition time has the meaning given by section 58-150.
10 Subsection 995-1(1)
Insert:
acquisition year has the meaning given by section 58-150.
11 Subsection 995-1(1) (definition of exempt entity)
Repeal the definition, substitute:
exempt entity means:
(a) in Division 58:
(i) an exempt Australian government agency; or
(ii) any other entity whose *ordinary income and *statutory income are exempt from income tax; or
(b) otherwise:
(i) an entity whose *ordinary income and *statutory income are exempt from income tax because of Division 50; or
(ii) an entity whose *ordinary income and *statutory income are exempt from income tax because of any *Commonwealth law other than this Act.
12 Subsection 995-1(1)
Insert:
method of depreciation means the way of working out the depreciation allowable under this Act in respect of plant set out in section 42-160 or 42-165.
13 Subsection 995-1(1) (definition of notional written down value)
Repeal the definition, substitute:
notional written down value of a unit of *plant:
(a) in relation to a *transition entity - has the meaning given by section 58-80; or
(b) in relation to a *tax exempt vendor - has the meaning given by section

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58-210; or
(c) otherwise - has the meaning given by section 42-260.
14 Subsection 995-1(1)
Insert:
pre-existing audited book value of a unit of *plant has the meaning given by subsection 58-10(1).
15 Subsection 995-1(1)
Insert:
tax exempt vendor has the meaning given by section 58-150.
16 Subsection 995-1(1) (definition of test time)
After "sections", insert "58-10,".
17 Subsection 995-1(1)
Insert:
transition entity has the meaning given by section 58-15.
18 Subsection 995-1(1)
Insert:
transition time has the meaning given by section 58-15.
19 Subsection 995-1(1)
Insert:
transition year has the meaning given by section 58-15.
20 Subsection 995-1(1)
Insert:
undeducted pre-existing audited book value of a unit of *plant:
(a) in relation to a *transition entity - has the meaning given by section 58-140; and
(b) in relation to a *tax exempt vendor - has the meaning given by section 58-265.
Part 2 - Income Tax (Transitional Provisions) Act 1997
21 At the end of section 42-175
Add:
Note: The provisions of section 42-175 of the 1997 Act are replaced by other provisions in relation to a *transition entity in respect of *plant of which the entity is the owner or a *quasi-owner. Section 42-175 of this Act therefore does not have any effect in respect of such plant.
Part 3 - Income Tax Assessment Act 1936
22 At the end of Schedule 2D
Add:

Subdivision 57-N - Division not applicable in respect of certain plant

57-130 Plant covered by Subdivision 58-B of the Income Tax Assessment Act 1997

Subdivision 57-I, and Subdivision 57-K in so far as it applies to depreciation balancing adjustments, do not apply in respect of plant to which Subdivision 58-B of the Income Tax Assessment Act 1997 applies.

Schedule 11 - Arrangements treated as a sale and loan and limited recourse debt

Part 1 - Insertion of Divisions 240 and 243
Income Tax Assessment Act 1997
1 After Part 3-5
Insert:

Part 3-10 - Financial transactions

[The next Division is Division 240.]

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 Provisions applying to hire purchase agreements

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Guide to Division 240

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 seller to the 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 seller will be assessed on the purchase price.
(2) Where the property is not trading stock the seller's assessable income will include any profit made by the seller on the notional sale or on the sale of the property after a notional re-acquisition.
Effect of notional loan
(3) The 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 seller loses the right to deduct amounts for depreciation (under Division 42) or under any of the other capital allowances (listed in Division 40).

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 buyer can usually deduct the purchase price.
(2) If the property is not trading stock, the buyer may be able to deduct depreciation (under Division 42), or to deduct amounts for the expenditure under one of the other capital allowances (listed in Division 40).
Effect of notional loan
(3) The 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

Operative provisions

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 property

None

See Subdivision 240-H


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240-15 Scope of Division

This Division has effect for the purposes of this Act and for the purposes of the Income Tax Assessment Act 1936 other than:
(a) Parts 3-1 and 3-3 of this Act and Part IIIA of the Income Tax Assessment Act 1936 (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

Operative provisions

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.

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

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

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 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 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 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.

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(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

Guide to Subdivision 240-C

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
[This is the end of the Guide]

Operative provisions

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

Guide to Subdivision 240-D

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

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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
[This is the end of the Guide]

Operative provisions

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

Operative provisions

240-60 Notional interest

(1) The *notional interest for an *arrangement payment period is worked out as follows:
Calculating *notional interest
Step 1. Add the *notional interest from previous *arrangement payment periods to the *notional loan principal.
Step 2. Subtract any *arrangement payments that have already been made or that are due but that have not been made. The result is the outstanding notional loan principal as at the start of the *arrangement payment period.
Step 3. Work out the implicit interest rate. 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.

240-65 Arrangement payments

An

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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

Operative provisions

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.

240-78 Termination amounts

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

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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.

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

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

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, at the first time 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) 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 calculating the depreciation allowable to that person for the car, would have been reduced because of the operation of section 42-80.
(5) Where an associate of the *notional buyer acquires the car, the cost of the car for the purposes of the application of Division 42 to the associate is taken to be whichever is the lesser of:
(a) the sum of:
(i) the amount that would have been the written down 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 42-190 because the notional buyer is taken to have disposed of the car; and
(iii) any amount that is treated as being deducted for depreciation of another asset under section 42-285 or 42-290; 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

Guide to Subdivision 240-G


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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
[This is the end of the Guide]

Operative provisions

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 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 to be 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 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 to be a termination amount paid under the previous arrangement.
(4) The formula for the purposes of subsections (2) and (3) is:
Click here for Picture
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 240-H - 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

Operative provisions


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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 or obligation to acquire the property will be exercised by, or in respect of, the notional buyer.
(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.
[The next Division is Division 243.]

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

Guide to Division 243

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 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?

Operative provisions

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 (other than development allowance or drought investment 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 non-recourse debt to which this Division has applied (see

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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 *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), (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.


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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; 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.

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

(1) Property is the financed property if the expenditure 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

Operative provisions

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 (other than development allowance or drought investment allowance) 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 or 243-50 because of payments in respect of the debt.
(3) The reference in Step 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:
(a) that is included under section 26AG of the Income Tax Assessment Act 1936 as a result of the disposal of the financed property; or
(b) that is treated as being deducted for depreciation of another asset under section 42-285 or 42-290.
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

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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 *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 *limited recourse debt or by the consideration for the disposal of the debtor's interest in the *financed property.)

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

Operative provisions

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 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

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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 *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 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.
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 (other than development allowance or drought investment allowance) 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) 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, or at the end of the period, 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 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

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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

Operative provisions

243-60 Application of Division to partnerships

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

243-65 Application where partner reduces liability

(1) This section applies to a debt in relation to a partner in a partnership if:
(a) during an income year, the partner's interest in the partnership ceases or is varied or transferred and this had the effect of reducing or eliminating the partner's liability to pay the debt; and
(b) an excess would have been worked out under subsection 243-35(1) if 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 (other than development allowance or drought investment allowance) 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 (other than development allowance or drought investment allowance) 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 (other than development allowance or drought investment allowance) 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, 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

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(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.
[The next Part is Part 3-45.]
Part 2 - Consequential amendments: arrangements treated as a sale and loan
Income Tax Assessment Act 1936
2 Subsection 51AD(1) (definition of hire-purchase agreement)
Repeal the definition, substitute:
hire-purchase agreement means a hire purchase agreement to which Division 240 of the Income Tax Assessment Act 1997 applies.
3 Subsection 82AHA(2)
Repeal the subsection.
4 Subsection 82AQ(1) (definition of hire-purchase agreement)
Repeal the definition, substitute:
hire-purchase agreement means a hire purchase agreement to which Division 240 of the Income Tax Assessment Act 1997 applies.
5 Paragraph 672(b)
Repeal the paragraph.
6 Sections 674 and 675
Repeal the sections, substitute:

674 Meaning of hire purchase agreement

A hire purchase agreement means a hire purchase agreement to which Division 240 of the Income Tax Assessment Act 1997 applies.
Note: Division 240 of the Income Tax Assessment Act 1997 sets out when property under a hire purchase agreement is disposed of.
Income Tax Assessment Act 1997
7 Section 10-5 (table)
Insert in its appropriate alphabetical position, determined on a letter-by-letter basis:
notional sales and loans

adjustment amounts (lessee) 240-110(2)

adjustment amounts (lessor) 240-105(2)

notional interest 240-35(1)

profit on actual sale 240-35(3)

profit on notional sale 240-35(2)

8 Section 12-5 (table)
Insert in its appropriate alphabetical position, determined on a letter-by-letter basis:
notional sales and loans

adjustment amounts (lessee) 240-110(1)

adjustment amounts (lessor) 240-105(3)

arrangement payments, no deduction for 240-55

notional interest 240-50

payments to acquire property, no deduction for 240-85

9

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Subsection 28-12(1)

Omit "or hired a *car under a *hire purchase agreement".
10 At the end of subsection 28-12(1)
Add:
Note 3: In certain circumstances (for example, under a hire purchase agreement) the notional buyer of property is taken to be its owner (see subsection 240-20(2)).
11 Subsection 28-45(1)
Omit "or hired it under a *hire purchase agreement".
12 Subsection 28-45(1) (note)
Renumber the note as Note 1.
13 At the end of subsection 28-45(1)
Add:
Note 2: The cost of a car to which Division 240 applies is to be worked out under section 240-25.
14 Subsection 28-45(2)
Omit "or are hiring it".
15 Subsection 28-45(3)
Omit ", lease or hire" (wherever occurring), substitute "or lease".
16 Subsection 28-45(3)
Omit ", leased or hired", substitute "or leased".
17 Subsection 28-90(6)
Omit ", or you are hiring it under a *hire purchase agreement".
18 Subsection 28-90(6) (note)
Renumber the note as Note 1.
19 At the end of subsection 28-90(6)
Add:
Note 2: In certain circumstances the notional buyer of property is taken to be its owner (see subsection 240-20(2)).
20 At the end of section 42-15
Add:
Note 3: In certain circumstances the notional buyer of property is taken to be its owner (see subsection 240-20(2)).
21 Subsection 42-30(3) (after paragraph (ab) of table item 1)
Insert:
(ac) you are taken to have ceased to be its owner as mentioned in paragraph 240-20(2)(b); or
(ad) you are taken to have disposed of it as mentioned in subsection 240-20(1) or 240-90(2); or
22 At the end of section 42-55
Add:
Notional sales and notional loans
(8) Division 240 has special rules in respect of the *arrangements that are taken to be a notional sale and *notional loan.
23 Section 42-65 (after table item 9E)
Insert:

9F

you are taken to acquire as mentioned in subsection 240-90(2)

the amount applying under subsection 240-90(3)

car discount (42-70)
car limit (42-80)
double deduction (42-85)
prev. dep. limit (42-90)

9G

you acquire as mentioned in subsection 240-90(5)

the amount applying under subsection 240-90(5)


24

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At the end of section 42-160

Add:
Note: In certain circumstances the notional buyer of property is taken to be its owner (see subsection 240-20(2)).
25 At the end of section 42-175
Add:
Note: In certain circumstances the notional buyer of property is taken to be its owner (see subsection 240-20(2)).
26 At the end of subsection 42-195(3)
Add:
Note: In certain circumstances the notional buyer of property is taken to be its owner (see subsection 240-20(2)).
27 Section 42-205 (after table item 5D)
Insert:

5E

that you are taken to have disposed of under subsection 240-20(1)

the amount worked out under subsection 240-25(5)

car limit (42-215)

5F

of which you are taken to have ceased to be the owner under paragraph 240-20(2)(b)

the amount worked out under subsection 240-25(5)

car limit (42-215)

5G

that you are taken to have disposed of under subsection 240-90(2)

the amount worked out under subsection 240-90(3)

car limit (42-215)

28 Subsection 42-235(1) (note)
Renumber the note as Note 1.
29 At the end of subsection 42-235(1)
Add:
Note 2: In certain circumstances the notional buyer of property is taken to be its owner (see subsection 240-20(2)).
30 Section 42-250 (note)
Renumber the note as note 1.
31 At the end of section 42-250
Add:
Note 2: In certain circumstances the notional buyer of property is taken to be its owner (see subsection 240-20(2)).
32 At the end of subsection 42-330(1)
Add:
Note: In certain circumstances the notional buyer of property is taken to be

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its owner (see subsection 240-20(2)).
33 At the end of section 42-365
Add:
Note: In certain circumstances the notional buyer of property is taken to be its owner (see subsection 240-20(2)).
34 At the end of section 43-110
Add:
Note: In certain circumstances the notional buyer of property is taken to be its owner (see subsection 240-20(2)).
35 At the end of subsection 104-15(1)
Add:
Note: Division 240 provides for the inclusion of amounts under hire purchase agreements in assessable income.
36 Section 195-15 (link note)
Repeal the link note, substitute:
[The next Part is Part 3-10.]
37 At the end of subsection 330-480(1)
Note 4: In certain circumstances (for example, under a hire purchase agreement) the notional buyer of property is taken to be its owner (see subsection 240-20(2)).
38 Subsection 330-480(2) (note)
Omit "and 3", substitute ", 3 and 4".
39 At the end of subsection 387-305(1)
Add:
Note 3: In certain circumstances the notional buyer of property is taken to be its owner (see subsection 240-20(2)).
40 Paragraph 900-15(2)(b)
Omit "or hired the *car under a *hire purchase agreement".
41 At the end of subsection 900-15(2)
Add:
42 Subsection 900-30(7) (note)
Renumber the note as Note 1.
43 At the end of subsection 900-30(7)
Add:
Note 2: In certain circumstances (for example, under a hire purchase agreement) the notional buyer of property is taken to be its owner (see subsection 240-20(2)).
44 Paragraph 900-70(2)(b)
Omit "or hired the *car under a *hire purchase agreement".
45 At the end of subsection 900-70(2)
Add:
Note: In certain circumstances (for example, under a hire purchase agreement) the notional buyer of property is taken to be its owner (see subsection 240-20(2)).
46 Paragraph 900-80(2)(b)
Omit "or hired the *car under a *hire purchase agreement".
47 At the end of subsection 900-80(2)
Add:
Note: In certain circumstances (for example, under a hire purchase agreement) the notional buyer of property is taken to be its owner (see subsection 240-20(2)).
48 Subsection 995-1(1)
Insert:
arrangement payment has the meaning given by section 240-65.
49 Subsection 995-1(1)
Insert:
arrangement payment period has the meaning given by section 240-70.
50 Subsection 995-1(1)
Insert:
finance charge has the meaning given by section 240-25.
51 Subsection 995-1(1) (subparagraph (a)(iii) of the definition of hire purchase agreement)

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Omit "to purchase", substitute "referred to in subparagraph (a)(i)".
52 Subsection 995-1(1)
Insert:
notional buyer has the meaning given by section 240-17.
53 Subsection 995-1(1)
Insert:
notional interest has the meaning given by section 240-60.
54 Subsection 995-1(1)
Insert:
notional loan has the meaning given by section 240-25.
55 Subsection 995-1(1)
Insert:
notional loan principal has the meaning given by section 240-25.
56 Subsection 995-1(1)
Insert:
notional seller has the meaning given by section 240-17.
57 Subsection 995-1(1)
Insert:
right to use includes the right to possess.
58 Subsection 995-1(1)
Insert:
termination amount has the meaning given by section 240-78.
Part 3 - Consequential amendments: limited recourse debt
Income Tax Assessment Act 1936
59 After subsection 160ZJA(1)
Insert:
(1A) The reference in paragraph (1)(a) to an amount that has been allowed or is allowable as a deduction does not include an amount allowed under Division 243 of the Income Tax Assessment Act 1997.
60 At the end of subsection 160ZJA(2)
Add:
However, it does not include an amount included in a taxpayer's assessable income under Division 243 of the Income Tax Assessment Act 1997.
61 After subsection 160ZJB(1)
Insert:
(1A) The reference in paragraph (1)(a) to an amount that has been allowed or is allowable as a deduction does not include an amount allowed under Division 243 of the Income Tax Assessment Act 1997.
62 At the end of subsection 160ZJB(2)
Add:
However, it does not include an amount included in a taxpayer's assessable income under Division 243 of the Income Tax Assessment Act 1997.
Income Tax Assessment Act 1997
63 Section 10-5 (table)
Insert in its appropriate alphabetical position, determined on a letter-by-letter basis:
limited recourse debt

excessive deduction amount (debtor) 243-40

excessive deduction amount (partner) 243-65

64 Section 12-5 (table)
Insert in its appropriate alphabetical position, determined on a letter-by-letter basis:
limited recourse debt

later payments 243-45

later payments (replacement debt) 243-50

65

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Section 20-5 (before table item 3)

Insert:

3A

Limited recourse debt terminates that was used to finance expenditure deductible under a capital allowance (or on property for which you have deducted or can deduct amounts under a capital allowance): an amount is included in your assessable income

243-40

66 At the end of section 42-55
Add:
Limited recourse debt
(9) Where you have had a deduction under this Division an amount may be included in your assessable income if the expenditure was financed by limited recourse debt that has terminated: see Division 243.
67 At the end of section 43-50
Add:
(8) Where you have had a deduction under this Division an amount may be included in your assessable income if the expenditure was financed by limited recourse debt that has terminated: see Division 243.
68 At the end of subsection 330-15(1)
Add:
Note 3: Where you have had a deduction under this Subdivision an amount may be included in your assessable income if the expenditure was financed by limited recourse debt that has terminated: see Division 243.
69 Section 330-80 (after note 1A)
Insert:
Note 1B: Where you have had a deduction under this Subdivision an amount may be included in your assessable income if the expenditure was financed by limited recourse debt that has terminated: see Division 243.
70 Section 330-370 (after note 1)
Insert:
Note 1A: Where you have had a deduction under this Subdivision an amount may be included in your assessable income if the expenditure was financed by limited recourse debt that has terminated: see Division 243.
71 At the end of subsection 330-435(1)
Add:
Note: Where you have had a deduction under this Subdivision an amount may be included in your assessable income if the expenditure was financed by limited recourse debt that has terminated: see Division 243.
72 At the end of subsection 387-55(1)
Add:
Note 3: Where you have had a deduction under this Subdivision an amount may be included in your assessable income if the expenditure was financed by limited recourse debt that has terminated: see Division 243.
73 At the end of subsection 387-125(2)
Add:
Note 3: Where you have had a deduction under this Subdivision an amount may be included in your assessable income if the expenditure was financed by limited recourse debt that has terminated: see Division 243.
74 At the end of subsection 387-165(5)
Add:
Note 3: Where you have had a deduction under this Subdivision an amount may be included in your assessable income if the expenditure was financed by limited recourse debt that has terminated: see Division 243.
75 At the end of subsection 387-305(1)
Add:
Note 3: Where you have had a deduction under this Subdivision an amount may be included in your assessable income if the expenditure was financed by limited recourse debt that has terminated: see Division 243.
76 At the end of subsection 387-355(2)
Add:
Note 3: Where you have had a deduction under this Subdivision an amount may be included in your assessable income if the expenditure was financed by limited recourse debt that has terminated: see Division 243.
77 Subsection 387-405(2) (note)

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Renumber the note as Note 1.
78 At the end of subsection 387-405(2)
Add:
Note 2: Where you have had a deduction under this Subdivision an amount may be included in your assessable income if the expenditure was financed by limited recourse debt that has terminated: see Division 243.
79 Section 387-460 (note)
Renumber the note as Note 1.
80 At the end of section 387-460
Add:
Note 2: Where you have had a deduction under this Subdivision an amount may be included in your assessable income if the expenditure was financed by limited recourse debt that has terminated: see Division 243.
81 At the end of subsection 400-15(3)
Add:
Note 3: Where you have had a deduction under this Subdivision an amount may be included in your assessable income if the expenditure was financed by limited recourse debt that has terminated: see Division 243.
82 Subsection 995-1(1)
Insert:
debt property has the meaning given by section 243-30.
83 Subsection 995-1(1)
Insert:
financed property has the meaning given by section 243-30.
84 Subsection 995-1(1)
Insert:
limited recourse debt has the meaning given by section 243-20.
Part 4 - Property transferred by way of security
Income Tax Assessment Act 1997
85 Section 40-5 (box relating to Common rule 3)
Omit "Anti-avoidance provisions", substitute "Provisions".
86 Section 41-5 (heading to table column dealing with Common rule 3)
Omit "Anti-avoidance provisions", substitute "Provisions".
87 Section 41-5 (table column dealing with Common rule 3)
Omit "Does not apply" (wherever occurring), substitute "Applies (other than section 41-85)".
88 Section 41-5 (table column dealing with Common rule 3)
Omit "Does not apply" (wherever occurring), substitute "Applies (other than section 41-85)".
Note: This item commences immediately after the commencement of Schedule 7 to the Tax Law Improvement Act (No. 1) 1998.
89 Subdivision 41-C (heading)
Repeal the heading, substitute:

Subdivision 41-C - Common rule 3 (Provisions relating to the ownership of the property)

90 At the end of Subdivision 41-C
Add:

41-90 Owner of property that is transferred by way of security

(1) If the rules for a *capital allowance apply this Common rule, then for the purposes of those rules (including any other Common rule that those rules apply) disregard an acquisition or disposal of property by way of the transfer of the property for the provision or redemption of a security.
(2) Consequently those rules apply as if the person who was the owner of the property before the transfer continues to be the owner after the transfer.
91 Paragraph 42-35(c)
Omit "anti-avoidance - ".
92 Subsection 387-505(3)
Omit "anti-avoidance".
Income Tax Assessment Act 1936

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93 After subsection 51AD(3A)
Insert:
(3B) For the purpose of this section, disregard an acquisition or disposal of property by way of the transfer of the property for the provision or redemption of a security. Consequently this section applies as if the person who was the owner of the property before the transfer continues to be the owner after the transfer.
94 After subsection 73B(1C)
Insert:
(2) For the purpose of this section, disregard an acquisition or disposal of property by way of the transfer of the property for the provision or redemption of a security. Consequently this section applies as if the person who was the owner of the property before the transfer continues to be the owner after the transfer.
95 After section 82AI
Insert:

82AIA Transfer by way of security

For the purpose of this Subdivision, disregard an acquisition or disposal of property by way of the transfer of the property for the provision or redemption of a security. Consequently this Subdivision applies as if the person who was the owner of the property before the transfer continues to be the owner after the transfer.
96 At the end of section 124K
Add:
(5) For the purpose of this Division, disregard an acquisition or disposal of property by way of the transfer of the property for the provision or redemption of a security. Consequently this Division applies as if the person who was the owner of the property before the transfer continues to be the owner after the transfer.
97 At the end of Subdivision A of Division 10BA of Part III
Add:

124ZAEA Transfer by way of security

For the purpose of this Division, disregard an acquisition or disposal of property by way of the transfer of the property for the provision or redemption of a security. Consequently this Division applies as if the person who was the owner of the property before the transfer continues to be the owner after the transfer.
98 At the end of section 159GE
Add:
(10) For the purpose of this Division, disregard an acquisition or disposal of property by way of the transfer of the property for the provision or redemption of a security. Consequently this Division applies as if the person who was the owner of the property before the transfer continues to be the owner after the transfer.
99 At the end of section 673
Add:
(3) For the purpose of this Part, disregard an acquisition or disposal of property by way of the transfer of the property for the provision or redemption of a security. Consequently this Part applies as if the person who was the owner of the property before the transfer continues to be the owner after the transfer.
Note: The heading to section 673 is altered by omitting ": quasi-ownership".
Part 5 - Application of amendments
100 Amendments related to arrangements treated as sale and loan
(1) Division 240 of the Income Tax Assessment Act 1997 applies to arrangements entered into after 27 February 1998.
(2) The amendments made by Part 2 of this Schedule (other than by item 35) apply to arrangements entered into after 27 February 1998.
(3) The amendment made by item 35 of this Schedule applies to assessments for the 1998-99 income year and later income years.
101 Amendments related to limited recourse debt
(1) Division 243 of the Income Tax Assessment Act 1997 applies to debts that are terminated after 27 February 1998.

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(2) The amendments made by Part 3 of this Schedule (other than by items 74 and 81) apply to debts that are terminated after 27 February 1998.
(3) The amendments made by items 74 and 81 of this Schedule apply to assessments for the 1998-99 income year and later income years.
102 Amendments related to property transferred as security
(1) The amendments made by Part 4 of this Schedule (other than by item 88) apply to transfers of property where the transaction under which the property was provided, or redeemed, as security was entered into after 27 February 1998.
(2) The amendment made by item 88 of this Schedule applies to assessments for the 1998-99 income year and later income years.

Schedule 12 - FBT record keeping exemption

Part 1 - Fringe Benefits Tax Assessment Act 1986
1 At the end of subsection 132(1)
Add:
Note: There is an exemption from the requirements of this subsection in certain cases: see Part XIA (Record keeping exemption).
2 After Part XI
Insert:

Part XIA - Record keeping exemption

Division 1 - Overview of Part

135A Overview of Part

(1) Basically, this Part provides that, if certain conditions are satisfied, an employer need not keep or retain most of the records otherwise required to be kept and retained under subsection 132(1).
(2) If the conditions are satisfied, the employer's FBT liability is generally worked out using the aggregate fringe benefits amount from a previous FBT year (the base year) instead of the current FBT year.

Division 2 - Conditions

135B Conditions that must be satisfied

(1) This section has 2 conditions that must be satisfied for Division 3 to apply to an employer for an FBT year (the current year).
First condition: base year established
(2) Either of the following must be true:
(a) the FBT year immediately before the current year was a base year (see section 135C) of the employer; or
(b) some other FBT year before the current year was a base year of the employer and section 135G applied to the employer for every FBT year after that base year but before the current year.
Second condition: no Commissioner's notice in previous year
(3) The employer must not have been given a paragraph 135E(2)(c) notice by the Commissioner during the FBT year immediately before the current year.

135C What is a base year?

(1) An FBT year is a base year of an employer if:
(a) the employer carries on business operations throughout the FBT year; and
(b) the employer lodges an FBT return for the FBT year within the time allowed for doing so under section 68; and
(c) as at the declaration date for the FBT year, the employer has kept and retained all the records that are (ignoring section 135E) required to be kept and retained under subsection 132(1) in relation to the employer's liability under this Act for the FBT year; and
(d) the employer's aggregate fringe benefits amount for the FBT year does not exceed the exemption threshold (see subsections (2) and (3)) for the year; and
(e) section 135G does not apply to the employer for the FBT year (that section allows employers to work out their liability to pay tax using their aggregate fringe benefits amount from a previous base year, instead of the current FBT year).
Exemption threshold for 1996-97 FBT year
(2) The exemption threshold for the FBT year beginning on 1

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April 1996 is $5,000.
Exemption threshold for later FBT years
(3) The exemption threshold for a later FBT year is the amount worked out using the formula:
Click here for Picture
where:
exemption threshold is the exemption threshold for the previous FBT year.
indexation factor is the number worked out, to 3 decimal places (rounding up if the fourth decimal place is 5 or more), under subsection (4) for the later FBT year.
Indexation factor
(4) The indexation factor for an FBT year is the greater of:
(a) 1; and
(b) the number worked out using the formula:
Click here for Picture
(5) In subsection (4):
earlier December year means the period of 12 months immediately before the most recent December year.
index number, for a quarter, means the All Groups Consumer Price Index number for the quarter (being the weighted average of the 8 capital cities) first published by the Australian Statistician for the quarter.
most recent December year means the period of 12 months ending on 31 December immediately before the FBT year for which the threshold is being worked out.
Disregard new publications
(6) If the Australian Statistician publishes an index number for a quarter in substitution for an index number previously published for that quarter, disregard the later publication.
Changed reference base
(7) However, if the Australian Statistician changes the reference base for the Consumer Price Index, take into account only the index numbers published in terms of the new reference base.
Rounding down to whole dollar amount
(8) Round the subsection (3) result down to the nearest whole dollar (if the result is not already a number of whole dollars).

Division 3 - Consequences if conditions in Division 2 are satisfied

135D Consequences

This Division has the consequences that apply if both conditions in section 135B are satisfied in relation to an employer for an FBT year (the current year).

135E Exemption from keeping records

(1) Subsection 132(1) (which requires certain records to be kept and retained) does not apply to the employer in relation to the employer's liability under this Act for the current year.
Records the employer must still keep
(2) However, subsection 132(1) still applies in relation to the employer's liability under this Act for the current year so far as it relates to the following:
(a) copies of records that an associate of the employer gives the employer under paragraph 132(2)(b);
(b) benefits provided at a time when the employer was:
(i) a government body (see subsection 136(1)); or
(ii) a person all of whose income is exempt from income tax;
(c) benefits provided after the Commissioner has given the employer a written notice under this paragraph, during the current year, requiring the employer to resume keeping records.

135F Keeping records for 5 years after they are last relied on

The period in paragraph 132(1)(b) for retaining records relating to the employer's liability under this Act in respect of the employer's most recent base year is extended (or further extended) to 5 years after the end of the current year (if the period is not already that long).

135G Way to work out liability

The employer's liability to pay tax under section 66 is worked out using the

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employer's aggregate fringe benefits amount for the employer's most recent base year, instead of for the current year.

135H Exception if employer chooses to use current year aggregate fringe benefits amount

Section 135G does not apply if the employer chooses to work out his or her liability using the employer's aggregate fringe benefits amount for the current year.

135J Exception if employer is government body or tax-exempt

Section 135G does not apply if the employer is:
(a) a government body (see subsection 136(1)); or
(b) a person all of whose income is exempt from income tax;
at any time during the current year.

135K Exception if aggregate fringe benefits amount increases too much

(1) Section 135G does not apply if the employer's aggregate fringe benefits amount for the current year is more than 20% greater than it was for the employer's most recent base year (unless the difference is $100 or less).
Example: The aggregate fringe benefits amount was $100 for the most recent base year and $180 for the current year. This is 80% greater - well over the 20% limit. But section 135G can still apply because the difference is only $80.
Special rules for applying this test
(2) In working out, for the purposes of subsection (1), the employer's aggregate fringe benefits amount for the current year, apply the following rules.
Section 123 disregarded
(3) Disregard the effect of section 123 (which deals with failing to retain statutory evidentiary documents).
Special rule for car fringe benefits - statutory formula method used in earlier year
(4) If:
(a) for the employer's first car benefit year (if any - see subsection (6)), the employer used the method in section 9 (statutory formula) to determine the taxable value of one or more car fringe benefits relating to a particular car; and
(b) the employer uses the same method for that car, or for a car provided as a replacement of that car, for the current year; and
(c) the annualised number of kilometres the car (or its replacement) travelled in the current year is at least 80% of the annualised number of kilometres the car travelled in the first car benefit year;
the employer may, in using that same method, use the statutory fraction for the car from the first car benefit year, instead of from the current year.
Special rule for car fringe benefits - cost basis method used in earlier year
(5) If:
(a) for the employer's first car benefit year (if any - see subsection (6)), the employer used the method in section 10 (cost basis) to determine the taxable value of one or more car fringe benefits relating to a particular car; and
(b) the employer uses the same method for that car, or for a car provided as a replacement of that car, for the current year; and
(c) the business use percentage (see subsection 136(1)) for the current year is not lower than the business use percentage for the first car benefit year by more than 20 percentage points;
the employer may, in using that same method, use the business use percentage for the car from the first car benefit year, instead of from the current year.
Meaning of first car benefit year
(6) In subsections (4) and (5), the employer's first car benefit year is the first FBT year (if any) in the period:
(a) beginning with the employer's most recent base year; and
(b) ending with the FBT year immediately before the current year;
during which one or more car fringe benefits were provided in relation to the employer.

135L Employer not in business throughout current year

(1) This section applies if the employer does not carry on business operations throughout the current year.
Pro-rata reduction of base year aggregate fringe benefits amount
(2) For the purposes of sections 135G and 135K, the employer's aggregate fringe benefits amount for the employer's most recent base year is replaced by the amount worked out using the following formula:

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Click here for Picture
3 Section 136AA (at the end of the definition of aggregate fringe benefits amount)
Add:
Note: In certain cases, the employer can instead use the aggregate fringe benefits amount in relation to a previous year of tax: see Part XIA (Record keeping exemption).
Part 2 - Application and transitional
4 Application of amendments
(1) The amendments made by this Schedule apply in relation to benefits provided in the FBT year beginning on 1 April 1998 and later FBT years.
(2) However, section 135E of the Fringe Benefits Tax Assessment Act 1986 (as inserted by this Schedule) does not apply in relation to benefits provided before the commencement of this Schedule.
5 Transitional - first base year
(1) For the purposes of Part XIA of the Fringe Benefits Tax Assessment Act 1986 (as inserted by this Schedule), an employer may use the FBT year beginning on 1 April 1996, or any later FBT year, as the employer's first base year.
(2) If the employer uses the FBT year beginning on 1 April 1996 as the first base year, then, in determining whether the conditions in Division 2 of that Part are satisfied for any later FBT year:
(a) section 135B of that Act is taken to require that the employer's aggregate fringe benefits amount for the FBT year beginning on 1 April 1997 was no more than 20% greater than it was for that base year (unless the difference is $100 or less); and
(b) that section is taken not to require anything else to be true of the FBT year beginning on 1 April 1997; and
(c) the test in paragraph (a) of this subitem is to be applied using the rules in subsections 135K(3) to (6) of that Act.

Schedule 13 - Franking of dividends by exempting companies and former exempting companies

Income Tax Assessment Act 1936
1 Subsection 46F(1)
Insert:
exempting company has the same meaning as in Part IIIAA.
2 Subsection 46F(1) (at the end of the definition of unfranked part)
Add "or 160AQFA".
3 Subsection 46F(2)
Repeal the subsection, substitute:
(2) Subject to this section, a shareholder that is a private company in relation to a year of income and to which a dividend is paid in the year of income is not entitled to, and is not to be allowed, a rebate under section 46 or 46A in respect of:
(a) if the dividend was paid by a company other than an exempting company, or the dividend was paid by an exempting company and section 160APPA applies in relation to the dividend:
(i) the unfranked part of the dividend; or
(ii) any part of the dividend in respect of which a determination is made under paragraph 160AQCBA(3)(b) or 177EA(5)(b); or
(b) if the dividend was paid by an exempting company and section 160APPA does not apply in relation to the dividend - any part of the dividend.
4 Paragraph 46M(3)(b)
After "(1AAA)(c)", insert "or 160AQFA(1)(c) or (2)(c)".
5 Subparagraph 46M(4)(a)(ii)
After "(1AAA)(c)", insert "or 160AQFA(1)(c) or (2)(c)".
6 Subparagraph 102AAU(1)(c)(iii)
After "160AQF", insert "or 160AQFA".
7 Subsection 109ZC(2)
After "160AQF", insert "or 160AQFA".
8 Paragraph 109ZC(3)(a)
Repeal the paragraph, substitute:
(a) section 160APP, 160APPA or 160AQCNC (which gives, to companies receiving franked dividends or exempted dividends, franking credits or exempting credits except to the extent to which the dividends are exempt income); or
9 At the end of paragraphs 128B(3)(a) to (g), (gaa) and (gb)
Add "or".
10 Paragraph 128B(3)(ga)
Repeal the paragraph, substitute:
(ga) income that consists of so much of a dividend as has been franked in accordance with section 160AQF or 160AQFA (other than a dividend in respect of which a determination is made under paragraph 160AQCBA(3)(b) or a dividend or a part of a dividend in respect of which a determination is made under paragraph 177EA(5)(b)); or

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11 At the end of paragraph 128TE(2)(d)
add "or 160AQFA".
12 Section 160APA
Insert:
accountable interest, in relation to shares in a company, has the meaning given by section 160APHBD.
13 Section 160APA
Insert:
accountable share, in relation to a company, has the meaning given by section 160APHBC.
14 Section 160APA
Insert:
arrangement has the same meaning as in the Income Tax Assessment Act 1997.
15 Section 160APA
Insert:
associate has the same meaning as in section 318.
16 Section 160APA
Insert:
class A exempted amount, in relation to a dividend, means so much of the dividend as has been franked in accordance with subsection 160AQFA(1).
17 Section 160APA
Insert:
class A exempted dividend means a dividend to the extent (if any) to which it has been franked in accordance with subsection 160AQFA(1).
18 Section 160APA
Insert:
class A exempting account balance, in relation to a former exempting company, means:
(a) if the company has a class A exempting surplus - the amount of the surplus; or
(b) if the company has a class A exempting deficit - the amount of the deficit; or
(c) otherwise - nil.
19 Section 160APA
Insert:
class A exempting deficit means a deficit calculated under subsection 160AQCND(3).
20 Section 160APA
Insert:
class A exempting surplus means a surplus calculated under subsection 160AQCND(1).
21 Section 160APA (definition of class A franked dividend)
Repeal the definition, substitute:
class A franked dividend means a dividend to the extent (if any) to which it has been franked in accordance with subsection 160AQF(1).
22 Section 160APA
Insert:
class C exempted amount, in relation to a dividend, means so much of the dividend as has been franked in accordance with subsection 160AQFA(2).
23 Section 160APA
Insert:
class C exempted dividend means a dividend to the extent (if any) to which it has been franked in accordance with subsection 160AQFA(2).
24 Section 160APA
Insert:
class C exempting account balance, in relation to a former exempting company, means:
(a) if the company has a class C exempting surplus - the amount of the surplus; or
(b) if the company has a class C exempting deficit - the amount of the deficit; or
(c) otherwise - nil.
25 Section 160APA
Insert:
class C exempting deficit means a deficit calculated under subsection 160AQCND(4).
26 Section 160APA
Insert:
class C exempting surplus means a surplus calculated under subsection 160AQCND(2).
27 Section 160APA (definition of class C franked dividend)
Repeal the definition, substitute:
class C franked dividend means a dividend to the extent (if any) to which it has been franked in accordance with subsection 160AQF(1AAA).
28 Section 160APA
Insert:
effectively owned by prescribed persons has the meaning given by
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section 160APHBB.
29 Section 160APA
Insert:
eligible continuing substantial shareholder has the meaning given by section 160APHBJ.
30 Section 160APA
Insert:
eligible employee share scheme: the question whether a share was acquired under an eligible employee share scheme is to be determined in accordance with section 160APHBH.
31 Section 160APA
Insert:
exempted amount, in relation to a dividend, means so much of the dividend as has been franked in accordance with section 160AQFA.
32 Section 160APA
Insert:
exempted dividend means a dividend to the extent (if any) to which it has been franked in accordance with section 160AQFA.
33 Section 160APA
Insert:
exempting company has the meaning given by section 160APHBA.
34 Section 160APA
Insert:
exempting credit means a class A exempting credit or a class C exempting credit.
35 Section 160APA
Insert:
exempting debit means a class A exempting debit or a class C exempting debit.
36 Section 160APA
Insert:
fixed trust has the same meaning as in Schedule 2F.
37 Section 160APA
Insert:
former exempting company has the meaning given by section 160APHBE.
38 Section 160APA (definition of franked dividend)
Repeal the definition, substitute:
franked dividend means a dividend to the extent (if any) to which it has been franked in accordance with section 160AQF.
39 Section 160APA
Insert:
interest, in relation to shares or other property, has the meaning given by section 160APHE.
40 Section 160APA
Insert:
member of the same effectively wholly-owned group of companies has the meaning given by section 160APHBI.
41 Section 160APA
Insert:
prescribed person has the meaning given by section 160APHBF or 160APHBG.
42 Before Division 1A of Part IIIAA
Insert:

Division 1AA - Interpretative provisions relating to exempting companies and former exempting companies

160APHBA Exempting companies

A company is taken to be, or to have been, an exempting company at a particular time if:
(a) that time is, or was, as the case may be, a time later than 7.30 pm by legal time in the Australian Capital Territory on 13 May 1997; and
(b) at that time the company is or was, as the case may be, effectively owned by prescribed persons.

160APHBB Effective ownership of company by prescribed persons

(1) A company is taken to be, or to have been, effectively owned by prescribed persons at a particular time if:
(a) at that time:
(i) not less than 95% of the accountable shares in the company; or
(ii) not less than 95% of the accountable interests in shares in the company;
are or were held by, or held indirectly for the benefit of, prescribed persons; or
(b) paragraph (a) does not apply but it would nevertheless be reasonable to

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conclude that, at that time, the risks involved in, and the opportunities resulting from, holding:
(i) accountable shares or shares that, except for paragraph 160PHBC(4)(d), would be accountable shares; or
(ii) accountable interests in shares or interests that, except for subsection 160APHBD(4), would be accountable interests in shares;
in the company that are not, or were not, held by, or indirectly for the benefit of, prescribed persons are or were substantially borne by, or substantially accrue or accrued to, prescribed persons.
(2) In deciding whether it would be reasonable to conclude as mentioned in paragraph (1)(b):
(a) regard is to be had to any arrangement in respect of shares (including unissued shares), or in respect of interests in shares, in the company (including any derivatives held or issued in connection with those shares or interests) of which the company is aware; but
(b) no regard is to be had to risks involved in the ownership of shares, or interests in shares, in the company that are substantially borne by any person in the person's capacity as a secured creditor.

160APHBC Accountable shares

(1) The purpose of this section is to identify which shares in a company are relevant in determining whether the company is effectively owned by prescribed persons.
(2) A share in a company is an accountable share if it is not an excluded share.
(3) A share in a company is an excluded share if, having regard to:
(a) the purposes for which the share was issued; and
(b) any special or limited rights attached to the share (including rights that are conferred or exercisable only if the holder of the share is a prescribed person or is not a prescribed person); and
(c) whether any such special or limited rights are similar to or different from rights that are ordinarily attached to ownership of shares; and
(d) any arrangement in respect of shares (including unissued shares) in the company of which the company is aware;
it would be reasonable to conclude that the share is not relevant in determining whether the company is effectively owned by prescribed persons because the share does not involve the holder bearing the risks, or result in the accrual to the holder of the opportunities, that are ordinarily attached to the ownership of shares.
(4) Without limiting subsection (3), a share in a company is also an excluded share if:
(a) it is a finance share; or
(b) it is a dividend access share; or
(c) it does not carry the right to receive dividends; or
(d) it was issued for a purpose (other than an incidental purpose) of ensuring that the company is not effectively owned by prescribed persons.
(5) A share is a finance share if, having regard to the rights attached to the share and to any arrangement with respect to the share of which the company is aware, the share is equivalent to a debt owed by the company to the holder of the share.
(6) A share to which subsection (5) does not apply is a finance share if:
(a) the manner in which the dividends payable in respect of the share are calculated, and the conditions applying to the payment of such dividends, indicate that the payment of the dividends may reasonably be regarded as equivalent to the payment of interest; or
(b) the capital invested by the holder of the share will be redeemed, or, because of an arrangement between the holder and the company or an associate of the company, it is reasonable for the holder to expect that the capital will be redeemed, for an amount that is not less than, or for property (including other shares in the company) the value of which is not less than, the amount paid for the share; or
(c) the share is redeemable by the company by payment of a lump sum or by the transfer of property, or the share has a preferred right to a repayment of capital on a winding up, where the amount of the lump sum or the value of the property, or the amount of the capital to be repaid, as the case may be, is to be calculated by reference to an implicit interest rate.
(7) A share in a company is a dividend access share if, having regard to:
(a) the terms of the issue of the share, including any guarantee of payment of dividends; and
(b) the amounts of the dividends paid on the share relative to the issue price of the share; and
(c) whether there is any guaranteed rate at which franked dividends are to be paid on the share; and
(d) the duration of the period within which the share was issued; and
(e) the rights attached to other shares in the company; and

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(f) any other relevant matters;
it could be concluded that the share was issued only for the purpose of paying dividends to the holder of the share.

160APHBD Accountable interests

(1) The purpose of this section is to identify which interests in shares in a company are relevant in determining whether the company is effectively owned by prescribed persons.
(2) An interest in a share in a company is an accountable interest if it is an interest in an accountable share and is not an excluded interest.
(3) An interest in an accountable share in a company is an excluded interest if, having regard to:
(a) the purposes for which the interest was granted; and
(b) any special or limited rights attached to the interest (including rights that are conferred or exercisable only if the holder of the interest is a prescribed person or is not a prescribed person); and
(c) whether any such special or limited rights are similar to or different from rights that are ordinarily attached to ownership; and
(d) any arrangement in respect of interests in shares in the company of which the company is aware;
it would be reasonable to conclude that the interest is not relevant in determining whether the company is effectively owned by prescribed persons because the interest does not involve the holder bearing the risks, or result in the accrual to the holder of the opportunities, that are ordinarily attached to the ownership of interests in shares.
(4) Without limiting subsection (3), an interest in an accountable share in a company is also an excluded interest if it was granted or otherwise created, or was transferred or acquired, for a purpose (other than an incidental purpose) of ensuring that the company is not effectively owned by prescribed persons.

160APHBE Former exempting companies

(1) Subject to subsection (2), a company is a former exempting company if it has at any time ceased to be an exempting company and is not again an exempting company.
(2) If:
(a) a company that has not previously been an exempting company becomes an exempting company; and
(b) within 12 months afterwards it ceases to be an exempting company;
the company does not, by so ceasing, become a former exempting company.

160APHBF Prescribed persons

(1) A company is a prescribed person if:
(a) the company is a non-resident; or
(b) were the company to receive a dividend, the dividend would be exempt income of the company for the purposes of this Part.
(2) A trustee is a prescribed person if:
(a) all the beneficiaries in the trust are prescribed persons under other provisions of this section; or
(b) were the trustee to receive a dividend, the dividend would be exempt income of the trust estate for the purposes of this Part.
(3) A partnership is a prescribed person if:
(a) all the partners are prescribed persons under other provisions of this section; or
(b) were the partnership to receive a dividend, the dividend would be exempt income of the partnership for the purposes of this Part.
(4) An individual (other than a trustee) is a prescribed person if:
(a) he or she is a non-resident; or
(b) were he or she to receive a dividend, the dividend would be exempt income of the individual for the purposes of this Part.
(5) The Commonwealth, each of the States, the Australian Capital Territory, the Northern Territory and Norfolk Island are prescribed persons.

160APHBG Persons who are taken to be prescribed persons

(1) This section applies to a person that:
(a) is a company, a trustee, or a partnership, that holds accountable shares, or accountable interests in shares, in a company (the relevant company); and
(b) is not a prescribed person under section 160APHBF.
(2) A company (the shareholding company) that holds accountable shares, or accountable interests in shares, in the relevant company is taken to

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be a prescribed person in relation to the relevant company if the risks involved in, and the opportunities resulting from, holding the shares or interests are substantially borne by, or substantially accrue to, as the case may be, one or more prescribed persons.
(3) A trustee of a fixed trust who holds accountable shares, or accountable interests in shares, in the relevant company is taken to be a prescribed person in relation to the relevant company if the risks involved in, and the opportunities resulting from, holding the shares or interests are substantially borne by, or substantially accrue to, as the case may be, one or more prescribed persons.
(4) In determining whether subsection (3) applies in respect of a trust that is controlled by a person, regard is to be had to the way in which the person, or any associate of the person, exercises powers in relation to the trust.
(5) A trustee of a trust (other than a fixed trust) who holds accountable shares, or accountable interests in shares, in the relevant company is taken to be a prescribed person in relation to the relevant company if:
(a) unless subsection (7) applies, the trust is controlled by one or more persons who are prescribed persons; or
(b) all the beneficiaries who are presently entitled to, or during the relevant year of income become presently entitled to, income from the trust are prescribed persons.
(6) A person controls a trust if:
(a) the person has the power, either directly, or indirectly through one or more interposed entities, to control the application of the income, or the distribution of the property, of the trust; or
(b) the person has the power, either directly, or indirectly through one or more entities, to appoint or remove the trustee of the trust; or
(c) the person has the power, either directly, or indirectly through one or more entities, to appoint or remove beneficiaries of the trust; or
(d) the trustee of the trust is accustomed or under an obligation, whether formal or informal, to act according to the directions, instructions or wishes of the person or of an associate of the person.
(7) Paragraph (5)(a) does not apply in relation to a trust if some of the beneficiaries receiving income from the trust are not prescribed persons and the Commissioner considers that it is reasonable to conclude that the risks involved in, and the opportunities resulting from, holding the accountable shares and accountable interests in the relevant company are substantially borne by, or substantially accrue to, as the case may be, one or more persons who are not prescribed persons.
(8) A partnership that holds accountable shares, or accountable interests in shares, in the relevant company is taken to be a prescribed person in relation to the relevant company if the risks involved in, and the opportunities resulting from, holding the shares or interests are substantially borne by, or substantially accrue to, as the case may be, one or more prescribed persons.
(9) If any of the prescribed persons referred to in subsection (2), (3), (5) or (6) is a company, that subsection applies even if the risks involved in, and the opportunities resulting from, holding any of the shares, or interests in shares, in that company are substantially borne by, or substantially accrue to, as the case may be, one or more persons who are not prescribed persons.

160APHBH Eligible employee share schemes

A share in a company is taken to be acquired by a person under an eligible employee share scheme if:
(a) the share is acquired by the person in respect of, or for or in relation directly or indirectly to, any employment of the person by the company or by a holding company of the company; and
(b) all the shares available for acquisition under the scheme are ordinary shares or are preference shares to which are attached substantially the same rights as are attached to ordinary shares; and
(c) immediately after the acquisition of the shares:
(i) the person does not hold a legal or beneficial interest in more than 5% of the shares in the company; and
(ii) the person is not in a position to control, or control the casting of, more than 5% of the maximum number of votes that might be cast at a general meeting of the company.

160APHBI Membership of same effectively wholly-owned group of companies

(1) 2 companies are members of the same effectively wholly-owned group of companies on a particular day if:
(a) throughout that day, not less than 95% of the accountable shares in each of the companies, and not less than 95% of the accountable interests in shares in each of the companies, are held by, or are held indirectly for the benefit of, the same persons; or
(b) paragraph (a) does not apply but it would nevertheless be reasonable to conclude, having regard to the matters mentioned in subsection (2), that,

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throughout that day, the risks involved in, and the opportunities resulting from, holding accountable shares, or accountable interests in shares, in each of the companies are substantially borne by, or substantially accrue to, the same persons.
(2) The matters to which regard is to be had as mentioned in paragraph (1)(b) are:
(a) any special or limited rights attaching to accountable shares, or accountable interests in shares, in each of the companies held by persons other than the persons mentioned in paragraph (1)(b) or their associates; and
(b) any special rights attaching only to accountable shares, or accountable interests in shares, in each of the companies held by the persons mentioned in paragraph (1)(b) or their associates; and
(c) the respective proportions:
(i) that accountable shares in each of the companies held by the persons mentioned in paragraph (1)(b) or their associates, and other accountable shares in the company concerned, bear to all the accountable shares in that company; and
(ii) that accountable interests in shares in each of the companies held by the persons mentioned in paragraph (1)(b) or their associates, and other accountable interests in shares in the company concerned, bear to all the accountable interests in shares in that company; and
(d) the respective proportions that:
(i) the total value of accountable shares in each of the companies held by the persons mentioned in paragraph (1)(b) or their associates, and the total value of other accountable shares in the company concerned, bear to the total value of all the accountable shares in that company; and
(ii) the total value of accountable interests in shares in each of the companies held by the persons mentioned in paragraph (1)(b) or their associates, and the total value of other accountable interests in shares in the company concerned, bear to the total value of all the accountable interests in shares in that company; and
(e) the purposes for which accountable shares, or accountable interests in shares, in each of the companies were issued or granted to persons other than the persons mentioned in paragraph (1)(b) or their associates; and
(f) any arrangement in respect of accountable shares, or accountable interests in shares, in each of the companies held by persons other than the persons mentioned in paragraph (1)(b) or their associates (including any derivatives held or issued in connection with those shares or interests) of which the company concerned is aware.

160APHBJ Eligible continuing substantial shareholders

(1) A shareholder is an eligible continuing substantial shareholder in relation to a dividend paid by a former exempting company (the relevant former exempting company) if the following provisions apply.
(2) At both of the following times:
(a) the time when the dividend was paid; and
(b) the time immediately before the relevant former exempting company ceased to be an exempting company;
the shareholder:
(c) was entitled to not less than the prescribed percentage of:
(i) if the voting shares (as defined in the Corporations Law) in the relevant former exempting company are not divided into classes - those voting shares; or
(ii) if the voting shares (as so defined) in the relevant former exempting company are divided into 2 or more classes - the shares in one of those classes; and
(d) was a person referred to in one or more of the following subparagraphs:
(i) a non-resident; or
(ii) a life assurance company; or
(iii) an exempting company; or
(iv) a former exempting company; or
(v) a trustee of a trust in which an interest was held by a person referred to in any of subparagraphs (i) to (iv); or
(vi) a partnership in which an interest was held by a person referred to in any of subparagraphs (i) to (iv).
(3) If the assumptions set out in subsection (4) are made:
(a) if the shareholder was a person referred to in any of subparagraphs (2)(d)(i) to (iv) - the shareholder; or
(b) if the shareholder was a trustee of a trust or a partnership, being a trust or partnership in which a person referred to in any of those subparagraphs held an interest - the holder of the interest;
would (if a non-resident) be exempt from dividend withholding tax on the dividend or (if a resident) be entitled to a franking credit or a franking rebate in respect of the dividend.
(4) The assumptions referred to in subsection (3) are that:
(a) the relevant former exempting company was an exempting company at the time it paid the dividend; and

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(b) the dividend was a franked dividend paid to the shareholder; and
(c) if the shareholder was a former exempting company - the shareholder was an exempting company; and
(d) if the shareholder was a trustee of a trust or partnership in which a former exempting company had an interest - that former exempting company was an exempting company.
(5) The question whether a person was entitled at a particular time to not less than the prescribed percentage of voting shares or a class of voting shares in a company is to be determined in the same way as that question is determined under subsection 708(5) of the Corporations Law.
(6) A person is taken to hold an interest in a trust if:
(a) the person is a beneficiary under the trust; or
(b) the person derives, or will derive, income indirectly, through interposed trusts or partnerships, from dividends received by the trustee.
(7) A person is taken to hold an interest in a partnership if:
(a) the person is a partner in the partnership; or
(b) the person derives, or will derive, income indirectly, through interposed trusts or partnerships, from dividends received by the partnership.
43 Before subsection 160APP(1)
Insert:
(1AA) This section does not apply in relation to a class A franked dividend, a class B franked dividend or a class C franked dividend, paid to a shareholder by an exempting company. However, section 160APPA may apply in relation to such a dividend.
44 After section 160APP
Insert:

160APPA Receipt of certain franked dividends by exempting companies

(1) Subject to this section, if, on a particular day, a class A franked dividend is paid by an exempting company (the first company) to a shareholder being another exempting company (the second company) and:
(a) the second company is a resident at the time the dividend is paid; and
(b) either of the following subparagraphs applies:
(i) the first company and the second company are members of the same effectively wholly-owned group of companies;
(ii) the second company holds more than 5% of the shares in the first company (other than finance shares or dividend access shares within the meaning of section 160APHBC or shares that do not carry the right to receive dividends) and it would be reasonable to conclude that the risks involved in, and the opportunities resulting from, holding those shares are substantially borne by, or substantially accrue to, the second company;
there arises on that day a class A franking credit of the second company equal to the class A franked amount of the dividend.
(2) Subject to this section, if, on a particular day, a class C franked dividend is paid by an exempting company (the first company) to a shareholder being another exempting company (the second company) and:
(a) the second company is a resident at the time the dividend is paid; and
(b) either of the following subparagraphs applies:
(i) the first company and the second company are members of the same effectively wholly-owned group of companies;
(ii) the second company holds more than 5% of the shares in the first company (other than finance shares or dividend access shares within the meaning of section 160APHBC or shares that do not carry the right to receive dividends) and it would be reasonable to conclude that the risks involved in, and the opportunities resulting from, holding those shares are substantially borne by, or substantially accrue to, the second company;
there arises on that day a class C franking credit of the second company equal to the class C franked amount of the dividend.
(3) In deciding whether it would it would be reasonable to conclude as mentioned in subparagraph (1)(b)(ii) or (2)(b)(ii):
(a) regard is to be had to any arrangement in respect of shares (including unissued shares) in the first company (including any derivatives held or issued in connection with those shares); but
(b) no regard is to be had to risks involved in the ownership of shares in the first company that are substantially borne by any person in the person's capacity as a secured creditor.
(4) No franking credit arises if the dividend is wholly exempt income of the second company.
(5) If a determination is made under paragraph 160AQCBA(3)(b) or 177EA(5)(b) in respect of the whole of the dividend, no franking credit arises in respect of the dividend.
(6) If a determination is made under paragraph 177EA(5)(b) in respect of a part of the dividend, the franking credit that would otherwise arise in respect of the dividend is reduced by the same proportion as that part of the dividend bears to the whole of the dividend.
(7) If the dividend is partly exempt income of the second company, the

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franking credit arising under subsection (1) or (2) is reduced by the amount worked out by using the formula:
Click here for Picture
where:
dividend means the number of dollars in the total amount of the dividend.
exempt part of dividend means the number of dollars in the part of the dividend that is exempt income.
franking credit means the franking credit determined under whichever of subsections (1) and (2) is applicable.
(8) In determining for the purposes of subsection (3) or (7) whether the dividend is wholly or partly exempt income of the second company, section 124ZM (which exempts dividends paid by PDFs) is to be disregarded.
(9) The franking credit arising under subsection (1) or (2) is to be reduced by 80% if:
(a) the second company is a life assurance company; and
(b) the assets of the second company from which the dividend was derived were included in insurance funds of the second company at any time during the period beginning at the start of the year of income of the second company in which the dividend was paid and ending at the time the dividend was paid.
(10) No franking credit arises if the dividend was paid as part of a dividend stripping operation.
45 Paragraph 160AQCBA(3)(a)
After "franking debit", insert "or an exempting debit".
46 Subsections 160AQCBA(8) to (12)
Repeal the subsections, substitute:
Effect of determination of franking debit or exempting debit
(8) If the Commissioner makes a determination under paragraph (3)(a):
(a) on the day on which notice of the determination is served in writing on the company, a franking debit or exempting debit of the company arises in respect of the dividend or other benefit; and
(b) the amount of the franking debit or exempting debit is worked out in accordance with subsections (9) to (13).
Franking debit or exempting debit in respect of partly franked dividend
(9) In the case of a franking debit or exempting debit in respect of a partly franked or partly exempted dividend, the amount of the franking debit or exempting debit is the difference between the franked amount or the exempted amount and the amount that would have been the franked amount or exempted amount if the dividend had been franked to the maximum extent to which the dividends paid to the advantaged shareholders were franked.
Franking debit in respect of unfranked dividend
(10) In the case of a franking debit in respect of an unfranked dividend, the amount of the franking debit is the amount that would have been the franked amount if the dividend had been franked to the maximum extent to which the dividends paid to the advantaged shareholders were franked.
Exempting debit in respect of dividend that has not been franked in accordance with section 160AQFA
(10A) In the case of an exempting debit in respect of a dividend that has not been franked in accordance with section 160AQFA, the amount of the exempting debit is the amount that would have been the franked amount if the dividend had been franked to the maximum extent to which the dividends paid to the advantaged shareholders were franked.
Franking debit or exempting debit in respect of bonus shares from share premium account
(11) In the case of a franking debit or exempting debit in respect of a benefit by way of the issue of bonus shares from a share premium account, the amount of the franking debit or exempting debit is the amount that, if the company had paid a dividend of an amount equal to the amount debited to the share premium account in respect of the bonus shares and had franked the dividend to the maximum extent to which the dividends paid to the advantaged shareholders were franked, would have been the franked amount of the dividend.
Franking debit or exempting debit in respect of any other benefit
(12) In the case of a franking debit or exempting debit in respect of any other benefit, the amount of the franking debit or exempting debit is the amount that, if the company had paid a dividend of an amount equal to the value of the benefit at the time when it was paid and had franked the dividend to the maximum extent to which the dividends paid to the advantaged shareholders were franked, would have been the franked amount of the dividend.
47 Subparagraph 160AQCBA(16)(a)(i)
After "160APP", insert "or 160APPA".
48 At the end of subsection 160AQCBA(16)
Add:
; or (e) the shareholder is a company and an exempting credit of the company arises under section 160AQCNF.
49 Subsection 160AQCBA(17)
Repeal the subsection, substitute:
Meaning of greater benefit from franking credits

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(17) The circumstances in which a shareholder would, in a year of income, derive a greater benefit from franking credits than another shareholder include, but are not limited to:
(a) any of the following circumstances existing in relation to the other shareholder and not in relation to the first shareholder:
(i) the shareholder is a non-resident;
(ii) the amount of tax (if any) that, apart from this Part, would be payable by the shareholder is less than the amount of the rebate of tax to which the shareholder would be entitled under section 160AQU or 160AQY;
(iii) the shareholder is a company that is unable to pay a dividend to its shareholders in the year of income because it has not made any profits or has not made sufficient profits to do so;
(iv) the shareholder is an exempting company or a company for which no franking credits arise; and
(b) any of the following circumstances existing in relation to the first shareholder and not in relation to the other shareholder:
(i) a franking credit arises under section 160APPA;
(ii) a franking credit or exempting credit arises under section 160AQCNF;
(iii) subsection 160AQTA(2) or (5) applies;
(iv) section 160AQTB applies.
50 Sections 160AQCNA and 160AQCNB
After "franking debit" (wherever occurring), insert "or exempting debit".
51 After Division 2 of Part IIIAA
Insert:

Division 2A - Exempting companies and former exempting companies

160AQCND Calculation of surplus or deficit

(1) The class A exempting surplus of a former exempting company at a particular time in a franking year is the amount by which the total of the class A exempting credits of the company arising in the franking year and before that time exceeds the total of the class A exempting debits of the company arising in the franking year and before that time.
(2) The class C exempting surplus of a former exempting company at a particular time in a franking year is the amount by which the total of the class C exempting credits of the company arising in the franking year and before that time exceeds the total of the class C exempting debits of the company arising in the franking year and before that time.
(3) The class A exempting deficit of a former exempting company at a particular time in a franking year is the amount by which the total of the class A exempting debits of the company arising in the franking year and before that time exceeds the total of the class A exempting credits of the company arising in the franking year and before that time.
(4) The class C exempting deficit of a former exempting company at a particular time in a franking year is the amount by which the total of the class C exempting debits of the company arising in the franking year and before that time exceeds the total of the class C exempting credits of the company arising in the franking year and before that time.

160AQCNE Payment of exempted dividends by former exempting companies

(1) If, on a particular day, a former exempting company pays a class A exempted dividend, there arises on that day a class A exempting debit of the company equal to the amount that, except for subsection 160AQFA(4), would be the class A exempted amount of the dividend.
(2) If, on a particular day, a former exempting company pays a class C exempted dividend, there arises on that day a class C exempting debit of the company equal to the amount that, except for subsection 160AQFA(4), would be the class C exempted amount of the dividend.

160AQCNF Receipt of exempted dividends by former exempting companies or by exempting companies

(1) Subject to this section, if, on a particular day, a class A exempted dividend is paid to a former exempting company, or to an exempting company, that is a resident at the time the dividend is paid, there arises on that day a class A exempting credit of the former exempting company or a class A franking credit of the exempting company, as the case may be, equal to the class A exempted amount of the dividend.
(2) Subject to this section, if, on a particular day, a class C exempted dividend is paid to a former exempting company, or to an exempting company, that is a resident at the time the dividend is paid, there arises on that day a class C exempting credit of the former exempting company or a class C franking credit of the exempting company, as the case may be, equal to the class C exempted amount of the dividend.
(3) No exempting credit or franking credit arises if the dividend is wholly

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exempt income of the company.
(4) If a determination is made under paragraph 160AQCBA(3)(b) or 177EA(5)(b) in respect of the dividend, no exempting credit or franking credit arises in respect of the dividend.
(5) If a determination is made under paragraph 177EA(5)(b) in respect of a part of the dividend, the exempting credit or franking credit that would otherwise arise in respect of the dividend is reduced by the same proportion as that part of the dividend bears to the whole of the dividend.
(6) If the dividend is partly exempt income of the company, the exempting credit or franking credit arising under subsection (1) or (2) is reduced by the amount worked out by using the formula:
Click here for Picture
where:
credit means the exempting credit or franking credit, as the case may be, determined under whichever of subsections (1) and (2) is applicable.
dividend means the number of dollars in the total amount of the dividend.
exempt part of dividend means the number of dollars in the part of the dividend that is exempt income.
(7) In determining for the purposes of subsection (3) or (6) whether the dividend is wholly or partly exempt income of the former exempting company or of the exempting company, section 124ZM (which exempts dividends paid by PDFs) is to be disregarded.
(8) The exempting credit or franking credit arising under subsection (1) or (2) is to be reduced by 80% if:
(a) the former exempting company, or the exempting company, is a life assurance company; and
(b) the assets of the former exempting company, or of the exempting company, from which the dividend was derived were included in insurance funds of the company at any time during the period beginning at the start of the year of income of the company in which the dividend was paid and ending at the time the dividend was paid.
(9) No exempting credit or franking credit arises if the dividend was paid as part of a dividend stripping operation.

160AQCNG Conversion of franking surplus to exempting credit when an exempting company becomes a former exempting company

(1) If:
(a) an exempting company becomes a former exempting company; and
(b) at the time when it becomes a former exempting company it has a class A franking surplus;
then, subject to section 160AQCNI, immediately after it became a former exempting company:
(c) there arises a class A franking debit of the company equal to the surplus; and
(d) there arises a class A exempting credit of the company equal to the surplus.
(2) If:
(a) an exempting company becomes a former exempting company; and
(b) at the time when it becomes a former exempting company it has a class C franking surplus;
then, subject to section 160AQCNI, immediately after it became a former exempting company:
(c) there arises a class C franking debit of the company equal to the surplus; and
(d) there arises a class C exempting credit of the company equal to the surplus.

160AQCNH Conversion of franking deficit to exempting debit when an exempting company becomes a former exempting company

(1) If:
(a) an exempting company becomes a former exempting company; and
(b) at the time when it becomes a former exempting company it has a class A franking deficit;
then, subject to section 160AQCNI, immediately after it became a former exempting company:
(c) there arises a class A franking credit of the company equal to the deficit; and
(d) there arises a class A exempting debit of the company equal to the deficit.
(2) If:
(a) an exempting company becomes a former exempting company; and
(b) at the time when it becomes a former exempting company it has a class C franking deficit;
then, subject to section 160AQCNI, immediately after it became a former exempting company:
(c) there arises a class C franking credit of the company equal to the deficit; and

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(d) there arises a class C exempting debit of the company equal to the deficit.

160AQCNI Transitional provisions for certain exempting companies that become former exempting companies

Conversion of franking surplus or deficit not to apply if change in company's status resulted from contract made before particular time
(1) Subject to subsection (2), sections 160AQCNG and 160AQCNH do not apply to an exempting company that became a former exempting company as mentioned in the section concerned as a result of an acquisition of shares in the company under a contract that was entered into before 7.30 pm by legal time in the Australian Capital Territory on 13 May 1997.
Exception where contract made for purpose of obtaining franking credits
(2) Subsection (1) does not apply if the contract was entered into for a purpose (whether or not the purpose was the dominant purpose but not including an incidental purpose) of obtaining a franking credit benefit within the meaning of subsection 177EA(18).
Former exempting company reverts to that status within 12 months after becoming an exempting company
(3) If:
(a) a former exempting company becomes an exempting company; and
(b) within a period of less than 12 months afterwards it again becomes a former exempting company;
whichever of the following subsections is applicable has effect.
Exempting company has franking surplus
(4) If, at the time when the company again became a former exempting company, it had a class A franking surplus or a class C franking surplus, the references in paragraphs 160AQCNG(1)(c) or (d) or (2)(c) or (d), as the case may be, to the surplus are taken to be references to only so much of the surplus as would have been the company's class A exempting surplus or class C exempting surplus, as the case may be, if the company had remained a former exempting company throughout that period.
Exempting company has franking deficit
(5) If, at the time when the company again became a former exempting company, it had a class A franking deficit or a class C franking deficit, the references in paragraphs 160AQCNH(1)(c) or (d) or (2)(c) or (d), as the case may be, to the deficit are taken to be references to only so much of the deficit as would have been the company's class A exempting deficit or class C exempting deficit, as the case may be, if the company had remained a former exempting company throughout that period.

160AQCNJ Exempting debits may arise when certain former exempting companies pay frankable dividends

(1) If a former exempting company pays a frankable dividend in respect of which there is a class A required franking amount and:
(a) the reckoning day of the dividend is before the day on which the company became a former exempting company; or
(b) subsection 160AQE(3) or (4) applies in relation to the dividend;
then, subject to subsection (3), there arises a class A exempting debit of the company equal to the amount (if any) by which the class A required franking amount of the dividend exceeds the actual franked amount of the dividend.
(2) If a former exempting company pays a frankable dividend in respect of which there is a class C required franking amount and:
(a) the reckoning day of the dividend is before the day on which the company became a former exempting company; or
(b) subsection 160AQE(3) or (4) applies in relation to the dividend;
then, subject to subsection (3), there arises a class C exempting debit of the company equal to the amount (if any) by which the class C required franking amount of the dividend exceeds the actual franked amount of the dividend.
(3) If:
(a) a class A exempting debit, or a class C exempting debit, of a company arises under subsection (1) or (2) in respect of a dividend paid by the company; and
(b) a class A exempting debit, or a class C exempting debit, of the company arises under subsection 160AQCNE(1) or (2) in respect of the dividend;
the amount of the debit that, apart from this subsection, would arise under subsection (1) or (2) is reduced by the amount of the debit that arises under subsection 160AQCNE(1) or (2).
(4) When a class A exempting debit of a company arises, or, apart from subsection (3), would arise, under subsection (1), or a class C exempting debit of a company arises, or, apart from subsection (3), would arise, under subsection (2), in respect of the payment of a dividend, the dividend is taken for the purposes of section 160APX to have been class A franked or class C franked, as the case may be, to the extent of the amount worked out by using the formula:
Click here for Picture
(5) For the purposes of subsection (4), the notional percentage

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is the percentage worked out by using the formula:
Click here for Picture
(6) In the formulas in subsections (4) and (5):
dividend means the amount of the dividend.
exempting debit means the amount of the class A exempting debit or class C exempting debit that, apart from subsection (3), would arise in respect of the dividend under subsection (1) or (2).
franking debit means the amount (if any) of the class A franking debit or class C franking debit arising in respect of the dividend under section 160AQB.

160AQCNK Conversion of exempting surplus to franking credit when former exempting company becomes an exempting company

(1) If:
(a) a former exempting company becomes an exempting company; and
(b) at the time when it becomes an exempting company it has a class A exempting surplus;
then, immediately after it becomes an exempting company:
(c) there arises a class A exempting debit of the company equal to the surplus; and
(d) there arises a class A franking credit of the company equal to the surplus.
(2) If:
(a) a former exempting company becomes an exempting company; and
(b) at the time when it becomes an exempting company it has a class C exempting surplus;
then, immediately after it becomes an exempting company:
(c) there arises a class C exempting debit of the company equal to the surplus; and
(d) there arises a class C franking credit of the company equal to the surplus.

160AQCNL Conversion of exempting deficit to franking debit when former exempting company becomes an exempting company

(1) If:
(a) a former exempting company becomes an exempting company; and
(b) at the time when it becomes an exempting company it has a class A exempting deficit;
then, immediately after it becomes an exempting company:
(c) there arises a class A exempting credit of the company equal to the deficit; and
(d) there arises a class A franking debit of the company equal to the deficit.
(2) If:
(a) a former exempting company becomes an exempting company; and
(b) at the time when it becomes an exempting company it has a class C exempting deficit;
then, immediately after it becomes an exempting company:
(c) there arises a class C exempting credit of the company equal to the deficit; and
(d) there arises a class C franking debit of the company equal to the deficit.

160AQCNM Conversion of certain franking credits of former exempting company to exempting credits

(1) If, apart from this section, a franking credit of a former exempting company would have arisen under any of sections 160APM, 160APMAA, 160APMAB, 160APMD, 160APQA, 160APQB, 160APU to 160APVH and 160ASI, the following provisions of this section have effect.
(2) If the franking credit is wholly attributable to a period during which, or to an event taking place at a time when, the company was an exempting company:
(a) the franking credit is taken not to arise; and
(b) an exempting credit of the company equal to the amount of the franking credit is taken to arise.
(3) If the franking credit is partly attributable to a period during which, or to an event taking place at a time when, the company was an exempting company:
(a) the franking credit is, to the extent to which it is so attributable, taken not to arise; and
(b) an exempting credit of the company equal to the amount of the franking credit to the extent to which it is so attributable, is taken to arise.
(4) A reference in subsection (2) or (3) to a period during which, or to a time when, a company was an exempting company includes a reference to a period during which, or to a time when, a company would have been an exempting company if paragraph 160APHBA(1)(a) had not been enacted.
(5) For the purposes of subsection (2) or (3), a class C franking credit that arises under section 160ASI is taken to be attributable to a period or time to

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the extent to which the class A franking credit or class B franking credit because of which the class C franking credit arose was attributable to that period or time.

160AQCNN Conversion of certain franking debits of former exempting company to exempting debits

(1) If, apart from this section, a franking debit of a former exempting company would have arisen under section 160APY, 160APYA, 160APYBA, 160APYBB, 160APYC, 160APZ, 160AQC, 160AQCB, 160AQCBA, 160AQCCA to 160AQCN and 160ASI, the following provisions of this section have effect.
(2) If the franking debit is wholly attributable to a period during which, or to an event taking place at a time when, the company was an exempting company:
(a) the franking debit is taken not to arise; and
(b) an exempting debit of the company equal to the amount of the franking debit is taken to arise.
(3) If the franking debit is partly attributable to a period during which, or to an event taking place at a time when, the company was an exempting company:
(a) the franking debit is, to the extent to which it is so attributable, taken not to arise; and
(b) an exempting debit of the company equal to the amount of the franking debit to the extent to which it is so attributable, is taken to arise.
(4) A reference in subsection (2) or (3) to a period during which, or to a time when, a company was an exempting company includes a reference to a period during which, or to a time when, a company would have been an exempting company if paragraph 160APHBA(1)(a) had not been enacted.
(5) For the purposes of subsection (2) or (3), a class C franking debit that arises under section 160ASI is taken to be attributable to a period or time to the extent to which the class A franking debit or class B franking debit because of which the class C franking debit arose was attributable to that period or time.

160AQCNO Conversion of exempting deficit to franking debit

(1) If, apart from this subsection, a former exempting company would have a class A exempting deficit at the end of a franking year, then, immediately before the end of that franking year:
(a) there is taken to have arisen a class A exempting credit of the company equal to the deficit; and
(b) there is taken to have arisen a class A franking debit of the company equal to the deficit.
(2) If, apart from this subsection, a former exempting company would have a class C exempting deficit at the end of a franking year, then, immediately before the end of that franking year:
(a) there is taken to have arisen a class C exempting credit of the company equal to the deficit; and
(b) there is taken to have arisen a class C franking debit of the company equal to the deficit.

160AQCNP Treasurer may convert exempting surplus to franking credit of former exempting company previously owned by the Commonwealth

Application
(1) This section applies if:
(a) at a particular time, whether before or after the commencement of this section, a company was or is an exempting company; and
(b) at that time all the shares in the company were or are owned by the Commonwealth; and
(c) the Commonwealth has offered for sale or sold, or proposes to offer for sale, some or all of the shares; and
(d) the Treasurer is satisfied, having regard to the matters mentioned in subsection (2), that it is desirable to make a declaration or declarations under this section in relation to the company.
Matters to be taken into account
(2) The matters to which the Treasurer is to have regard under paragraph (1)(d) are:
(a) whether the making of the declaration or declarations is necessary to enable the company to pay fully franked dividends after the sale; and
(b) the extent to which the success of the sale or proposed sale depended or will depend upon the ability of the company to pay franked dividends; and
(c) the extent to which the reduction in receipts of income tax resulting from the making of the declaration or declarations would be offset by the receipt of increased proceeds from the sale; and
(d) any other matters that the Treasurer thinks relevant.
When declarations may be made
(3) The following provisions of this section apply after the company became or becomes a former exempting company.
Conversion of class A exempting surplus

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(4) If the former exempting company would, apart from this section, have a class A exempting surplus at the end of a franking year, the Treasurer may, in writing, declare that:
(a) a class A exempting debit of the company (not exceeding the class A exempting surplus) specified in the declaration is taken to have arisen immediately before the end of that franking year; and
(b) a class A franking credit of the company equal to the amount of the debit is taken to have arisen immediately before the end of that franking year.
Conversion of class C exempting surplus
(5) If the former exempting company would, apart from this section, have a class C exempting surplus at the end of a franking year, the Treasurer may, in writing, declare that:
(a) a class C exempting debit of the company (not exceeding the class C exempting surplus) specified in the declaration is taken to have arisen immediately before the end of that franking year; and
(b) a class C franking credit of the company equal to the amount of the debit is taken to have arisen immediately before the end of that franking year.
Declarations may be conditional
(6) A declaration may be expressed to be subject to compliance by the former exempting company with such conditions as are specified in the declaration.
Effect of breach of condition
(7) If a condition specified in a declaration is not complied with, the Treasurer may revoke the declaration and, if he or she thinks appropriate, make a further declaration under subsection (4) or (5), as the case requires.
Effect of declaration
(8) A declaration, unless it is revoked, has effect according to its terms.
52 At the end of paragraphs 160AQF(1)(a) and (b)
Add "and".
Note: The heading to section 160AQF is replaced by the heading "What constitutes franking with a franked amount".
53 At the end of section 160AQF
Add:
(3) If:
(a) an exempting company makes a declaration under subparagraph 160AQF(1)(c)(i), paragraph 160AQF(1)(d), subparagraph 160AQF(1AAA)(c)(i) or paragraph 160AQF(1AAA)(d) in relation to a dividend or dividends; and
(b) the company becomes a former exempting company before the reckoning day for the dividend or for at least one of the dividends;
subsection (2) does not prevent the company from varying or revoking the declaration.
54 After section 160AQF
Insert:

160AQFA What constitutes franking with an exempted amount

Franking with class A exempted amount
(1) If:
(a) a frankable dividend (the current dividend) is paid by a former exempting company to a shareholder in that company; and
(b) the company is a resident at the time of payment; and
(c) where the current dividend is paid under a resolution:
(i) the company makes a declaration, before the reckoning day for the current dividend, that each dividend to which the resolution relates is a class A exempted dividend to the extent of a percentage (not exceeding 100%) specified in the declaration in relation to the dividend; and
(ii) the percentage so specified is the same for each of the dividends to which the resolution relates; and
(d) where the current dividend is not paid under a resolution - the company makes a declaration before the reckoning day for the current dividend that the current dividend is a class A exempted dividend to the extent of a percentage (not exceeding 100%) specified in the declaration;
the current dividend is taken to have been class A exempted to the extent of the amount calculated in accordance with the formula:
Click here for Picture
where:
current dividend is the amount of the current dividend.
specified percentage is the percentage specified in the declaration in relation to the dividend.
Note: Because of subsection 46M(3) and paragraph 46M(4)(a), paragraph (c) of this subsection does not apply to dividends that are taken by subsection 46M(3) or paragraph 46M(4)(a) not to be frankable dividends.
Franking with class C exempted amount
(2) If:
(a) a frankable dividend (the current dividend) is paid by a former exempting company to a shareholder in that company; and
(b) the company is a resident at the time of payment; and
(c) if the current dividend is paid under a resolution:
(i) before the reckoning day for the current dividend, the company makes a

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declaration that each dividend to which the resolution relates is a class C exempted dividend to the extent of a percentage (not exceeding 100%) specified in the declaration in relation to the dividend; and
(ii) the percentage so specified is the same for each of the dividends to which the resolution relates; and
(d) if the current dividend is not paid under a resolution - the company makes a declaration before the reckoning day for the current dividend that the current dividend is a class C exempted dividend to the extent of a percentage (not exceeding 100%) specified in the declaration;
the current dividend is taken to have been class C exempted to the extent of the amount worked out using the formula:
Click here for Picture
where:
current dividend means the amount of the current dividend.
specified percentage means the percentage specified in the declaration in relation to the dividend.
Note: Because of subsection 46M(3) and paragraph 46M(4)(a), paragraph (c) of this subsection does not apply to dividends that are taken by subsection 46M(3) or paragraph 46M(4)(a) not to be frankable dividends.
Limits on exempted amounts
(3) Despite subsections (1) and (2), a dividend is taken not to have been class A exempted or class C exempted if the sum of:
(a) the class A exempted amount of the dividend; and
(b) the class C exempted amount of the dividend; and
(c) any class A franked amount of the dividend; and
(d) any class C franked amount of the dividend;
exceeds the amount of the dividend.
Franking with exempted amounts limited to dividends on certain shares
(4) A dividend is taken by subsection (1) or (2) to be class A exempted or class C exempted only to the extent (if any) to which it is paid to:
(a) an eligible continuing substantial shareholder; or
(b) an employee who acquired the share in respect of which the dividend is paid under an eligible employee share scheme.
All dividends paid under resolution to be franked to same extent
(5) A former exempting company is not entitled to make a declaration under subparagraph (1)(c)(i) or (2)(c)(i) specifying a percentage in relation to a dividend paid to a shareholder in the company unless it also makes a declaration under that subparagraph specifying the same percentage in relation to each other frankable dividend in the same combined class of dividends that it paid to a shareholder in the company.
All dividends not paid under resolution to be franked to same extent
(6) A former exempting company is not entitled to make a declaration under paragraph (1)(d) or (2)(d) specifying a percentage in relation to a dividend paid to a shareholder in the company unless it also makes a declaration under that paragraph specifying the same percentage in relation to each other frankable dividend in the same combined class of dividends that it paid during the same franking year to a shareholder in the company.
Declaration to be irrevocable
(7) A declaration made for the purposes of this section cannot be varied or revoked.
55 Subsection 160AQG(2)
After "160AQF", insert "or 160AQFA".
56 Paragraph 160AQH(a)
Repeal the paragraph, substitute:
(a) if the company is not a former exempting company and the dividend is not a franked dividend - a declaration to that effect; and
(aa) if the company is a former exempting company and the dividend is neither a franked dividend nor an exempted dividend - a declaration to that effect; and
57 Subparagraph 160AQH(b)(ii)
Repeal the subparagraph.
58 Paragraph 160AQH(c)
Repeal the paragraph, substitute:
(c) if the dividend is an exempted dividend - the exempted amount of the dividend; and
(d) if the company is not a former exempting company and the dividend is a franked dividend - the amount of the dividend that is not a franked amount; and
(e) if the company is a former exempting company and the dividend is a franked dividend or an exempted dividend or both - the amount of the dividend that is neither a franked amount nor an exempted amount; and
(f) in any case - such other information in relation to the dividend as is required by the approved form to be set out.
59 At the end of section 160AQH
Add:
(2) An exempting company that pays a dividend to a shareholder in the company must, before or at the time of payment of the dividend, give to the shareholder a statement to the effect that Australian resident shareholders are not entitled to a franking rebate or franking credit in respect of the dividend
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except for certain companies and employees who receive the dividend in connection with an eligible employee share scheme.
60 Before subsection 160AQT(1)
Insert:
(1AAA) This section has effect subject to section 160AQTA.
61 At the end of Subdivision A of Division 6 of Part IIIAA
Add:

160AQTA Where franked dividend paid by exempting company

Grossed-up amount not to be included in assessable income of shareholder
(1) Subject to subsections (2) and (5), section 160AQT does not apply in relation to a class A franked dividend, a class B franked dividend, or a class C franked dividend, paid to a shareholder by an exempting company.
Exception where shareholder is life assurance company holding all the shares or substantially bearing the risks associated with holding the shares
(2) Subsection (1) does not preclude section 160AQT from applying in relation to a franked dividend paid by an exempting company to a life assurance company (other than a life assurance company acting as a trustee) in respect of accountable shares held by the life assurance company in the exempting company if:
(a) the exempting company and the life assurance company are members of the same effectively wholly-owned group of companies; or
(b) the life assurance company holds more than 5% of the shares in the exempting company (other than finance shares or dividend access shares within the meaning of section 160APHBC or shares that do not carry the right to receive dividends) and it would be reasonable to conclude that the risks involved in, and the opportunities resulting from, holding those shares are substantially borne by, or substantially accrue to, the life assurance company.
Matters to be taken into account in determining whether life assurance company bears the risks associated with the holding of shares
(3) In deciding whether it would be reasonable to conclude as mentioned in paragraph (2)(b):
(a) regard is to be had to any arrangement in respect of shares (including unissued shares) in the exempting company held by persons who are not, and are not associates of, the life assurance company (including any derivatives held or issued in connection with those shares); but
(b) no regard is to be had to risks involved in the ownership of shares in the exempting company that are substantially borne by any person in the person's capacity as a secured creditor.
Exception for grossing-up limited to grossed-up amount attributable to credits arising while life assurance company held shares
(4) Subsection (2) does not apply to so much of the franked amount of a franked dividend paid by an exempting company to a life assurance company as related to franking credits of the exempting company that arose at a time before the life assurance company acquired the shares in respect of which the dividend was paid.
Exception where shares held under employee share scheme
(5) Subsection (1) does not preclude section 160AQT from applying in relation to a franked dividend paid by an exempting company in respect of a share held by a person who:
(a) was an employee of the company, or of a holding company of the company, at the time when the dividend was paid; and
(b) acquired the share under an eligible employee share scheme; and
(c) did not hold the share as a trustee.

160AQTB Where exempted dividend paid by former exempting company

Grossed-up amount to be included in assessable income of life assurance company that holds shares
(1) Subject to this section, if:
(a) a class A exempted dividend, or a class C exempted dividend, is paid in a year of income to a shareholder in a former exempting company in respect of accountable shares held by the shareholder in the former exempting company; and
(b) at both of the following times:
(i) the time when the dividend was paid;
(ii) the time immediately before the former exempting company ceased to be an exempting company;
the shareholder was a life assurance company;
subsection 160AQT(1A) or (1C) applies as if the dividend were a class A franked dividend or a class C franked dividend and the class A exempted amount or class C exempted amount were a class A franked amount or a class C franked amount, as the case may be.
Grossing-up limited to grossed-up amount attributable to credits arising while life assurance company held shares
(2) Subsection (1) does not apply to so much of the exempted amount of an

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exempted dividend paid by a former exempting company to a life assurance company as related to exempting credits of the former exempting company that arose at a time before the life assurance company acquired the shares in respect of which the dividend was paid.
Grossed-up amount to be included in assessable income of holder of shares under employee share scheme
(3) If a class A exempted dividend, or a class C exempted dividend, is paid in a year of income in respect of a share in a former exempting company held by a person who:
(a) was an employee of the company, or of a holding company of the company, at the time when the dividend was paid; and
(b) acquired the share under an eligible employee share scheme;
subsection 160AQT(1) or (1AB) applies as if the dividend were a class A franked dividend or a class C franked dividend and the class A exempted amount or class C exempted amount were a class A franked amount or a class C franked amount, as the case may be.
62 Paragraph 160AQUA(1)(a)
After "franked dividend", insert "or exempted dividend".
63 At the end of Subdivision B of Division 7 of Part IIIAA
Add:

160AQZB Where franked dividend paid by exempting company to trust or partnership

Person holding an interest in a trust or partnership to be treated as having received share of dividend directly from exempting company
(1) If:
(a) a class A franked dividend or a class C franked dividend (the relevant dividend) is paid by an exempting company to a shareholder that is a trustee of a trust or is a partnership; and
(b) at the time when the relevant dividend was paid, a person who held an interest in the trust or partnership was a life assurance company, an exempting company, or a person who acquired the interest under an eligible employee share scheme, being a company or person in respect of whom or in respect of which a franking credit or franking rebate would have arisen if the relevant dividend had been paid to the company or person; and
(c) an amount attributable to the relevant dividend is included in the assessable income of the holder of the interest, or would have been so included if:
(i) sections 110C, 112A and 116FB had not been enacted; and
(ii) the definition of eligible insurance policy in section 116E were amended by omitting "an RA policy, a superannuation policy, a sickness policy, a funeral policy or an eligible policy" and substituting "an RA policy or a superannuation policy";
then, for the purposes of the application of this Part in relation to the holder of the interest, the part of the relevant dividend to which the amount referred to in paragraph (1)(c) is attributable is taken:
(d) to have been a class A franked dividend or a class C franked dividend, as the case may be, paid to the holder of the interest; and
(e) to have been franked to the same extent as the relevant dividend.
Holding an interest in a trust
(2) A person is taken to hold an interest in a trust if:
(a) the person is a beneficiary under the trust; or
(b) the person derives, or will derive, income indirectly, through interposed trusts or partnerships, from dividends received by the trustee.
Holding an interest in a partnership
(3) A person is taken to hold an interest in a partnership if:
(a) the person is a partner in the partnership; or
(b) the person derives, or will derive, income indirectly, through interposed trusts or partnerships, from dividends received by the partnership.
Calculation of part of dividend to which amount received by holder of interest is attributable
(4) For the purposes of subsection (1), the part of the relevant dividend to which the amount referred to in paragraph (1)(c) is attributable is taken to be the amount worked out using the formula:
Click here for Picture
where:
amount of dividend means the amount of the relevant dividend paid to the trustee or partnership.
share of income means the share of the income of the trust, or of the income of the partnership, of the year of income to which the holder of the interest is entitled.
total income means the income of the trust or partnership of the year of income.

160AQZC Where exempted dividend paid by former exempting company to trust or partnership

Person holding an interest in a trust or partnership to be treated as having received

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share of dividend directly from former exempting company

(1) If:
(a) a class A exempted dividend or a class C exempted dividend (the relevant dividend) is paid by a former exempting company to a shareholder that is a trustee of a trust or is a partnership; and
(b) at the time when the relevant dividend was paid, a person who held an interest in the trust or partnership was a life assurance company, an exempting company, a former exempting company, or a person who acquired the interest under an eligible employee share scheme, being a company or person in respect of which or in respect of whom a franking credit, franking rebate or exempting credit would have arisen if the relevant dividend had been paid to the company or person; and
(c) an amount attributable to the relevant dividend is included in the assessable income of the holder of the interest, or would have been so included if:
(i) sections 110C, 112A and 116FB had not been enacted; and
(ii) the definition of eligible insurance policy in section 116E were amended by omitting "an RA policy, a superannuation policy, a sickness policy, a funeral policy or an eligible policy" and substituting "an RA policy or a superannuation policy";
then, for the purposes of the application of this Part in relation to the holder of the interest, the part of the relevant dividend to which the amount referred to in paragraph (1)(c) is attributable is taken:
(d) to have been a class A exempted dividend or a class C exempted dividend, as the case may be, paid to the holder of the interest; and
(e) to have been exempted to the same extent as the relevant dividend.
Holding an interest in a trust
(2) A person is taken to hold an interest in a trust if:
(a) the person is a beneficiary under the trust; or
(b) the person derives, or will derive, income indirectly, through interposed trusts or partnerships, from dividends received by the trustee.
Holding an interest in a partnership
(3) A person is taken to hold an interest in a partnership if:
(a) the person is a partner in the partnership; or
(b) the person derives, or will derive, income indirectly, through interposed trusts or partnerships, from dividends received by the partnership.
Calculation of part of dividend to which amount received by holder of interest is attributable
(4) For the purposes of subsection (1), the part of the relevant dividend to which the amount referred to in paragraph (1)(c) is attributable is taken to be the amount worked out using the formula:
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where:
amount of dividend means the amount of the relevant dividend paid to the trustee or partnership.
share of income means the share of the income of the trust, or of the income of the partnership, of the year of income to which the holder of the interest is entitled.
total income means the income of the trust or partnership of the year of income.
64 Paragraph 160ASC(b)
After "class C franking account balance", insert "and, if the company is a former exempting company, includes a reference to matters relevant to working out the class A exempting account balance or the class C exempting account balance".
65 Subsection 177EA(1) (paragraph (a) of the definition of franked)
After "160AQF", insert "or 160AQFA".
66 Paragraph 177EA(5)(a)
After "franking debit", insert "or exempting debit".
67 Subsection 177EA(10)
Repeal the subsection, substitute:
Effect of determination of franking debit or exempting debit
(10) If the Commissioner makes a determination under paragraph (5)(a):
(a) on the day on which notice in writing of the determination is served on the company, a franking debit or exempting debit of the company arises in respect of the dividend; and
(b) the amount of the franking debit or exempting debit is such amount as is stated in the Commissioner's determination, being an amount that:
(i) the Commissioner considers reasonable in the circumstances; and
(ii) does not exceed the amount of the franking debit or exempting debit of the company arising under section 160AQB or 160AQCNE in respect of the dividend.
68 Subsection 177EA(16)
Repeal the subsection, substitute:
Meaning of franked distribution
(16) A distribution in respect of an interest in shares is taken to be
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franked if:
(a) there is a class A flow-on franking amount, a class B flow-on franking amount or a class C flow-on franking amount in relation to the relevant partnership amount or trust amount; or
(b) the distribution is taken by section 160AQZB or 160AQZC to be franked.
69 Subparagraph 177EA(18)(a)(i)
After "160APP", insert "or 160APPA".
70 At the end of subsection 177EA(18)
Add:
; or (e) the shareholder is a company and an exempting credit of the company arises under section 160AQCNF.".
71 Paragraph 177EA(19)(c)
After "franking credits" (wherever occurring), insert "or exempting credits".
72 Subsection 177EA(20)
Repeal the subsection, substitute:
Meaning of greater benefit from franking credits
(20) The circumstances in which the relevant taxpayer would, in a year of income, derive a greater benefit from franking credits than another person referred to in paragraph (19)(b) include, but are not limited to:
(a) any of the following circumstances existing in relation to the other person and not in relation to the relevant taxpayer:
(i) the person is a non-resident;
(ii) the amount of tax (if any) that, apart from Part IIIAA, would be payable by the person is less than the amount of the rebate of tax to which the person would be entitled under section 160AQU, 160AQX, 160AQY, 160AQYA, 160AQZ or 160AQZA;
(iii) the person is a company that is unable to pay a dividend to its shareholders in the year of income because it has not made any profits or has not made sufficient profits to do so;
(iv) the person is an exempting company or a company for which no franking credits arise; and
(b) any of the following circumstances existing in relation to the relevant taxpayer and not in relation to the other person:
(i) a franking credit arises under section 160APPA;
(ii) a franking credit or exempting credit arises under section 160AQCNF;
(iii) subsection 160AQTA(2) or (5) applies;
(iv) section 160AQTB applies.
73 Subsection 221YHZC(1B)
Repeal the subsection, substitute:
(1B) Subsection (1A) does not apply in relation to income paid in respect of a share investment if the income is paid as a dividend that has been franked in accordance with section 160AQF or 160AQFA and:
(a) the franking percentage (within the meaning of section 160APA), if any, in relation to the dividend is 100%; and
(b) if the dividend is an exempted dividend - the sum of the exempted amount and the franked amount (if any) is equal to the amount of the dividend.
74 Subsection 221YHZC(1D)
Repeal the subsection, substitute:
(1D) If:
(a) unattributed income is to be paid, in respect of a share investment, as a dividend that has been franked in accordance with section 160AQF or 160AQFA; and
(b) the percentage to which the dividend has been franked in accordance with section 160AQF or 160AQFA is less than 100%;
the amount to be deducted, in accordance with paragraph (1A)(d) of this section, from the unattributed income is the amount (being a multiple of 5 cents) that is, or is nearest to, the amount worked out by using the formula:
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where:
exempted amount means the exempted amount in relation to the dividend.
factor means the factor prescribed for the purposes of subsection (1C).
franked amount means the franked amount (within the meaning of section 160APA) in relation to the dividend.
unattributed income means the amount of unattributed income.
75 After subsection 221YL(3)
Insert:
(3AA) For the purpose of determining whether a deduction is required to be made under subsection (2) in relation to an exempted dividend paid to the trustee of a trust, or a partnership, in which a non-resident holds an interest within the meaning of section 160AQZB or 160AQZC, the dividend is taken to have been franked in accordance with section 160AQFA to the extent of the lesser of:
(a) so much of the dividend as the non-resident is entitled to receive or to have credited to the non-resident, or otherwise dealt with on behalf of the
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non-resident or as the non-resident directs, by the trustee or partnership; and
(b) the exempted amount of the dividend.
76 Paragraph 365(3)(b)
After "160AQF", insert "or 160AQFA".
77 At the end of paragraph 377(1)(e)
Add "or 160AQFA".
78 At the end of paragraph 402(2)(b)
Add "or 160AQFA".
79 At the end of paragraph 436(1)(d)
Add "or 160AQFA".
80 Statements given by company to shareholders before 2 April 1998
A company is not liable to a penalty under section 160ARY merely because:
(a) the company gave to a shareholder before 2 April 1998 a dividend statement that complied with section 160AQH of the Income Tax Assessment Act 1936 as in force at the time when the statement was given; or
(b) the company gave to a shareholder before that date a dividend statement that the Commissioner is satisfied reasonably complied with section 160AQH of the Income Tax Assessment Act 1936 as amended by this Schedule.
81 Application
The amendments made by this Schedule apply to dividends paid at or after 7.30 pm by legal time in the Australian Capital Territory on 13 May 1997 other than:
(a) dividends declared before that time by a listed public company (within the meaning of the Income Tax Assessment Act 1997); or
(b) dividends paid after that time that related to dividends referred to in paragraph (a).