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Income Tax Assessment Act 1936

  • - C2013C00040
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Act No. 27 of 1936 as amended, taking into account amendments up to Personal Liability for Corporate Fault Reform Act 2012
An Act to consolidate and amend the law relating to the imposition assessment and collection of a tax upon incomes
Administered by: Treasury
General Comments: This compilation is affected by a retrospective amendment. Please see Tax and Superannuation Laws Amendment (2014 Measures No. 4) Act 2014 (Act No. 110, 2014) for details.
Registered 18 Jan 2013
Start Date 11 Dec 2012
End Date 27 Jun 2013
Table of contents.

Income Tax Assessment Act 1936

Act No. 27 of 1936 as amended

This compilation was prepared on 15 January 2013
taking into account amendments up to Act No. 180 of 2012

Volume 3 includes:     Table of Contents
                                    Sections 124ZM – 202G

The text of any of those amendments not in force
on that date is appended in the Notes section

The operation of amendments that have been incorporated may be
affected by application provisions that are set out in the Notes section

  

  

  


Contents

Part III—Liability to taxation                                                                                         1

Division 10E—PDFs (pooled development funds)                                         1

Subdivision A—Shares in PDFs                                                                              1

124ZM.. Treatment distributions to shareholders in PDF.................................. 1

124ZN... Exemption of income from sale of shares in a PDF............................ 4

124ZO... Shares in a PDF are not trading stock................................................. 4

124ZQ... Effect of company becoming a PDF................................................... 4

124ZR... Effect of company ceasing to be a PDF.............................................. 5

Subdivision B—The taxable income of PDFs                                                     5

124ZS... Definitions.......................................................................................... 5

124ZTA Taxable income in first year as PDF if PDF component is nil............ 6

124ZT... SME assessable income...................................................................... 6

124ZU... SME income component..................................................................... 7

124ZV... Unregulated investment component.................................................... 7

Subdivision C—Adjustments of the tax treatment of capital gains and capital losses of PDFs  8

124ZW.. Definitions.......................................................................................... 8

124ZX... Companies to which this Subdivision applies..................................... 9

124ZY... Classes of assessable income............................................................ 10

124ZZ... Treatment of capital gains.................................................................. 10

124ZZA Allocation of gain amounts and loss amounts to classes of assessable income        10

124ZZB. Assessable income etc. in relation to capital gains............................. 11

124ZZD No net capital loss............................................................................. 11

Division 11—Interest paid by companies on bearer debentures         12

126........ Interest paid by a company on bearer debentures.............................. 12

127........ Credit for tax paid by company......................................................... 13

128........ Assessments of tax........................................................................... 13

Division 11A—Dividends, interest and royalties paid to non‑residents and to certain other persons  14

Subdivision A—General                                                                                         14

128AAA Application of Division to non‑share dividends............................... 14

128A..... Interpretation..................................................................................... 14

128AA.. Deemed interest in respect of transfers of certain securities.............. 19

128AB.. Certificates relating to issue price of certain securities....................... 19

128AC.. Deemed interest in respect of hire‑purchase and certain other agreements                21

128AD.. Indemnification etc. agreements in relation to bills of exchange and promissory notes            24

128AE... Interpretation provisions relating to offshore banking units.............. 25

128AF... Payments through interposed entities................................................ 30

128B..... Liability to withholding tax............................................................... 31

128C..... Payment of withholding tax.............................................................. 41

128D..... Certain income not assessable........................................................... 43

128F...... Division does not apply to interest on certain publicly offered company debentures or debt interests      43

128FA... Division does not apply to interest on certain publicly offered unit trust debentures or debt interests      52

128GB.. Division not to apply to interest payments on offshore borrowings by offshore banking units               57

128NA.. Special tax payable in respect of certain securities and agreements... 57

128NB.. Special tax payable in respect of certain dealings by current and former offshore banking units              58

128NBA Credits in respect of amounts assessed in relation to certain
financial arrangements
....................................................................... 60

128P...... Objections......................................................................................... 62

128Q..... Power of Commissioner to obtain information................................. 62

128R..... Informal arrangements...................................................................... 63

Division 11B—Equity investments in small‑medium enterprises         64

128TG... Summary of this Division................................................................. 64

128TH... When Division applies...................................................................... 64

128TI.... Consequences of Division applying.................................................. 65

128TJ.... Acquiring a threshold interest in an SME......................................... 66

128TK... SME or small‑medium enterprise...................................................... 66

128TL... Subsidiary and direct ownership group............................................. 67

Division 11C—Payments in respect of mining operations on Aboriginal land  68

128U..... Interpretation..................................................................................... 68

128V..... Liability to mining withholding tax................................................... 71

128W.... Payment of mining withholding tax.................................................. 71

128X..... Power of Commissioner to obtain information................................. 72

Division 12—Oversea ships                                                                                     73

129........ Taxable income of ship‑owner or charterer....................................... 73

130........ Master or agent to make return.......................................................... 73

131........ Determination by Commissioner....................................................... 73

132........ Assessment of tax............................................................................. 73

133........ Master liable to pay........................................................................... 73

134........ Notice of assessment......................................................................... 74

135........ Clearance of ship............................................................................... 74

135A..... Freights payable under certain agreements........................................ 74

Division 13—International agreements and determination of source of certain income             75

136AA.. Interpretation..................................................................................... 75

136AB.. Operation of Division....................................................................... 77

136AC.. International agreements.................................................................... 78

136AD.. Arm’s length consideration deemed to be received or given............. 78

136AE... Determination of source of income etc.............................................. 80

136AF... Consequential adjustments to assessable income and allowable deductions             86

Division 15—Insurance with non‑residents                                                    89

141........ Interpretation..................................................................................... 89

142........ Income derived by non‑resident insurer............................................ 89

143........ Taxable income of non‑resident insurer............................................ 90

144........ Liability of agents of insurer............................................................. 90

145........ Deduction of premiums..................................................................... 90

146........ Exporter to furnish information......................................................... 90

147........ Rate of tax in special circumstances.................................................. 91

148........ Reinsurance with non‑residents........................................................ 91

Division 16—Averaging of incomes                                                                    94

149........ Average income................................................................................ 94

149A..... Capital gains, abnormal income and certain death benefits to be disregarded           94

150........ First average year.............................................................................. 95

151........ First application of Division in relation to a taxpayer........................ 95

152........ Taxpayer not in receipt of assessable income.................................... 95

153........ Taxpayer with no taxable income...................................................... 95

154........ Excess of allowable deductions......................................................... 96

155........ Permanent reduction of income......................................................... 96

156........ Rebate of tax for, or complementary tax payable by, certain primary producers       96

157........ Application of Division to primary producers................................. 103

158........ Application of Division................................................................... 104

158A..... Election that Division not apply...................................................... 104

Division 16D—Certain arrangements relating to the use of property   105

159GE... Interpretation................................................................................... 105

159GEA Division applies to certain State/Territory bodies............................ 112

159GF... Residual amounts............................................................................ 112

159GG.. Qualifying arrangements................................................................. 116

159GH.. Application of Division in relation to property................................ 119

159GJ... Effect of application of Division on certain deductions etc.............. 120

159GK.. Effect of application of Division on assessability of arrangement payments            129

159GL... Special provision relating to Division 10C or 10D property........... 132

159GM. Special provision where cost of plant etc. is also eligible capital expenditure           133

159GN.. Effect of use of property under qualifying arrangement for producing assessable income       134

159GO.. Special provisions relating to partnerships...................................... 137

Division 16E—Accruals assessability etc. in respect of certain security payments        141

159GP... Interpretation................................................................................... 141

159GQ.. Tax treatment of holder of qualifying security................................. 146

159GQA Accrual period................................................................................ 146

159GQB Accrual amount.............................................................................. 147

159GQC Implicit interest rate for fixed return security.................................. 149

159GQD Implicit interest rate for variable return security............................. 149

159GR.. Consequences of actual payments................................................... 152

159GS... Balancing adjustments on transfer of qualifying security................ 152

159GT... Tax treatment of issuer of a qualifying security............................... 154

159GU.. Effect of Division on certain transfer profits and losses.................. 155

159GV.. Consequence of variation of terms of security................................ 156

159GW. Effect of Division in relation to non‑residents................................. 158

159GX.. Effect of Division where certain payments not assessable.............. 159

159GY.. Effect of Division where qualifying security is trading stock.......... 159

159GZ... Stripped securities........................................................................... 159

Division 16J—Effect of cancellation of subsidiary’s shares in holding company             162

159GZZZC Interpretation—general............................................................... 162

159GZZZD Meaning of eligible entity, eligible interest and eligible
proportion
....................................................................................... 163

159GZZZE Share cancellations to which this Division applies...................... 163

159GZZZF Effect on subsidiary of share cancellations to which this
Division applies
.............................................................................. 163

159GZZZG Pre‑cancellation disposals of eligible interests............................ 164

159GZZZH Post‑cancellation disposals of eligible interests etc..................... 165

159GZZZI Additional application of sections 159GZZZG and
159GZZZH to associates
................................................................ 166

Division 16K—Effect of buy‑backs of shares                                              168

Subdivision AA—Application of Division to non‑share equity interests  168

159GZZZIA Application of Division to non‑share dividends....................... 168

Subdivision A—Interpretation                                                                            168

159GZZZJ Interpretation............................................................................... 168

159GZZZK Explanation of terms................................................................... 168

159GZZZL Special buy‑backs not made in ordinary course of trading
on a stock exchange
........................................................................ 169

159GZZZM Purchase price in respect of buy‑back....................................... 169

Subdivision B—Company buying‑back shares                                               170

159GZZZN Buy‑back and cancellation disregarded for certain
purposes
.......................................................................................... 170

Subdivision C—Off‑market purchases                                                             170

159GZZZP Part of off‑market purchase price is a dividend........................... 170

159GZZZQ Consideration in respect of off‑market purchase........................ 171

Subdivision D—On‑market purchases                                                              174

159GZZZR No part of on‑market purchase price is a dividend..................... 174

159GZZZS Consideration in respect of on‑market purchase......................... 174

Division 16L—Tax‑exempt infrastructure borrowings                         175

159GZZZZD Interpretation............................................................................ 175

159GZZZZE Infrastructure borrowings to be non‑assessable and
non‑deductible
................................................................................. 176

159GZZZZF Tax exemption to be disregarded for certain purposes.............. 178

159GZZZZG Rebate election......................................................................... 178

159GZZZZH Tax payable where infrastructure borrowing certificate
cancelled
.......................................................................................... 181

Division 17—Rebates                                                                                                183

Subdivision A—Concessional rebates                                                               183

159H..... Application...................................................................................... 183

159HA.. Indexation for the purposes of sections 159J, 159L and 159P........ 183

159J...... Rebates for dependants................................................................... 185

159JA... Rebates for dependants—reduction because of certain other benefits 191

159K..... Sole parent rebate............................................................................ 193

159L...... Rebates for housekeepers................................................................ 194

159LA... Rebates for housekeepers—reduction because of certain other benefits 196

159M.... Double concessional rebates........................................................... 198

159N..... Rebate for certain low‑income taxpayers......................................... 198

159P...... Rebate for medical expenses........................................................... 199

Subdivision AB—Lump sum payments in arrears                                        202

159ZR... Interpretation................................................................................... 202

159ZRA Eligibility for rebate......................................................................... 205

159ZRB Calculation of rebate........................................................................ 205

159ZRC Notional tax amount for recent accrual years................................... 205

159ZRD Notional tax amount for distant accrual years.................................. 206

Subdivision B—Miscellaneous                                                                            207

160AAAA Tax rebate for low income aged persons and pensioners............ 207

160AAAB Tax rebate for low income aged persons and
pensioners—trustees assessed under section 98
............................. 209

160AAA Rebate in respect of certain benefits etc.......................................... 210

160AAB Rebate in respect of amounts assessable under section 26AH........ 212

160AD.. Maximum amount of rebates........................................................... 214

160ADA Most tax offsets under the 1997 Assessment Act are treated
as rebates
......................................................................................... 215

Part IIIB—Australian branches of foreign banks                                         216

Division 1—Preliminary                                                                                          216

160ZZVA Object........................................................................................... 216

160ZZVB Application................................................................................... 216

160ZZV Definitions...................................................................................... 217

160ZZW Certain provisions to apply as if Australian branch of foreign bank were a separate legal entity              218

Division 2—Provisions relating to income tax                                            220

160ZZX Income of branch to have Australian source................................... 220

160ZZZ. Notional borrowing by branch from bank....................................... 220

160ZZZA Notional payment of interest by branch to bank............................ 220

160ZZZC Offshore banking units.................................................................. 222

160ZZZE Notional derivative transactions between branch and bank............ 222

160ZZZF Notional foreign exchange transactions between branch and
bank
................................................................................................ 223

160ZZZG Losses........................................................................................... 223

160ZZZH Net capital losses........................................................................... 223

160ZZZI Certain transactions to be disregarded............................................. 223

Division 3—Provisions relating to withholding tax                                  224

160ZZZJ Withholding tax on interest paid by branch to bank........................ 224

Division 4—Extension of Part to Australian branches of foreign financial entities        225

160ZZZK Treatment like Australian branches of foreign banks..................... 225

Part IV—Returns and assessments                                                                         226

161........ Annual returns................................................................................ 226

161A..... Form and content of returns............................................................ 226

161AA.. Contents of returns of full self‑assessment taxpayers..................... 227

161G..... Tax agent to give taxpayer copy of notice of assessment................ 227

162........ Further returns and information...................................................... 227

163........ Special returns................................................................................. 228

163A..... Late lodgement penalty—relevant entities, instalment taxpayers and full self‑assessment taxpayers        228

163AA.. General interest charge on unpaid penalty....................................... 230

163B..... Late lodgment of returns by persons other than relevant entities, instalment taxpayers and full self‑assessment taxpayers........................................................................................................ 230

164........ Returns deemed to be duly made..................................................... 233

166........ Assessment..................................................................................... 233

166A..... Deemed assessment........................................................................ 233

167........ Default assessment.......................................................................... 235

168........ Special assessment.......................................................................... 235

169........ Assessments on all persons liable to tax......................................... 235

169AA.. Consolidated assessments............................................................... 236

169A..... Reliance by Commissioner on returns and statements..................... 236

170........ Amendment of assessments............................................................ 237

170A..... Amendment of assessments—interaction with other Acts.............. 249

170C..... Power of Commissioner to reduce amount of tax payable in certain cases               251

171........ Where no notice of assessment served............................................ 251

171A..... Limited period to make assessments for nil liability returns for the 2003‑04 year of income or earlier    251

172........ Refunds of amounts overpaid......................................................... 254

173........ Amended assessment to be an assessment...................................... 254

174........ Notice of assessment....................................................................... 255

175........ Validity of assessment.................................................................... 255

175A..... Objections against assessments....................................................... 255

176........ Judicial notice of signature.............................................................. 255

177........ Evidence.......................................................................................... 255

Part IVA—Schemes to reduce income tax                                                          257

177A..... Interpretation................................................................................... 257

177B..... Operation of Part............................................................................. 258

177C..... Tax benefits..................................................................................... 258

177CA.. Withholding tax avoidance.............................................................. 263

177D..... Schemes to which Part applies........................................................ 263

177E...... Stripping of company profits.......................................................... 264

177EA... Creation of franking debit or cancellation of franking credits.......... 266

177EB... Cancellation of franking credits—consolidated groups................... 273

177F...... Cancellation of tax benefits etc........................................................ 276

177G..... Amendment of assessments............................................................ 280

Part VA—Tax file numbers                                                                                        281

Division 1—Preliminary                                                                                          281

202........ Objects of this Part.......................................................................... 281

202A..... Interpretation................................................................................... 283

202AA.. Definition of eligible PAYG payment.............................................. 287

Division 2—Issuing of tax file numbers                                                          288

202B..... Application for tax file number....................................................... 288

202BA.. Issuing of tax file numbers.............................................................. 288

202BB... Current tax file number................................................................... 289

202BC... Deemed refusal by Commissioner.................................................. 289

202BD.. Interim notices................................................................................. 289

202BE... Cancellation of tax file numbers...................................................... 290

202BF... Alteration of tax file numbers.......................................................... 290

Division 3—Quotation of tax file numbers by recipients of eligible PAYG payments   291

202C..... TFN declarations by recipients of eligible PAYG payments........... 291

202CA.. Operation of TFN declaration......................................................... 291

202CB... Quotation of tax file number in TFN declaration............................. 292

202CC... Making a replacement TFN declaration in place of an ineffective declaration           293

202CD.. Sending of TFN declaration to Commissioner................................ 294

202CE... Effect of incorrect quotation of tax file number............................... 295

202CF... Payer must notify Commissioner if no TFN declaration by recipient 296

Division 4—Quotation of tax file numbers in connection with certain investments        298

202D..... Explanation of terms: investment, investor, investment body.......... 298

202DA.. Phasing‑in period for Division........................................................ 301

202DB.. Quotation of tax file numbers in connection with investments........ 301

202DC.. Method of quoting tax file number.................................................. 302

202DD.. Investor excused from quoting tax file number in certain circumstances  302

202DDB Quotation of tax file number in connection with indirectly held investment             303

202DE... Securities dealer to inform the investment body of tax file number. 305

202DF... Effect of incorrect quotation of tax file number............................... 305

202DG.. Investments held jointly.................................................................. 306

202DH.. Tax file number quoted for superannuation or surcharge purposes taken to be quoted for purposes of the taxation of eligible termination payments.......................................................... 307

202DHA Tax file number quoted for Division 3 purposes taken to have
been quoted for superannuation purposes
....................................... 308

202DI.... Tax file number quoted for RSA purposes taken to be quoted for purposes of the taxation of superannuation benefits........................................................................................................ 308

202DJ... Tax file number quoted for purposes of taxation of superannuation benefits taken to be quoted for surcharge purposes........................................................................................................ 308

Division 4A—Quotation of tax file numbers in connection with farm management deposits    310

202DL... Quotation of tax file number........................................................... 310

202DM. Effect of incorrect quotation of tax file number............................... 310

Division 4B—Quotation of tax file numbers in connection with certain closely held trusts       312

202DN.. Application of Division................................................................... 312

202DO.. Quotation of tax file numbers.......................................................... 312

202DP... Trustee must report quoted tax file numbers................................... 312

202DR.. Effect of incorrect quotation of tax file number............................... 313

Division 5—Exemptions                                                                                          315

202EA... Persons receiving certain pensions etc.—employment.................... 315

202EB... Persons receiving certain pensions etc.—investments..................... 316

202EC... Entities not required to lodge income tax returns............................. 317

202EE... Non‑residents.................................................................................. 319

202EF... Territory residents etc...................................................................... 320

202EG... Manner of completing declarations................................................. 320

202EH... Declarations under this Division to be retained in certain circumstances  321

Division 6—Review of decisions                                                                         322

202F...... Review of decisions........................................................................ 322

202FA... Statements to accompany notification of decisions......................... 323

Division 7—Manner of providing information                                           324

202G..... Transmission of information in accordance with specifications...... 324


Part IIILiability to taxation

Division 10EPDFs (pooled development funds)

Subdivision AShares in PDFs

124ZM  Treatment distributions to shareholders in PDF

Unfranked part of distribution exempt from income tax

             (1)  If a company makes a distribution to a shareholder at a time when the company is a PDF, the unfranked part of the distribution is exempt from income tax.

Rest of section deals with franked part

             (2)  The rest of this section applies to the franked part of the distribution.

Usual case

             (3)  Subsection (4) applies if the assessable income of a year of income of a taxpayer who or that is:

                     (a)  a company or a natural person (other than a company or natural person in the capacity of a trustee); or

                     (b)  a corporate unit trust in relation to that year of income; or

                     (c)  a public trading trust in relation to that year of income; or

                     (d)  a complying superannuation fund, a non‑complying superannuation fund, a complying approved deposit fund, a non‑complying approved deposit fund or a pooled superannuation trust in relation to that year of income; or

                   (da)  an FHSA trust;

would (apart from subsection (4)) include:

                     (e)  the franked part of the distribution; or

                      (f)  any of the franked part of the distribution that flows indirectly to the taxpayer.

This subsection does not apply to cases dealt with in subsections (5) and (6).

             (4)  Subject to subsection (7), the following is exempt income of the taxpayer:

                     (a)  if paragraph (3)(e) applies—the franked part;

                     (b)  if paragraph (3)(f) applies—so much of the franked part of the distribution as flows indirectly to the taxpayer.

Taxpayers who qualify for venture capital franking tax offset

             (5)  If a taxpayer (other than a life assurance company) is entitled to a tax offset in relation to the distribution under section 210‑170 of the Income Tax Assessment Act 1997, then:

                     (a)  so much of the franked part of the distribution as equals the part of the distribution that is franked with a venture capital credit is exempt income of the taxpayer; and

                     (b)  if the franked part exceeds the amount so exempt—the excess is, subject to subsection (7), exempt income of the taxpayer.

             (6)  If a life assurance company is entitled to a tax offset in relation to the distribution under section 210‑170 of the Income Tax Assessment Act 1997, then:

                     (a)  so much of the franked part of the distribution as equals the amount worked out using the following formula is exempt income of the life assurance company:

                            where:

                            complying superannuation/FHSA class of taxable income is the life assurance company’s complying superannuation/FHSA class of taxable income, within the meaning of subsection 995‑1(1) of the Income Tax Assessment Act 1997, for the year of income in which the distribution is made.

                            venture capital franked part is the part of the distribution that is franked with a venture capital credit.

                            total income is the life assurance company’s assessable income for the year of income in which the distribution is made; and

                     (b)  if the franked part exceeds the amount so exempt—the excess is, subject to subsection (7), exempt income of the life assurance company.

No exemption if return prepared on basis that amount assessable

             (7)  Subsection (4) and paragraphs (5)(b) and (6)(b) do not exempt, and are taken never to have exempted, an amount if the taxpayer’s return of income of the year of income is prepared on the basis that the amount is included in the taxpayer’s assessable income of that year.

Where partner entitled to deduction for amount flowing indirectly

             (8)  If:

                     (a)  any of the franked part of the distribution flows indirectly to a taxpayer who is a partner in a partnership; and

                     (b)  apart from this subsection, the amount that flows indirectly would be allowable as a deduction from the taxpayer’s assessable income of a year of income; and

                     (c)  the taxpayer is of a kind mentioned in any of paragraphs (3)(a) to (d);

the amount that flows indirectly is not allowable as a deduction from that assessable income.

             (9)  Subsection (8) does not prevent, and is taken never to have prevented, an amount from being allowable as a deduction if the taxpayer’s return of income of the year of income is prepared on the basis that the amount is so allowable.

Where trustee assessed on amount flowing indirectly

           (10)  If:

                     (a)  any of the franked part of the distribution flows indirectly to the trustee of a trust estate; and

                     (b)  apart from this subsection, the trustee would be liable under section 98, 99 or 99A to be assessed and pay tax on the amount that flows indirectly;

the trustee is not liable under that section to be assessed and to pay tax on the amount that flows indirectly.

           (11)  Subsection (10) does not prevent, and is taken never to have prevented, the trustee from being liable under that section to be assessed and to pay tax on an amount if the trustee elects to be so liable.

           (12)  An election must be made in the trustee’s return of income of the trust estate for the year of income concerned.

Interpretation

           (13)  In this section:

flows indirectly has the meaning given by subsection 995‑1(1) of the Income Tax Assessment Act 1997.

part of a distribution that is franked with a venture capital credit has the meaning given by subsection 995‑1(1) of the Income Tax Assessment Act 1997.

124ZN  Exemption of income from sale of shares in a PDF

                   Income derived by a taxpayer from selling shares in a company is exempt from income tax if the company is a PDF at the time of the sale.

Note:          Any capital gain or capital loss from a disposal of shares in a PDF is disregarded: see section 118‑13 of the Income Tax Assessment Act 1997.

124ZO  Shares in a PDF are not trading stock

                   Shares in a PDF are not trading stock for the purposes of this Act.

124ZQ  Effect of company becoming a PDF

             (1)  This section applies to shares in a company that a taxpayer holds when the company becomes a PDF.

             (2)  In determining for the purposes of this Act whether an amount is or was allowable as a deduction to the taxpayer in respect of acquiring the shares, the shares are taken to have been shares in a PDF throughout the period beginning immediately before the taxpayer acquired them and ending when the company became a PDF.

             (3)  For the purposes of this Act, the shares are taken to have been trading stock of the taxpayer at no time during that period.

             (4)  Section 170 does not prevent an assessment from being amended to give effect to this section.

124ZR  Effect of company ceasing to be a PDF

             (1)  This section applies to shares in a company that a taxpayer holds when the company ceases to be a PDF.

             (2)  For the purposes of this Act (except Parts 3‑1 and 3‑3 (about CGT) of the Income Tax Assessment Act 1997), the taxpayer is taken:

                     (a)  to have sold the shares immediately before the company ceased to be a PDF; and

                     (b)  to have rebought the shares immediately after the company so ceased;

for a consideration equal to the market value of the shares immediately after the company so ceased.

             (3)  Parts 3‑1 and 3‑3 (about CGT) of the Income Tax Assessment Act 1997 apply as if the taxpayer:

                     (a)  had disposed of the CGT assets constituted by the shares, and had done so immediately before the company ceased to be a PDF; and

                     (b)  had re‑acquired those assets immediately afterwards;

for an amount equal to the shares’ market value immediately after the company so ceased.

Subdivision BThe taxable income of PDFs

124ZS  Definitions

                   In this Subdivision:

non‑CGT assessable income means an amount included in assessable income otherwise than under Part 3‑1 or 3‑3 (about CGT) of the Income Tax Assessment Act 1997 or Subdivision C of this Division.

SME investment means an investment other than an unregulated investment.

Note:          SME stands for small and medium enterprises.

unregulated investment has the same meaning as in the Pooled Development Funds Act 1992.

124ZTA  Taxable income in first year as PDF if PDF component is nil

             (1)  This section applies if:

                     (a)  a company becomes a PDF during a year of income and is still a PDF at the end of the year of income; and

                     (b)  the PDF component for the year of income is a nil amount; and

                     (c)  the year of income is the 1997‑98 year of income or a later one.

             (2)  The company’s taxable income of the year of income is the amount that, if the period (the notional year) beginning at the start of the year of income and ending immediately before the company becomes a PDF were a year of income of the company, would be the company’s taxable income of the notional year.

124ZT  SME assessable income

SME assessable income

             (1)  A company’s SME assessable income of a year of income is the sum of:

                     (a)  so much of the company’s non‑CGT assessable income of the year of income as was derived:

                              (i)  from, or from the disposal of, an SME investment of the company; and

                             (ii)  at a time when the company was a PDF; and

                     (b)  any assessable income allocated to the company’s SME assessable income under section 124ZZB.

Note:          Section 124ZZB deals with capital gains etc.

When assessable income derived

             (2)  For the purposes of paragraph (1)(a), if an amount is derived by a company during, but not at a particular time during, a year of income, the amount is taken to have been derived by the company on the last day of the year of income.

124ZU  SME income component

Full‑year PDFs

             (1)  The SME income component of a year of income of a company that is a PDF throughout the year of income is so much of the company’s taxable income of the year of income as does not exceed the amount (if any) remaining after deducting from the company’s SME assessable income of the year of income any deductions allowable to the company in relation to the year of income.

Part‑year PDFs

             (2)  The SME income component of a year of income of a company that becomes a PDF during the year of income and is still a PDF at the end of the year of income is so much of the company’s adjusted taxable income of the year of income as does not exceed the amount (if any) remaining after deducting from the company’s SME assessable income of the year of income any deductions where both of the following conditions are satisfied:

                     (a)  the deductions were allowable to the company in relation to the year of income;

                     (b)  the deductions were taken into account in working out the company’s PDF component of the year of income.

For this purpose, adjusted taxable income means so much of the company’s taxable income of the year of income as does not exceed its PDF component of the year of income.

124ZV  Unregulated investment component

Full‑year PDFs

             (1)  The unregulated investment component of a year of income of a company that is a PDF throughout the year of income is the amount (if any) remaining after deducting from the company’s taxable income of the year of income the company’s SME income component of the year of income.

Part‑year PDFs

             (2)  The unregulated investment component of a year of income of a company that becomes a PDF during the year of income and is still a PDF at the end of the year of income is the amount (if any) remaining after deducting from the company’s adjusted taxable income of the year of income the company’s SME income component of the year of income. For this purpose, adjusted taxable income means so much of the company’s taxable income of the year of income as does not exceed its PDF component of the year of income.

Subdivision CAdjustments of the tax treatment of capital gains and capital losses of PDFs

124ZW  Definitions

                   In this Subdivision:

accumulated net capital loss for a year of income (the loss year) means the amount (if any) by which the total of:

                     (a)  the total of the overall capital losses for all classes of assessable income for the loss year; and

                     (b)  any accumulated net capital loss for the last year of income before the loss year;

exceeds:

                     (c)  the total of the overall capital gains for all classes of assessable income for the loss year (before section 116GB is applied).

class, in relation to assessable income, means a class specified in section 124ZY.

company does not include a company in a capacity of trustee.

non‑CGT assessable income means an amount included in assessable income otherwise than under Part 3‑1 or 3‑3 (about CGT) of the Income Tax Assessment Act 1997 or this Subdivision.

ordinary capital gain for a CGT event means any capital gain that would (apart from this Subdivision) arise from the event.

ordinary capital loss for a CGT event means any capital loss that would (apart from this Subdivision) arise from the event.

overall capital gain for a class of assessable income means:

                     (a)  the amount by which the total ordinary capital gain for that class exceeds the total ordinary capital loss for that class; or

                     (b)  if an amount has been applied under subsection 124ZZB(2) to reduce an overall capital gain previously worked out under this definition—that gain as so reduced.

overall capital loss for a class of assessable income means the amount by which the total ordinary capital gain for that class is less than the total ordinary capital loss for that class.

residual overall capital gain means so much of an overall capital gain as remains after applying subsection 124ZZB(2).

SME assessable income has the meaning given by Subdivision B.

SME investment means an investment other than an unregulated investment.

total ordinary capital gain for a class means the total of so much of any ordinary capital gains as has been allocated to that class under section 124ZZA.

total ordinary capital loss for a class means the total of so much of any ordinary capital losses as has been allocated to that class under section 124ZZA.

unregulated investment has the same meaning as in the Pooled Development Funds Act 1992.

124ZX  Companies to which this Subdivision applies

                   This Subdivision applies to a company in relation to a year of income if:

                     (a)  the company is a PDF throughout the year of income; or

                     (b)  the company becomes a PDF during the year of income and is still a PDF at the end of the year of income.

124ZY  Classes of assessable income

Classes

             (1)  The classes of assessable income of the company are as follows:

                     (a)  SME assessable income (see section 124ZT);

                     (b)  other assessable income (see subsection(2)).

Other assessable income

             (2)  The company’s other assessable income of the year of income is the sum of:

                     (a)  so much of the company’s non‑CGT assessable income of the year of income as is not included in the company’s SME assessable income of the year of income; and

                     (b)  any assessable income allocated to the company’s other assessable income under section 124ZZB.

124ZZ  Treatment of capital gains

                   Nothing is to be included in the company’s assessable income of the year of income under section 102‑5 of the Income Tax Assessment Act 1997 (about net capital gains).

124ZZA  Allocation of gain amounts and loss amounts to classes of assessable income

Disposals of SME investments

             (1)  If:

                     (a)  there is an ordinary capital gain amount, or an ordinary capital loss amount, in respect of a disposal of an SME investment of the company; and

                     (b)  the company was a PDF at the time of the disposal;

the ordinary capital gain amount or ordinary capital loss amount, as the case may be, is taken into account in determining the overall capital gain or overall capital loss for the class known as SME assessable income.

Disposals of assets other than SME investments

             (2)  If:

                     (a)  there is an ordinary capital gain amount, or an ordinary capital loss amount, in respect of a disposal of an asset of the company; and

                     (b)  subsection (1) does not apply to the disposal;

the ordinary capital gain amount or the ordinary capital loss amount, as the case may be, is taken into account in determining the overall capital gain or overall capital loss for the class known as other assessable income.

124ZZB  Assessable income etc. in relation to capital gains

             (1)  The assessable income of each class includes the amount (if any) that is left over after the overall capital gain for that class has been reduced in accordance with this section.

             (2)  If there is an overall capital loss for a particular class of assessable income, the loss is to be applied in reduction of overall capital gains for the remaining class.

             (3)  Any accumulated net capital loss for the immediately preceding year of income is to be applied in reduction of residual overall capital gains for the classes of assessable income in the following order:

                     (a)  SME assessable income;

                     (b)  other assessable income.

124ZZD  No net capital loss

                   The company does not make a net capital loss for the year of income, despite section 102‑10 of the Income Tax Assessment Act 1997.


 

Division 11Interest paid by companies on bearer debentures

126  Interest paid by a company on bearer debentures

             (1)  If:

                     (a)  a company pays or credits an amount of interest in respect of a debenture payable to bearer; and

                     (b)  the interest is not, to any extent, subject to withholding tax under Division 11A; and

                     (c)  neither of sections 128F (to the extent it applies to non‑residents who are not engaged in carrying on a business in Australia at or through a permanent establishment in Australia) and 128GB applies to the interest; and

                     (d)  the interest is not interest that, because of section 159GZZZZE (which deals with infrastructure borrowings), is not included in assessable income; and

                     (e)  the company does not give the Commissioner the name and address of the holder of the debenture;

the company is liable to pay income tax, as imposed by the Income Tax (Bearer Debentures) Act 1971, on the amount paid or credited, or, if the company makes a deduction under subsection (2), the amount that otherwise would have been paid or credited.

          (1A)  Subsection (1) does not affect any other liability of the company to pay income tax.

             (2)  The company may deduct and retain for its own use from an amount payable to a person in respect of which the company is liable to pay tax in accordance with subsection (1) an amount equal to that tax.

             (3)  Where the Commissioner is satisfied that that person is not liable to furnish a return, the Commissioner must refund to that person the amount of tax paid by the company in respect of his or her debentures.

127  Credit for tax paid by company

             (1)  Where the company pays tax under this Division on any interest, and that interest is included in the assessment of the person to whom it was paid or credited, the proportionate amount of tax paid by the company in respect of the interest shall be deducted from the total tax payable by that person.

128  Assessments of tax

                   An assessment of tax payable in accordance with this Division by a company may be an assessment of the amount of tax so payable upon interest in respect of a number of debentures, whether held by the one holder or not.


 

Division 11ADividends, interest and royalties paid to non‑residents and to certain other persons

Subdivision AGeneral

128AAA  Application of Division to non‑share dividends

             (1)  This Division:

                     (a)  applies to a non‑share equity interest in the same way as it applies to a share; and

                     (b)  applies to an equity holder in the same way as it applies to a shareholder; and

                     (c)  applies to a non‑share dividend in the same way as it applies to a dividend.

             (2)  Subsection (1) does not apply to:

                     (a)  section 128AE; and

                     (b)  section 128F; and

                   (ba)  section 128FA.

128A  Interpretation

             (1)  In this Division, unless the contrary intention appears:

ADI means a body corporate that is an ADI (authorised deposit‑taking institution) for the purposes of the Banking Act 1959.

dividend:

                     (a)  includes part of a dividend; and

                     (b)  (except when used in paragraph (d) of the definition of interest in subsection (1AB)) does not include a dividend paid in respect of a non‑equity share.

enterprise means a business or other industrial or commercial undertaking.

entity means:

                     (a)  the Commonwealth, a State or an authority of the Commonwealth or of a State;

                     (b)  a natural person;

                     (c)  a company;

                     (d)  the partners in a partnership, in their capacity as partners;

                     (e)  the persons carrying on a joint venture, in their capacity as such persons; or

                      (f)  the trustees of a trust, in their capacity as such trustees.

foreign bank means a non‑resident company that carries on a banking business.

joint venture means an enterprise carried on by 2 or more persons in common otherwise than as partners.

non‑ADI financial institution means a corporation that:

                     (a)  is a registered entity within the meaning of the Financial Sector (Collection of Data) Act 2001; and

                     (b)  is included in Category D (Money Market Corporation) in a list kept under section 11 of that Act; and

                     (c)  carries on a general business of providing finance (within the meaning of that Act) on a commercial basis.

nostro account means an account that:

                     (a)  an ADI or non‑ADI financial institution holds with a foreign bank and maintains for the sole purpose of settling international transactions; and

                     (b)  operates on the basis that:

                              (i)  amounts deposited in the account are held in the account for no more than 10 days; and

                             (ii)  amounts advanced by way of an overdraft on the account are repaid within 10 days.

       (1AA)  In this Division and in an Act imposing withholding tax:

income includes a royalty and a dividend.

       (1AB)  For the purposes of this Division:

interest includes an amount, other than an amount referred to in subsection 26C(1):

                     (a)  that is in the nature of interest; or

                     (b)  to the extent that it could reasonably be regarded as having been converted into a form that is in substitution for interest; or

                     (c)  to the extent that it could reasonably be regarded as having been received in exchange for interest in connection with a washing arrangement; or

                     (d)  that is a dividend paid in respect of a non‑equity share; or

                     (e)  if regulations under the Income Tax Assessment Act 1997 are made having the effect that instruments known as upper tier 2 capital instruments, or a class of instruments of that kind, are debt interests—that is paid on such a debt interest and is not a return of an investment;

but does not include an amount to the extent to which it is a return on an equity interest in a company.

washing arrangement means an arrangement under which the title to a security is transferred to a resident shortly before an interest payment is made where the sole or dominant purpose of the arrangement is to reduce the amount of withholding tax payable by a person.

       (1AC)  An example of an amount in the nature of interest is an amount representing a discount on a security.

       (1AD)  An example of an amount in substitution for interest is a lump sum payment made instead of payments of interest.

        (1AE)  For the purposes of this Division, if a lender assigns a loan, or the right to interest under a loan, any payment from the borrower to the assignee that represents an amount that would have been interest if the assignment had not taken place is taken to be a payment of interest.

        (1AF)  For the purposes of this Division, if a person acquires a security, or the right to interest under a security, any payment from the issuer of the security to that person that represents an amount that would have been interest if the acquisition had not taken place is taken to be a payment of interest.

          (1A)  Subject to subsection (1B), for the purposes of this subsection and sections 128AA, 128AB, 128AD, 128C, 128NA and 128NBA:

                     (a)  a reference to the reduced issue price of a security that has been partially redeemed on one or more occasions is a reference to the issue price of the security reduced by the amount of the partial redemption or the sum of the amounts of the partial redemptions, as the case may be;

                     (b)  expressions used in this subsection or those sections that are also used in Division 16E have the same respective meanings as in that Division; and

                     (c)  sections 159GV (other than subsection 159GV(2)) and 159GZ apply as if references in those sections to “this Division” were references to “subsection 128A(1A) and sections 128AA, 128AB, 128AD, 128C, 128NA and 128NBA”.

          (1B)  Subsection (1A) applies as if:

                     (a)  paragraph (c) of the definition of qualifying security in subsection 159GP(1) were omitted; and

                     (b)  paragraph (a) of the definition of security in that subsection included a reference to debt interests.

             (2)  For the purposes of this Division, interest or a royalty shall be deemed to have been paid by a person to another person although it is not actually paid over to the other person but is reinvested, accumulated, capitalized, carried to any reserve, sinking fund or insurance fund however designated, or otherwise dealt with on behalf of the other person or as the other person directs.

             (3)  For the purposes of this Division, a beneficiary who is presently entitled to a dividend, to interest or to a royalty included in the income of a trust estate shall be deemed to have derived income consisting of that dividend, interest or royalty at the time when he or she became so entitled.

             (4)  In section 260, income tax or tax includes withholding tax.

             (5)  For the purposes of this Division:

                     (a)  the borrowing of moneys by a company by means of the issue of a number of debentures or debt interests in one borrowing operation shall be deemed to be the raising of a loan;

                     (b)  subject to paragraph (a), each receipt of moneys by a borrower under a contract under which moneys are to be, or may be, advanced by way of loan shall be deemed to be the raising of a loan; and

                     (c)  the moneys received by the raising of a loan, less the expenses of borrowing, shall be deemed to be the loan moneys in respect of the loan.

             (6)  A reference in this Division to beneficial interests in relation to an entity shall be read:

                     (a)  in the case of an entity being a company or the partners in a partnership—as a reference to beneficial interests in respect of the capital of, and in respect of any profits or income of, the company or partnership;

                     (b)  in the case of an entity being persons carrying on a joint venture—as a reference to beneficial interests in respect of the enterprise; and

                     (c)  in the case of an entity being the trustees of a trust—as a reference to beneficial interests under the trust.

             (7)  A reference in this Division to the use of moneys for the purposes of an enterprise shall be read as not including use of those moneys in the course of carrying on an enterprise:

                     (a)  by way of providing capital for another enterprise; or

                     (b)  by way of the making of loans.

             (9)  For the purposes of this Division:

                     (a)  a reference to particular loan moneys (including the reference in paragraph (b)) includes a reference to moneys that, in the opinion of the Commissioner, represent those loan moneys; and

                     (b)  without limiting the generality of paragraph (a):

                              (i)  moneys received by way of repayment of a loan made out of particular loan moneys; and

                             (ii)  moneys received in respect of shares in the capital of a company, being shares purchased or subscribed for by the expenditure of particular loan moneys, upon a sale of the shares, a return of capital by the company or liquidation of the company;

                            shall be deemed to represent those loan moneys.

           (10)  For the purposes of this Division, the trustee of a provident, benefit, superannuation or retirement fund is a non‑resident at a particular time if, and only if, the fund is a foreign superannuation fund at that time.

           (11)  If, apart from this subsection, there is, in relation to a fund, no person who is a trustee of the fund for the purposes of this Division, the person, or each of the persons, who manages the fund is taken, for the purposes of this Division, to be the trustee, or a trustee, as the case requires, of the fund.

128AA  Deemed interest in respect of transfers of certain securities

             (1)  Where:

                     (a)  a person transfers a qualifying security; and

                     (b)  the transfer price of the security exceeds the issue price or, where the security has been partially redeemed, the reduced issue price of the security;

so much of the transfer price as equals the excess referred to in paragraph (b) shall, for the purposes of this Division, be deemed to be income that consists of interest.

             (2)  For the purposes of references to the transfer price, issue price or reduced issue price of a qualifying security in subsection (1), any application of subsection 159GP(2) shall be disregarded.

128AB  Certificates relating to issue price of certain securities

             (1)  Where:

                     (a)  a qualifying security is or was transferred either before or after the commencement of this section; and

                     (b)  at the time of transfer either:

                              (i)  the transferor is or was a resident; or

                             (ii)  the transferor is or was a non‑resident and the transfer price is or was derived from a source in Australia;

the transferee may at any time after the transfer (including a time after the transferee ceases to be the holder of the security) apply to the Commissioner for the issue of a certificate under this section.

             (2)  An application under subsection (1) shall be in accordance with the form required by the Commissioner, by notice in writing published in the Gazette, for the purposes of applications under that subsection.

             (3)  Where the Commissioner is satisfied that the requirements of paragraph (1)(b) are satisfied in relation to the transfer of the qualifying security to which an application under subsection (1) relates and that the security was transferred on a particular date and for a particular consideration to the applicant, the Commissioner shall issue to the applicant a certificate that:

                     (a)  is expressed to be issued under this section;

                     (b)  identifies the security to which it relates;

                     (c)  specifies that date as the date of transfer;

                     (d)  specifies that consideration, or, where subsection 159GP(2) applies, the amount that is taken under that subsection to be the consideration for the transfer, as the transfer price; and

                     (e)  specifies the name of the applicant as the transferee.

             (4)  Where the Commissioner issues a certificate under this section in relation to a qualifying security that has been transferred to a person, the following provisions have effect:

                     (a)  for the purposes of the application of this Division in relation to the first subsequent transfer (if any) of the qualifying security by the person:

                              (i)  the amount specified in the certificate shall be taken to be the issue price of the security; and

                             (ii)  where the security was partially redeemed before the transfer to the person—any such partial redemption shall be taken not to have occurred;

                     (b)  if the security is redeemed or partially redeemed without having been subsequently transferred by the person—in determining for the purposes of the application of this Division the extent (if any) to which the redemption payment comprises an amount that is interest by reason only of the definition of interest in subsection 128A(1AB):

                              (i)  the amount specified in the certificate as the transfer price shall be taken to be the issue price of the security; and

                             (ii)  where the security was partially redeemed before the transfer to the person—any such partial redemption shall be taken not to have occurred.

             (5)  If the Commissioner refuses an application under subsection (1), the Commissioner shall serve on the applicant, by post or otherwise, notice in writing that the application has been refused.

128AC  Deemed interest in respect of hire‑purchase and certain other agreements

             (1)  In this section:

agreement means any agreement, arrangement or understanding, whether formal or informal, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings.

attributable agreement payment, in relation to a relevant agreement, means so much of any payment made or liable to be made under the agreement as represents consideration for the use, sale or disposal of the relevant agreement property.

carry forward interest, in relation to an attributable agreement payment in relation to a relevant agreement, means so much (if any) of the notional interest in relation to the payment as exceeds the amount of the payment.

eligible value, in relation to the relevant agreement property in relation to a relevant agreement, means the market value of the property at the time at which the agreement commences or commenced to apply in relation to the property.

formula interest, in relation to an attributable agreement payment in relation to a relevant agreement, means the amount ascertained in accordance with the formula , where:

A is the total interest in relation to the relevant agreements.

B is the total number of attributable agreement payments liable to be made under the relevant agreements; and

C is the number that is B, reduced by the number of attributable agreement payments made under the relevant agreement before the attributable agreement payment concerned.

notional interest, in relation to an attributable agreement payment in relation to a relevant agreement, means the sum of the formula interest (if any) in relation to the payment and the carry forward interest (if any) in relation to the immediately preceding attributable agreement payment in relation to the relevant agreement.

relevant agreement means an agreement entered into after 16 December 1984, being:

                     (a)  a hire‑purchase agreement; or

                     (b)  a lease or any other agreement relating to the use by a person of property owned by another person, being a lease or agreement under which:

                              (i)  the lessee or person using the property is entitled to purchase or require the transfer of the lease property or property subject to the agreement on the termination or expiration of the lease or agreement; or

                             (ii)  the lease term or term of the agreement is for all, or substantially all, of the effective life of the lease property or property subject to the agreement.

relevant agreement property, in relation to a relevant agreement, means:

                     (a)  in the case of a hire‑purchase agreement—the property that is the subject of the agreement; and

                     (b)  in any other case—the property in relation to which subparagraph (b)(i) or (ii) of the definition of relevant agreement applies.

total interest, in relation to a relevant agreement, means the sum of all of the attributable agreement payments liable to be made under the relevant agreement, reduced by the eligible value of the relevant agreement property.

             (2)  Where an agreement (including a hire‑purchase agreement and a lease) relates to the use by a person of 2 or more items of property owned by another person, this section applies as if, instead of the single agreement, there were separate agreements relating to the use of each of the items of property having such of the terms of the first‑mentioned agreement as are relevant.

             (3)  Where a variation is or was made in the terms of, or liability to make payments under, a relevant agreement, then, for the purposes of the application of this section:

                     (a)  the relevant agreement shall be taken to be, or to have been, terminated at the time at which the variation has effect; and

                     (b)  a new relevant agreement shall be taken to be, or to have been, entered into at the time at which the variation has effect and on the terms of the first‑mentioned relevant agreement as so varied.

             (4)  Where any right or option under an agreement to extend the term of, or otherwise vary the effect of, the agreement is or was exercised, then, for the purposes of this section, the exercise of that right or option shall be taken to be a variation of the terms of the agreement to provide for the extension or other effect.

             (5)  Where an attributable agreement payment in relation to a relevant agreement is made, so much of the attributable agreement payment as does not exceed the notional interest in relation to the payment shall, for the purposes of this Division, be deemed to be income that consists of interest.

             (6)  Where:

                     (a)  a relevant agreement is entered into after the commencement of this section; and

                     (b)  at the time at which the relevant agreement is entered into, the total interest in relation to the relevant agreement exceeds the sum of all amounts that, if all of the attributable agreement payments liable to be made under the relevant agreement were made, would, disregarding this subsection, be deemed to be income that consists of interest under subsection (5) in relation to the relevant agreement;

the amount of the notional interest in relation to the first attributable agreement payment in relation to the relevant agreement shall, for the purposes of this section, be increased by an amount equal to the excess referred to in paragraph (b).

             (7)  For the purposes of section 128D, where withholding tax is payable on a part of an attributable agreement payment that is taken under subsection (5) of this section to be an amount of interest, the withholding tax shall be taken to be payable on the whole of the attributable agreement payment.

128AD  Indemnification etc. agreements in relation to bills of exchange and promissory notes

             (1)  Where:

                     (a)  the drawer of a bill of exchange issued after the day on which this section comes into operation pays an amount (in this subsection referred to as the indemnification amount) to the acceptor of the bill to indemnify, reimburse or otherwise compensate the acceptor in respect of the whole or a part of an amount (which whole or part is in this subsection referred to as the eligible presentment amount) that the acceptor has, or will, become liable to pay to the payee under the bill on presentment of the bill;

                     (b)  no part of the indemnification amount is, or will be, included in the assessable income of the acceptor of any year of income; and

                     (c)  the whole or a part (in this subsection referred to as the eligible presentment interest) of the eligible presentment amount consists or will consist of interest;

so much of the indemnification amount as indemnifies, reimburses or otherwise compensates the acceptor in respect of the eligible presentment interest shall, for the purposes of this Division, be deemed to be income that consists of interest.

             (2)  Where:

                     (a)  a person (in this subsection referred to as the indemnifier) pays an amount (in this subsection referred to as the indemnification amount) to the issuer of a promissory note issued after the day on which this section comes into operation to indemnify, reimburse or otherwise compensate the issuer in respect of the whole or a part of an amount (which whole or part is in this subsection referred to as the eligible presentment amount) that the issuer has, or will, become liable to pay to the payee under the note on presentment of the note;

                     (b)  no part of the indemnification amount is, or will be, included in the assessable income of the issuer of any year of income; and

                     (c)  the whole or a part (in this subsection referred to as the eligible presentment interest) of the eligible presentment amount consists or will consist of interest;

so much of the indemnification amount as indemnifies, reimburses or otherwise compensates the issuer in respect of the eligible presentment interest shall, for the purposes of this Division, be deemed to be income that consists of interest.

128AE  Interpretation provisions relating to offshore banking units

             (1)  In this Division, unless the contrary intention appears:

borrow includes raise finance by the issue of a security.

lend includes provide finance by the purchase of a security.

OB activity has the same meaning as in section 121D.

offshore banking unit has the meaning given by this section.

offshore borrowing means:

                     (a)  a borrowing in any currency, by a person who is or has been an offshore banking unit, from a non‑resident who is not a related person (within the meaning of Division 9A); or

                     (b)  a borrowing in a currency other than Australian currency, by a person who is or has been an offshore banking unit, from a resident or a related person (within the meaning of Division 9A).

offshore gold borrowing means borrowing gold from an offshore person within the meaning of section 121E.

prevailing borrowing rate, in relation to a person who is or has been an offshore banking unit, in relation to a particular time, means the effective annual interest rate that the Commissioner considers was payable by the person on borrowings at or about that time or, where there were none, by offshore banking units generally at or about that time.

prevailing borrowing term, in relation to a person who is or has been an offshore banking unit, in relation to a particular time, means the period that the Commissioner considers was the usual term of borrowings by the person at or about that time or, where there were none, by offshore banking units generally at or about that time.

security means a bond, debenture, debt interest, bill of exchange, promissory note or other security or similar instrument.

tax exempt gold means gold that is tax exempt gold under this section.

tax exempt loan money means an amount that is tax exempt loan money under this section.

transfer to a person includes apply an amount for the benefit of a person.

             (2)  The Treasurer may, by notice published in the Gazette, declare a person being:

                     (a)  a body corporate that is an ADI (authorised deposit‑taking institution) for the purposes of the Banking Act 1959; or

                     (b)  a public authority constituted by a law of a State, being a public authority that carries on the business of State banking; or

                   (ba)  a company in which all of the equity interests are beneficially owned by an offshore banking unit (other than one to which paragraph (c) applies); or

                     (c)  a person whom the Treasurer is satisfied is appropriately authorised to carry on business as a dealer in foreign exchange; or

                     (d)  a life insurance company registered under section 21 of the Life Insurance Act 1995; or

                     (e)  a company incorporated under the Corporations Act 2001 that provides funds management services on a commercial basis (other than solely to related persons):

                              (i)  that is, under the Financial Sector (Collection of Data) Act 2001, a registered entity included in the category for money market corporations; or

                             (ii)  all of the shares which are beneficially owned by a company covered by subparagraph (i); or

                            (iii)  a financial services licensee (as defined by section 761A of the Corporations Act 2001) whose licence covers dealing in securities (as defined by subsection 92(3) of the Corporations Act 2001), providing financial advice in relation to such securities or operating a managed investment scheme (as defined by section 9 of the Corporations Act 2001); or

                      (f)  a company that the Treasurer determines, in writing, to be an OBU under subsection (2AA);

to be an offshore banking unit for the purposes of this Division.

       (2AA)  The Treasurer may, on written application by a company, make a written determination that the company is an OBU.

       (2AB)  The determination must:

                     (a)  specify the day when the company commences to be an OBU; and

                     (b)  contain any other information the Treasurer considers appropriate.

       (2AC)  A determination of the Treasurer under subsection (2AA) must be made in accordance with guidelines determined by the Treasurer under subsection (2AD).

       (2AD)  The Treasurer must, by legislative instrument, determine guidelines for the making of determinations under subsection (2AA). The guidelines may require the Treasurer to take into account:

                     (a)  specified criteria; or

                     (b)  recommendations of particular bodies; or

                     (c)  any other factors.

          (2A)  If a person who is an offshore banking unit for the purposes of this Division:

                     (a)  is convicted of an offence against section 8L, 8N, 8Q, 8T or 8U of the Taxation Administration Act 1953, or against Division 136 or 137 of the Criminal Code in relation to a taxation law (within the meaning of the Taxation Administration Act 1953); or

                     (b)  incurs a tax liability, within the meaning of that Act, by way of a penalty equal to 90% of an amount;

the Treasurer may declare, by notice published in the Gazette, that the person is no longer an offshore banking unit for the purposes of this Division.

          (2B)  If the Treasurer makes such a declaration in respect of a company that is an offshore banking unit only because of paragraph (2)(ba), the offshore banking unit mentioned in that paragraph, and in any previous application of that paragraph that was necessary for it to apply to the company, is no longer an offshore banking unit from the time when the declaration comes into force.

          (2C)  If a person who is an offshore banking unit ceases to be a person of a kind mentioned in any of paragraphs (2)(a), (b), (ba) and (c), the Treasurer must declare, by notice published in the Gazette, that the person is no longer an offshore banking unit for the purposes of this Division.

          (2D)  Except as mentioned in subsection (2A), (2B) or (2C), a person does not cease to be an offshore banking unit for the purposes of this Division.

             (3)  A declaration under subsection (2), (2A) or (2C) shall not come into force before the day on which the notice containing the declaration is published in the Gazette.

             (4)  Where:

                     (a)  a person who is an offshore banking unit makes an offshore borrowing or offshore gold borrowing; and

                     (b)  the lender would, but for section 128GB, be liable to pay withholding tax on income consisting of interest on the offshore borrowing or offshore gold borrowing;

then, for the purposes of this Division, the amount borrowed is tax exempt loan money or tax exempt gold of the person.

             (5)  Where:

                     (a)  a person who is or has been an offshore banking unit makes a loan of tax exempt loan money or tax exempt gold where the loan is an OB activity or would be if the person were an OBU; and

                     (b)  the loan is repaid;

the amount repaid is, for the purposes of this Division, deemed to be tax exempt loan money or tax exempt gold of the person.

             (7)  Where a person who is or has been an offshore banking unit transfers an amount of tax exempt loan money or tax exempt gold to another person, the following provisions have effect for the purposes of this Division:

                     (a)  subject to subsections (10) and (11), the amount transferred ceases to be tax exempt loan money or tax exempt gold of the person; and

                     (b)  the amount transferred does not become tax exempt loan money or tax exempt gold of the other person.

             (8)  Where a person who is or has been an offshore banking unit transfers to another person an amount of money or gold that, in the opinion of the Commissioner, includes tax exempt loan money or tax exempt gold, so much of the amount transferred as the Commissioner considers was tax exempt loan money or tax exempt gold is deemed, for the purposes of this Division, to have been tax exempt loan money or tax exempt gold of the person.

             (9)  Where a person who is or has been an offshore banking unit deals with an amount of tax exempt loan money or tax exempt gold of the person under the person’s internal accounting arrangements in such a way that the amount becomes available for possible transfer to other persons (other than by way of payment in carrying on an OB activity, or what would be an OB activity if the person were an OBU, or repayment of an offshore borrowing or an offshore gold borrowing), the following provisions have effect for the purposes of this Division:

                     (a)  the person is, when the amount so becomes available, deemed to make a transfer of the amount to another person, other than by way of payment in carrying on an OB activity (or what would be an OB activity if the person were an OBU) or repayment of an offshore borrowing or an offshore gold borrowing;

                     (b)  any actual transfer of the amount by the person to another person shall be disregarded.

           (10)  For the purposes of this Division, where a person who is or has been an offshore banking unit transfers tax exempt loan money to another person in exchange for an equivalent amount in a different currency:

                     (a)  the amount received in exchange shall be taken to be the same money as was transferred; and

                     (b)  the transfer shall be taken not to have occurred.

           (11)  For the purposes of this Division, where a person who is or has been an offshore banking unit transfers tax exempt loan money or tax exempt gold to another person by way of a deposit for the purposes of temporary safe‑keeping pending the making of an offshore loan or repayment of an offshore borrowing or an offshore gold borrowing:

                     (a)  the amount held on deposit and upon being repaid shall be taken to be the same money as was transferred; and

                     (b)  the transfer shall be taken not to have occurred.

           (12)  For the purposes of this section, an amount:

                     (a)  deposited in an account with a bank or other financial institution; or

                     (b)  paid by way of consideration for the issue of a security;

shall be taken to have been lent to, and borrowed by, the bank, financial institution or issuer of the security.

           (13)  If an offshore banking unit consists of:

                     (a)  one or more permanent establishments in Australia at or through which the offshore banking unit carries on what are OB activities within the meaning of Division 9A; and

                     (b)  one or more other permanent establishments either in Australia or outside Australia;

then this section and section 128NB apply as if:

                     (c)  the offshore banking unit consisted only of the permanent establishments referred to in paragraph (a); and

                     (d)  the permanent establishments referred to in paragraph (b) were separate persons.

128AF  Payments through interposed entities

             (1)  This section applies if:

                     (a)  a payment received by a non‑resident through one or more interposed companies, partnerships, trusts or other persons is attributable to an amount of dividends, interest or royalties paid by a resident; and

                     (b)  one or more of the interposed companies, partnerships, trusts or other persons is exempt from tax.

             (2)  If this section applies, the amount of dividends, interest or royalties paid by a resident is taken, for the purposes of this Division, to have been paid by the resident directly to the non‑resident.

             (3)  For the purposes of this section, a person is exempt from tax if, at the time at which the payment was received by the non‑resident, all income of the person was exempt from tax.

128B  Liability to withholding tax

          (1A)  In this section, a reference to a person to whom this section applies is a reference to the Commonwealth, a State, an authority of the Commonwealth or of a State or a person who is, or persons at least 1 of whom is, a resident.

             (1)  Subject to subsections (3), (3A), (3D) and (3E), this section applies to income that:

                     (a)  is derived, on or after 1 January 1968, by a non‑resident; and

                     (b)  consists of a dividend paid by a company that is a resident.

Note:          An amount declared to be conduit foreign income is an amount to which this section does not apply: see sections 802‑15 and 802‑17 of the Income Tax Assessment Act 1997.

             (2)  Subject to subsection (3), this section also applies to income that:

                     (a)  is derived, on or after 1 January 1968, by a non‑resident; and

                     (b)  consists of interest that:

                              (i)  is paid to the non‑resident by a person to whom this section applies and is not an outgoing wholly incurred by that person in carrying on business in a country outside Australia at or through a permanent establishment of that person in that country; or

                             (ii)  is paid to the non‑resident by a person who, or by persons each of whom, is not a resident and is, or is in part, an outgoing incurred by that person or those persons in carrying on business in Australia at or through a permanent establishment of that person or those persons in Australia.

Note:          An amount of interest paid to a person by a temporary resident is an amount to which this section does not apply: see section 768‑980 of the Income Tax Assessment Act 1997.

          (2A)  Subject to subsection (3), where income:

                     (a)  is, or has, after 2 July 1973, been, derived, or derived in part, by a person to whom this section applies in carrying on business in a country outside Australia at or through a permanent establishment of the person in that country; and

                     (b)  consists of interest that:

                              (i)  is or has been paid to the person by another person to whom this section applies and is not an outgoing wholly incurred by that other person in carrying on business in a country outside Australia at or through a permanent establishment of that other person in that country; or

                             (ii)  is or has been paid to the first‑mentioned person by a person who is, or by persons each of whom is, not a resident and is, or is in part, an outgoing incurred by that last‑mentioned person or those last‑mentioned persons in carrying on business in Australia at or through a permanent establishment of that last‑ mentioned person or those last‑mentioned persons in Australia;

this section also applies to that income or to the part of that income so derived, as the case may be.

Note:          An amount of interest paid to a person by a temporary resident is an amount to which this section does not apply: see section 768‑980 of the Income Tax Assessment Act 1997.

          (2B)  Subject to subsection (3), this section also applies to income that:

                     (a)  is derived by a non‑resident:

                              (i)  during the 1993‑94 year of income of the non‑resident; or

                             (ii)  during a later year of income of the non‑resident; and

                     (b)  consists of a royalty that:

                              (i)  is paid to the non‑resident by a person to whom this section applies and is not an outgoing wholly incurred by that person in carrying on business in a foreign country at or through a permanent establishment of that person in that country; or

                             (ii)  is paid to the non‑resident by a person who, or by persons each of whom, is not a resident and is, or is in part, an outgoing incurred by that person or those persons in carrying on business in Australia at or through a permanent establishment of that person or those persons in Australia.

          (2C)  Subject to subsection (3), where income:

                     (a)  is derived, or derived in part, by a person (the recipient) to whom this section applies in carrying on business in a country outside Australia at or through a permanent establishment of the person in that country; and

                     (b)  consists of a royalty that:

                              (i)  is paid to the recipient by another person (the payer) to whom this section applies and is not an outgoing wholly incurred by the payer in carrying on business in a country outside Australia at or through a permanent establishment of the payer in that country; or

                             (ii)  is paid to the recipient by one or more persons (the non‑resident payers), each of whom is not a resident, and is, or is in part, an outgoing incurred by the non‑resident payers in carrying on business in Australia at or through a permanent establishment of the non‑resident payers in Australia;

this section also applies to that income or to the part of that income mentioned in paragraph (a).

          (2D)  Subsections (2B) and (2C) do not apply to income to the extent to which it is a return on an equity interest in a company.

             (3)  This section does not apply to:

                  (aaa)  income that consists of a non‑share dividend that is unfrankable under section 215‑10 of the Income Tax Assessment Act 1997; or

                     (a)  income derived by a non‑resident that is:

                              (i)  exempt from income tax because of section 50‑5 (other than because of item 1.6 in the table in that section) or 50‑10, item 6.1 or 6.2 of the table in section 50‑30, section 50‑40 or item 9.1 or 9.2 of the table in section 50‑45 of the Income Tax Assessment Act 1997; and

                             (ii)  exempt from income tax in the country in which the non‑resident resides; or

                    (aa)  income derived by a non‑resident that is an overseas charitable institution (within the meaning of section 121C) where the income is exempt under subsection 121ELA(1); or

                   (ba)  income that is exempt from income tax because of section 124ZM (which exempts dividends paid by PDFs); or

                   (bb)  income that is not included in assessable income because of section 159GZZZZE; or

                     (d)  income in respect of which a trustee is liable to be assessed under section 99 or section 99A; or

                     (e)  income that is derived by a trustee, being a trustee in relation to a trust created by a person who, at the time the income is derived, is a resident and in respect of which the Commissioner is empowered, under section 102, to assess the trustee to pay income tax; or

                    (ga)  income that consists of:

                              (i)  the franked part of a dividend; or

                             (ii)  in relation to a dividend that is paid by a former exempting entity (within the meaning of the Income Tax Assessment Act 1997) on a share acquired under an employee share scheme (within the meaning of that Act)—the part of the dividend that is franked with an exempting credit; or

                            (iii)  in relation to a dividend that is paid by a former exempting entity (within the meaning of the Income Tax Assessment Act 1997) to an eligible continuing substantial member (within the meaning of that Act)—the part of the dividend that is franked with an exempting credit;

                            other than a dividend in respect of which a determination is made under paragraph 204‑30(3)(c) of the Income Tax Assessment Act 1997 or a dividend or a part of a dividend in respect of which a determination is made under paragraph 177EA(5)(b) of this Act; or

                   (gb)  income that consists of a dividend derived from assets included in the insurance funds of a life assurance company that carries on business in Australia at or through a permanent establishment of the life assurance company in Australia; or

                    (gc)  income that consists of interest derived on a nostro account by a non‑resident that is a foreign bank; or

                     (h)  income that consists of:

                             (ii)  interest derived by a non‑resident in carrying on business in Australia at or through a permanent establishment of the non‑resident in Australia (except interest derived by a limited partner in a VCLP, ESVCLP or AFOF as such a partner);

                            (iv)  interest to which section 128F, 128FA or 128GB applies; or

                      (j)  income in respect of which a taxpayer is liable to be assessed under Division 9C; or

                    (jb)  income that:

                              (i)  is derived by a non‑resident that is a superannuation fund for foreign residents; and

                             (ii)  consists of interest, or consists of dividends or non‑share dividends paid by a company that is a resident; and

                            (iii)  is exempt from income tax in the country in which the non‑resident resides; or

                     (k)  income that is not included in assessable income because of subsection 271‑105(1); or

                      (l)  income derived by a trustee that, because of paragraph 102UK(2)(b) or 102UM(2)(b), is not included in the assessable income of a trustee beneficiary of the trust estate; or

                    (m)  income that consists of a royalty that is paid to the non‑resident by a person (the lessee) as consideration for the lease, by the lessee from the non‑resident, of a vessel if:

                              (i)  the lessee is an Australian resident company; and

                             (ii)  the vessel is not an excluded vessel (within the meaning of the Shipping Reform (Tax Incentives) Act 2012); and

                            (iii)  under the lease, the lessee has whole possession and control of the vessel (including the right to appoint the master and crew of the ship); and

                            (iv)  during the period of the lease, the vessel is used, or is available for use, as mentioned in paragraph 8(1)(c) of the Shipping Reform (Tax Incentives) Act 2012.

          (3A)  Paragraph (3)(ga) does not apply to income consisting of a dividend, or a part of a dividend, that is derived by the trustee of a trust, or a partnership, to the extent (if any) to which any amount paid to, or applied for the benefit of, a taxpayer (being a beneficiary in the trust or a partner in the partnership) that:

                     (a)  was attributable to the dividend; and

                     (b)  was paid or applied:

                              (i)  in respect of an interest in the trust or partnership that was acquired, or was acquired for a period that was extended, at or after the commencing time; or

                             (ii)  under a financing arrangement (including an arrangement extending an earlier arrangement) entered into at or after the commencing time;

may reasonably be regarded as equivalent to the payment of interest on a loan.

          (3B)  In subsection (3A):

commencing time means 7.30 pm by legal time in the Australian Capital Territory on 13 May 1997.

financing arrangement has the meaning given by subsection 995‑1(1) of the Income Tax Assessment Act 1997.

          (3C)  In determining for the purposes of subsection (3A) the extent (if any) to which an amount may reasonably be regarded as equivalent to the payment of interest on a loan, regard is to be had to:

                     (a)  the way in which the amount was calculated; and

                     (b)  the conditions applying to the payment or application of the amount; and

                     (c)  any other relevant matters.

          (3D)  This section does not apply to a demerger dividend to which section 45B does not apply.

          (3E)  This section does not apply to income that consists of a dividend that:

                     (a)  is paid to a person who is a non‑resident carrying on business in Australia at or through a permanent establishment of the person in Australia; and

                     (b)  is attributable to the permanent establishment; and

                     (c)  is not paid to the person in the person’s capacity as trustee.

Note:          This subsection not only ensures that this section does not apply to that income to make withholding tax payable on it, but also (as a result) ensures that none of that income is non‑assessable non‑exempt income under section 128D. Subsection 44(1) makes that income assessable income.

           (3F)  In subsection (3E):

permanent establishment of a person:

                     (a)  has the same meaning as in a double tax agreement (as defined in Part X) that relates to a foreign country and affects the person; or

                     (b)  has the meaning given by subsection 6(1), if there is no such agreement.

             (4)  A person who derives income to which this section applies that consists of a dividend is liable to pay income tax upon that income at the rate declared by the Parliament in respect of income to which this subsection applies.

             (5)  A person who derives income to which this section applies that consists of interest is, subject to subsections (6) and (7), liable to pay income tax upon that income at the rate declared by the Parliament in respect of income to which this subsection applies.

          (5A)  A person who derives income to which this section applies that consists of a royalty is liable to pay income tax upon that income at the rate declared by the Parliament in respect of income to which this subsection applies.

             (6)  Where:

                     (a)  income to which this section applies consists of interest and is paid to the person by whom it is derived by a person to whom this section applies; and

                     (b)  the interest is, in part only, an outgoing incurred by that person to whom this section applies in carrying on business in a country outside Australia at or through a permanent establishment of that person to whom this section applies in that country;

income tax is payable under subsection (5) upon so much only of the income as is attributable to so much of the interest as is not an outgoing so incurred.

             (7)  Where:

                     (a)  income to which this section applies consists of interest and is paid to the person by whom it is derived by a person who, or by persons each of whom, is not a resident; and

                     (b)  the interest is, in part only, an outgoing incurred by the person or persons by whom it is paid in carrying on business in Australia at or through a permanent establishment of that person or those persons in Australia;

income tax is payable under subsection (5) upon so much only of the income as is attributable to so much of the interest as is an outgoing so incurred.

             (8)  For the purposes of subparagraphs (2)(b)(i) and (2A)(b)(i) and paragraph (6)(b), where:

                     (a)  interest is paid, or has, after 2 July 1973, been paid, to a person by another person, being a person to whom this section applies, carrying on business in a country outside Australia; and

                     (b)  the interest or a part of the interest:

                              (i)  is interest incurred by the other person in gaining or producing income that is derived by the other person otherwise than in carrying on business in a country outside Australia at or through a permanent establishment of the other person in that country or is interest incurred by the other person for the purpose of gaining or producing income to be so derived; or

                             (ii)  is interest incurred by the other person in carrying on business for the purpose of gaining or producing income and is reasonably attributable to income that is derived, or may be derived, by the other person otherwise than in so carrying on business at or through a permanent establishment of the other person in a country outside Australia;

the interest or the part of the interest, as the case may be, is not an outgoing incurred by the other person in carrying on business in a country outside Australia at or through a permanent establishment of the other person in that country.

             (9)  For the purposes of subparagraphs (2)(b)(ii) and (2A)(b)(ii) and paragraph (7)(b), where:

                     (a)  interest is paid, or has, after 2 July 1973, been paid, to a person by another person or other persons (in this subsection referred to as the borrower), being:

                              (i)  another person who is or was carrying on business in Australia and is not or was not a resident; or

                             (ii)  other persons who are or were carrying on business in Australia and each of whom is not or was not a resident; and

                     (b)  the interest or a part of the interest:

                              (i)  is interest incurred by the borrower in gaining or producing income that is derived by the borrower in carrying on business in Australia at or through a permanent establishment of the borrower in Australia or is interest incurred by the borrower for the purpose of gaining or producing income to be so derived; or

                             (ii)  is interest incurred by the borrower in carrying on a business for the purpose of gaining or producing income and is reasonably attributable to income that is derived, or may be derived, by the borrower in so carrying on business at or through a permanent establishment of the borrower in Australia;

the interest or the part of the interest, as the case may be, is an outgoing incurred by the borrower in carrying on business in Australia at or through a permanent establishment of the borrower in Australia.

          (9A)  For the purposes of subparagraphs (2B)(b)(i) and (2C)(b)(i), where:

                     (a)  a royalty is paid, to a person by another person, being a person to whom this section applies, carrying on business in a country outside Australia; and

                     (b)  the royalty, or a part of the royalty:

                              (i)  is a royalty incurred by the other person in gaining or producing income that is derived by the other person otherwise than in carrying on business in a country outside Australia at or through a permanent establishment of the other person in that country or is a royalty incurred by the other person for the purpose of gaining or producing income to be so derived; or

                             (ii)  is a royalty incurred by the other person in carrying on business for the purpose of gaining or producing income and is reasonably attributable to income that is derived, or may be derived, by the other person otherwise than in so carrying on business at or through a permanent establishment of the other person in a country outside Australia;

the royalty or the part of the royalty, as the case may be, is not an outgoing incurred by the other person in carrying on business in a country outside Australia at or through a permanent establishment of the other person in that country.

          (9B)  For the purposes of subparagraphs (2B)(b)(ii) and (2C)(b)(ii), where:

                     (a)  a royalty is paid to a person by another person or other persons (the licensee), being:

                              (i)  another person who is or was carrying on business in Australia and is not or was not a resident; or

                             (ii)  other persons who are or were carrying on business in Australia and each of whom is not or was not a resident; and

                     (b)  the royalty or a part of the royalty:

                              (i)  is a royalty incurred by the licensee in gaining or producing income that is derived by the licensee in carrying on business in Australia at or through a permanent establishment of the licensee in Australia or is a royalty incurred by the licensee for the purpose of gaining or producing income to be so derived; or

                             (ii)  is a royalty incurred by the licensee in carrying on a business for the purpose of gaining or producing income and is reasonably attributable to income that is derived, or may be derived, by the licensee in so carrying on business at or through a permanent establishment of the licensee in Australia;

the royalty or the part of the royalty, as the case may be, is an outgoing incurred by the licensee in carrying on business in Australia at or through a permanent establishment of the licensee in Australia.

          (9C)  If:

                     (a)  apart from this subsection, tax would be payable under subsection 126(1) on an amount of interest paid to a person; and

                     (b)  section 128F would apply to the interest, assuming that paragraph (1)(e) of that section had not been enacted;

then:

                     (c)  despite anything else in this section, the interest is taken, for the purposes of this Division, to be income derived by the person and to be income to which this section applies; and

Note:       As a result of this paragraph, the interest will not be subject to tax under subsection 126(1): see paragraph 126(1)(b).

                     (d)  in addition to the effect of any credit arising under section 18‑30 in Schedule 1 to the Taxation Administration Act 1953 in respect of the interest, the total tax payable by the person, other than under this section, is reduced by the amount of any tax payable under this section on the interest; and

                     (e)  tax paid under this section on the interest is not an allowable deduction.

           (10)  Income tax payable by a person in accordance with this section is in addition to any other income tax payable by him or her upon income to which this section does not apply.

           (11)  Income tax payable by a person in accordance with this section upon income to which this section applies by virtue of subsection (2A) or (2C) is in addition to, and shall not be taken into account in arriving at the amount of, any other income tax payable by him or her in respect of that income.

128C  Payment of withholding tax

             (1)  Withholding tax is due and payable by the person liable to pay the tax at the expiration of 21 days after the end of the month in which the income to which the tax relates was derived by the person.

             (3)  If any of the withholding tax which a person is liable to pay remains unpaid after the time by which it is due to be paid, the person is liable to pay the general interest charge on the unpaid amount for each day in the period that:

                     (a)  started at the beginning of the day by which the withholding tax was due to be paid; and

                     (b)  finishes at the end of the last day on which, at the end of the day, any of the following remains unpaid:

                              (i)  the withholding tax;

                             (ii)  general interest charge on any of the withholding tax.

Note:          The general interest charge is worked out under Part IIA of the Taxation Administration Act 1953.

       (4AA)  If:

                     (a)  a person is liable to pay the general interest charge on an amount of withholding tax which is payable on an amount that, by virtue of the application of section 128AA, is taken to consist of interest paid in relation to the transfer of a qualifying security;

                     (b)  the Commissioner is satisfied that:

                              (i)  before the security was transferred, a notice expressed to be issued under subsection 265B(4) identifying the security was given by the person, in connection with the transfer, to the transferee;

                             (ii)  one or more of the statements made in the notice is incorrect; and

                            (iii)  the person did not know of the circumstance referred to in subparagraph (ii) at the time of transfer of the security; and

                     (c)  the proper amount of the withholding tax liability of the person exceeds the amount that would have been the amount of the withholding tax liability if it were determined on the basis that the statements made in the notice were correct;

the Commissioner shall remit so much of the amount of the general interest charge as bears to that amount the same proportion as the amount of the excess referred to in paragraph (c) bears to the amount of withholding tax.

             (6)  The ascertainment of the amount of any withholding tax shall not be deemed to be an assessment within the meaning of any of the provisions of this Act.

             (7)  The Commissioner may serve on a person, by post or otherwise, a notice in which is specified:

                     (a)  the amount of any withholding tax that the Commissioner has ascertained is payable by that person; and

                     (b)  the date on which that tax became due and payable.

             (8)  The production of a notice served under subsection (7), or of a document under the hand of the Commissioner, a Second Commissioner or a Deputy Commissioner purporting to be a copy of such a notice, is evidence that the amount of withholding tax specified in the notice became due and payable by the person on whom the notice was served on the date so specified.

128D  Certain income not assessable

                   Income other than income to which section 128B applies by virtue of subsection (2A), (2C) or (9C) of that section upon which withholding tax is payable, or upon which withholding tax would, but for paragraph 128B(3)(ga), (jb) or (m), section 128F, section 128FA or section 128GB, be payable, is not assessable income and is not exempt income of a person.

Note:          An amount of interest paid to a person by a temporary resident is non‑assessable non‑exempt income: see section 768‑980 of the Income Tax Assessment Act 1997.

128F  Division does not apply to interest on certain publicly offered company debentures or debt interests

Interest to which this section applies

             (1)  This section applies to interest paid by a company in respect of a debenture or debt interest in the company if:

                     (a)  the company was a resident of Australia when it issued the debenture or debt interest; and

                     (b)  the company is a resident of Australia when the interest is paid; and

                     (c)  for a debt interest other than a debenture—the debt interest:

                              (i)  is a non‑equity share; or

                             (ii)  consists of 2 or more related schemes (within the meaning of the Income Tax Assessment Act 1997) where one or more of them is a non‑equity share; or

                            (iii)  is a syndicated loan; or

                            (iv)  is prescribed by the regulations for the purposes of this section; and

                     (d)  either:

                              (i)  the issue of the debenture or debt interest satisfies the public offer test set out in subsection (3) or (4); or

                             (ii)  for a syndicated loan—the invitation to become a lender under the relevant syndicated loan facility satisfies the public offer test set out in subsection (3A).

          (1A)  This section also applies to interest paid by a company in respect of a debenture or debt interest in the company if:

                     (a)  the company was a non‑resident when it issued the debenture or debt interest; and

                     (b)  the company is a non‑resident when the interest is paid; and

                     (c)  the debenture or debt interest was issued, and the interest is paid, by the company in carrying on business at or through a permanent establishment in Australia; and

                     (d)  for a debt interest other than a debenture—the debt interest:

                              (i)  is a non‑equity share; or

                             (ii)  consists of 2 or more related schemes (within the meaning of the Income Tax Assessment Act 1997) where one or more of them is a non‑equity share; or

                            (iii)  is a syndicated loan; or

                            (iv)  is prescribed by the regulations for the purposes of this section; and

                     (e)  either:

                              (i)  the issue of the debenture or debt interest satisfies the public offer test set out in subsection (3) or (4); or

                             (ii)  for a syndicated loan—the invitation to become a lender under the relevant syndicated loan facility satisfies the public offer test set out in subsection (3A).

          (1B)  If:

                     (a)  some or all of the transfer price (within the meaning of section 128AA) of a debenture or debt interest is taken under that section to be income that consists of interest; and

                     (b)  for a debt interest other than a debenture—the debt interest:

                              (i)  is a non‑equity share; or

                             (ii)  consists of 2 or more related schemes (within the meaning of the Income Tax Assessment Act 1997) where one or more of them is a non‑equity share; or

                            (iii)  is a syndicated loan; or

                            (iv)  is prescribed by the regulations for the purposes of this section; and

                     (c)  either:

                              (i)  the issue of the debenture or debt interest satisfies the public offer test set out in subsection (3) or (4); or

                             (ii)  for a syndicated loan—the invitation to become a lender under the relevant syndicated loan facility satisfies the public offer test set out in subsection (3A);

this section applies to the interest.

Note:          Subsection (6) does not apply to the interest because that subsection deals only with interest paid on a debenture or debt interest by the issuing company.

Tax not payable

             (2)  Tax is not payable under this Division in respect of interest to which this section applies.

Public offer test

             (3)  The issue of a debenture or debt interest by a company satisfies the public offer test if the issue resulted from the debenture or debt interest being offered for issue:

                     (a)  to at least 10 persons each of whom:

                              (i)  was carrying on a business of providing finance, or investing or dealing in securities, in the course of operating in financial markets; and

                             (ii)  was not known, or suspected, by the company to be an associate (see subsection (9)) of any of the other persons covered by this paragraph; or

                     (b)  to at least 100 persons whom it was reasonable for the company to have regarded as either:

                              (i)  having acquired debentures or debt interests in the past; or

                             (ii)  being likely to be interested in acquiring debentures or debt interests; or

                     (c)  as a result of being accepted for listing on a stock exchange, where the company had previously entered into an agreement with a dealer, manager or underwriter, in relation to the placement of debentures or debt interests, requiring the company to seek such listing; or

                     (d)  as a result of negotiations being initiated publicly in electronic form, or in another form, that was used by financial markets for dealing in debentures or debt interests; or

                     (e)  to a dealer, manager or underwriter, in relation to the placement of debentures or debt interests, who, under an agreement with the company, offered the debenture or debt interest for sale within 30 days in a way covered by any of paragraphs (a) to (d).

          (3A)  An invitation to become a lender under a syndicated loan facility by a company satisfies the public offer test if the invitation was made:

                     (a)  to at least 10 persons each of whom:

                              (i)  was carrying on a business of providing finance, or investing or dealing in securities, in the course of operating in financial markets; and

                             (ii)  was not known, or suspected, by the company to be an associate (see subsection (9)) of any of the other persons covered by this paragraph; or

                     (b)  publicly in electronic form, or in another form, that was used by financial markets for dealing in debentures or debt interests; or

                     (c)  to a dealer, manager or underwriter, in relation to the placement of debentures or debt interests, who, under an agreement with the company, made the invitation to become a lender under the facility within 30 days in a way covered by paragraph (a) or (b).

Global bonds

             (4)  The issue of a debenture or debt interest by a company also satisfies the public offer test if the debenture or debt interest is a global bond (see subsection (10)).

Issues and invitations that always fail the public offer test

             (5)  The issue of a debenture or debt interest by a company does not satisfy the public offer test if, at the time of the issue, the company knew, or had reasonable grounds to suspect, that:

                     (a)  the debenture, an interest in the debenture or the debt interest was being, or would be, acquired either directly or indirectly by an associate of the company; and

                     (b)  either:

                              (i)  the associate is a non‑resident and the debenture or interest, or the debt interest, was not being, or would not be, acquired by the associate in carrying on a business in Australia at or through a permanent establishment of the associate in Australia; or

                             (ii)  the associate is a resident of Australia and the debenture or interest, or the debt interest, was being, or would be, acquired by the associate in carrying on a business in a country outside Australia at or through a permanent establishment of the associate in that country; and

                     (c)  the debenture or interest, or the debt interest, was not being, or would not be, acquired by the associate in the capacity of:

                              (i)  a dealer, manager or underwriter in relation to the placement of the debenture or debt interest; or

                             (ii)  a clearing house, custodian, funds manager or responsible entity of a registered scheme.

       (5AA)  An invitation to become a lender under a syndicated loan facility is taken never to have satisfied the public offer test if, at the time the invitation is made, the company knew, or had reasonable grounds to suspect, that:

                     (a)  an associate of the company is or will become a lender under the facility; and

                     (b)  either:

                              (i)  the associate is a non‑resident and the associate is not or would not become a lender under the facility in carrying on a business in Australia at or through a permanent establishment of the associate in Australia; or

                             (ii)  the associate is a resident of Australia and the associate is or would become a lender under the facility in carrying on a business in a country outside Australia at or through a permanent establishment of the associate in that country; and

                     (c)  the associate is not or would not become a lender under the facility in the capacity of:

                              (i)  a dealer, manager or underwriter in relation to the invitation; or

                             (ii)  a clearing house, custodian, funds manager or responsible entity of a registered scheme.

No exemption for interest paid to certain associates of the issuing company

             (6)  This section does not apply to interest paid by the company to a person in respect of the debenture or debt interest if, at the time of the payment, the company knows, or has reasonable grounds to suspect, that:

                     (a)  the person is an associate of the company; and

                     (b)  either:

                              (i)  the associate is a non‑resident and the payment is not received by the associate in respect of a debenture or debt interest that the associate acquired in carrying on a business in Australia at or through a permanent establishment of the associate in Australia; or

                             (ii)  the associate is a resident of Australia and the payment is received by the associate in respect of a debenture or debt interest that the associate acquired in carrying on a business in a country outside Australia at or through a permanent establishment of the associate in that country; and

                     (c)  the associate does not receive the payment in the capacity of a clearing house, paying agent, custodian, funds manager or responsible entity of a registered scheme.

Australian public bodies are treated as Australian resident companies

             (7)  This section applies in relation to a debenture or debt interest issued by:

                     (a)  the Commonwealth, a State or a Territory; or

                     (b)  an authority of the Commonwealth, of a State or of a Territory;

as if the Commonwealth, State, Territory or authority were a company and a resident of Australia.

Debentures or debt interests issued through certain non‑resident subsidiaries can also get the exemption

             (8)  If:

                     (a)  a company (the parent company) beneficially owns all of the issued equity interests in the capital of a company (the subsidiary) that is not a resident of Australia; and

                     (b)  the subsidiary’s only business is raising finance for the purposes of the parent company; and

                     (c)  the subsidiary raises finance in a country specified in the regulations (but not Australia) by issuing a debenture or debt interest in that country; and

                     (d)  when the debenture or debt interest is issued, the subsidiary is treated as a resident of that country for the purposes of the tax law (see subsection (9)) of the country;

then this section has effect as if the parent company had raised the finance and issued the debenture or debt interest.

Definitions

             (9)  In this section:

associate has the meaning given by section 318, except that paragraphs (1)(b), (2)(a) and (4)(a) of that section must be disregarded.

clearing house means a person who operates a facility that is used by financial markets for investing in or dealing in securities.

company includes a company in the capacity of trustee of a resident trust estate if:

                     (a)  the trust is not established by a will, or instrument of trust, for public charitable purposes; and

                     (b)  the only person who is capable (whether by the exercise of a power of appointment or otherwise) of benefiting under the trust is a company other than a company in the capacity of trustee.

debenture, without affecting its meaning elsewhere in this Act, includes a promissory note or a bill of exchange (in addition to the things mentioned in the definition of debenture in subsection 6(1)).

global bond has the meaning given by subsection (10).

registered scheme has the same meaning as in the Corporations Act 2001.

responsible entity, of a registered scheme, has the same meaning as in the Corporations Act 2001.

syndicated loan means a loan or other form of financial accommodation that is provided under a syndicated loan facility, being a facility that has 2 or more lenders.

syndicated loan facility has the meaning given by subsections (11), (12) and (13).

tax law, in relation to a country other than Australia, means:

                     (a)  if the country has federal foreign tax—the law of the country that imposes the federal foreign tax; or

                     (b)  in any other case—the law of the country that imposes foreign tax.

Global bond

           (10)  A debenture or debt interest issued by a company is a global bond if:

                     (a)  it describes itself as a global bond or a global note; and

                     (b)  it is issued to a clearing house (see subsection (9)) or to a person as trustee or agent for, or otherwise on behalf of, one or more clearing houses; and

                     (c)  in connection with the issue, the clearing house or houses:

                              (i)  confer rights in relation to the debenture or debt interest on other persons; and

                             (ii)  record the existence of the rights; and

                     (d)  before the issue:

                              (i)  the company; or

                             (ii)  a dealer, manager or underwriter, in relation to the placement of debentures or debt interests, on behalf of the company;

                            announces that, as a result of the issue, such rights will be able to be created; and

                     (e)  the announcement is made in a way or ways covered by any of paragraphs (3)(a) to (e) (reading a reference in those paragraphs to “debentures or debt interests” as if it were a reference to such a right, and a reference to the “company” as if it included a reference to the dealer, manager or underwriter); and

                      (f)  under the terms of the debenture or debt interest, interests in the debenture or debt interest are able to be surrendered, whether or not in particular circumstances, in exchange for other debentures or debt interests issued by the company that are not themselves global bonds.

           (11)  A written agreement is a syndicated loan facility if:

                     (a)  the agreement describes itself as a syndicated loan facility or syndicated facility agreement; and

                     (b)  the agreement is between one or more borrowers and at least 2 lenders; and

                     (c)  under the agreement each lender severally, but not jointly, agrees to lend money to, or otherwise provide financial accommodation to, the borrower or borrowers; and

                     (d)  the amount to which the borrower or borrowers will have access at the time the first loan or other form of financial accommodation is to be provided under the agreement is at least $100,000,000 (or a prescribed amount).

           (12)  A written agreement is also a syndicated loan facility if:

                     (a)  the agreement describes itself as a syndicated loan facility or syndicated facility agreement; and

                     (b)  the agreement is between one or more borrowers and one lender where the agreement provides for the addition of other lenders; and

                     (c)  the agreement provides that, when other lenders are added, each lender severally, but not jointly, agrees to lend money to, or otherwise provide financial accommodation to, the borrower or borrowers; and

                     (d)  the amount to which the borrower or borrowers will have access at the time the first loan or other form of financial accommodation is to be provided under the agreement is at least $100,000,000 (or a prescribed amount).

           (13)  However, an agreement under which there are 2 or more borrowers is a syndicated loan facility only if all of them are:

                     (a)  members of the same wholly‑owned group (within the meaning of the Income Tax Assessment Act 1997); or

                     (b)  parties to the same joint venture; or

                     (c)  associates of each other.

           (14)  For the purposes of this section, a change (including by novation) to the lenders under a syndicated loan facility does not result in a different agreement.

           (15)  For a debt interest that consists of 2 or more related schemes (within the meaning of the Income Tax Assessment Act 1997) where one or more of them is a non‑equity share, this section applies only to interest paid in respect of the non‑equity share.

Note:          Subsection 128A(1AB) defines interest for the purposes of this Division. Under that subsection, dividends paid in respect of a non‑equity share are treated as being interest.

           (16)  The rule in subsection (15) does not apply to the extent that interest in respect of the other related scheme or schemes would be interest to which this section applies in respect of a debenture or debt interest.

128FA  Division does not apply to interest on certain publicly offered unit trust debentures or debt interests

Interest to which this section applies

             (1)  This section applies to interest paid by the trustee of an eligible unit trust in respect of a debenture or debt interest issued by the trustee if:

                     (a)  for a debt interest other than a debenture—the debt interest:

                              (i)  is a syndicated loan; or

                             (ii)  is prescribed by the regulations for the purposes of this section; and

                     (b)  either:

                              (i)  the issue of the debenture or debt interest satisfies the public offer test set (see subsection (6)); or

                             (ii)  for a syndicated loan—the invitation to become a lender under the relevant syndicated loan facility satisfies the public offer test (see subsection (6A)).

             (2)  If:

                     (a)  some or all of the transfer price (within the meaning of section 128AA) of a debenture or debt interest issued by the trustee of an eligible unit trust is taken under that section to be income that consists of interest; and

                     (b)  for a debt interest other than a debenture—the debt interest:

                              (i)  is a syndicated loan; or

                             (ii)  is prescribed by the regulations for the purposes of this section; and

                     (c)  either:

                              (i)  the issue of the debenture or debt interest satisfies the public offer test set (see subsection (6)); or

                             (ii)  for a syndicated loan—the invitation to become a lender under the relevant syndicated loan facility satisfies the public offer test (see subsection (6A));

this section applies to the interest.

Note:          Subsection (4) does not apply to the interest because that subsection deals only with interest paid on a debenture or debt interest by the issuing eligible unit trust.

Tax not payable

             (3)  Tax is not payable under this Division in respect of interest to which this section applies.

No exemption for interest paid to certain associates of the issuing trustee

             (4)  This section does not apply to interest paid by the trustee of an eligible unit trust to a person in respect of the debenture or debt interest if, at the time of the payment, the trustee knows, or has reasonable grounds to suspect, that:

                     (a)  the person is an associate of the trustee; and

                     (b)  either:

                              (i)  the associate is a non‑resident and the payment is not received by the associate in respect of a debenture or debt interest that the associate acquired in carrying on a business in Australia at or through a permanent establishment of the associate in Australia; or

                             (ii)  the associate is a resident of Australia and the payment is received by the associate in respect of a debenture or debt interest that the associate acquired in carrying on a business in a country outside Australia at or through a permanent establishment of the associate in that country; and

                     (c)  the associate does not receive the payment in the capacity of a clearing house, paying agent, custodian, funds manager or responsible entity of a registered scheme.

Debentures or debt interests issued through certain non‑resident subsidiaries can also get the exemption

             (5)  If:

                     (a)  the trustee of an eligible unit trust holds all of the issued equity interests in the capital of a company that is not a resident of Australia; and

                     (b)  the company’s only business is raising finance for the purposes of the eligible unit trust; and

                     (c)  the company raises finance in a country specified in the regulations (but not Australia) by issuing a debenture or debt interest in that country; and

                     (d)  when the debenture or debt interest is issued, the company is treated as a resident of that country for the purposes of the tax law (see subsection (8)) of the country;

then this section has effect as if the trustee had raised the finance and issued the debenture or debt interest.

Public offer test

             (6)  For the purposes of working out under this section whether the issue of a debenture or debt interest by the trustee of an eligible unit trust satisfies the public offer test, subsections 128F(3) to (5) apply to the trustee of the eligible unit trust in a corresponding way to the way in which those subsections apply to a company, subject to subsection (7) of this section.

          (6A)  For the purposes of working out under this section whether an invitation to become a lender under a syndicated loan facility satisfies the public offer test, subsections 128F(3A) and (5AA) apply to the trustee of the eligible unit trust in a corresponding way to the way in which those subsections apply to a company, subject to subsection (7) of this section.

             (7)  For the purposes of applying subsection 128F(3), (3A), (4), (5) or (5AA) as mentioned in subsection (6) or (6A) of this section:

                     (a)  a reference in any of those subsections to a company knowing, suspecting or having reasonable grounds to suspect something, or it being reasonable for a company to have regarded something, is taken to be a reference to the trustee of the eligible unit trust knowing, suspecting or having reasonable grounds to suspect that thing, or it being reasonable for the trustee of the eligible unit trust to have regarded that thing; and

                     (b)  a reference in any of those subsections to an associate is taken to be a reference to an associate within the meaning of this section; and

                     (c)  a reference in any of those subsections to a global bond is taken to be a reference to a global bond within the meaning of subsection 128F(10).

          (7A)  For the purposes of this section, a change (including by novation) to the lenders under a syndicated loan facility does not result in a different agreement.

Definitions

             (8)  In this section:

associate has the meaning given by section 318, except that:

                     (a)  paragraphs (1)(b), (2)(a) and (4)(a) of that section must be disregarded; and

                     (b)  subsection (5) of that section applies to a unit trust mentioned in paragraph (b) of the definition of eligible unit trust in this subsection in the same way as that subsection applies in relation to a public unit trust.

clearing house has the same meaning as in section 128F.

company has the same meaning as in section 128F.

debenture:

                     (a)  in relation to the trustee of an eligible unit trust, includes debenture stock, bonds, promissory and other notes, bills of exchange and any other securities issued by the trustee, whether constituting a charge on the assets of the eligible unit trust or not; and

                     (b)  in relation to a company, has the same meaning as in section 128F.

eligible unit holder means:

                     (a)  the trustee of a public unit trust; or

                     (b)  the trustee (within the meaning of the Income Tax Assessment Act 1997) of a complying superannuation fund that has 50 or more members; or

                     (c)  the trustee of a pooled superannuation trust within the meaning of the Income Tax Assessment Act 1997; or

                     (d)  the trustee (within the meaning of the Income Tax Assessment Act 1997) of a complying approved deposit fund; or

                     (e)  a life insurance company within the meaning of the Income Tax Assessment Act 1997; or

                      (f)  a public company within the meaning of section 103A; or

                     (g)  the trustee of a unit trust in which all of the issued units are held by 2 or more entities that are eligible unit holders because of:

                              (i)  the application of another paragraph of this definition (whether or not the same paragraph); or

                             (ii)  a previous application of this paragraph; or

                            (iii)  any combination of subparagraphs (i) and (ii).

eligible unit trust means:

                     (a)  a public unit trust; or

                     (b)  a unit trust in which all of the issued units are held by 2 or more eligible unit holders.

public unit trust has the same meaning as in section 102G.

registered scheme has the same meaning as in section 128F.

responsible entity has the same meaning as in section 128F.

syndicated loan has the same meaning as in section 128F.

syndicated loan facility has the same meaning as in section 128F.

tax law has the same meaning as in section 128F.

             (9)  For the purposes of this section, a trust or fund of a kind mentioned in any of paragraphs (a) to (d) of the definition of eligible unit holder in subsection (8) in relation to a year of income is taken to be a trust or fund of that kind at all times during the year of income.

128GB  Division not to apply to interest payments on offshore borrowings by offshore banking units

             (1)  This section applies to:

                     (a)  interest paid by a person in respect of an offshore borrowing of the person; or

                     (b)  interest consisting of gold paid by a person in respect of an offshore gold borrowing of the person;

if, when the borrowing took place, the person was an offshore banking unit (whether or not the person is still an offshore banking unit when the interest is paid).

             (2)  Tax is not payable in accordance with this Division in respect of interest to which this section applies.

128NA  Special tax payable in respect of certain securities and agreements

             (1)  Where, but for subsection 128AA(2):

                     (a)  the transferor of a qualifying security who is not liable to pay withholding tax in relation to the transfer of the qualifying security would be liable to pay withholding tax in relation to the transfer; or

                     (b)  the transferor of a qualifying security who is liable to pay withholding tax in relation to the transfer of the qualifying security would be liable to pay additional withholding tax in relation to the transfer;

then, for the purposes of this section, there shall be taken to be an avoided withholding tax amount in relation to the person who is the transferee of the qualifying security of an amount equal to the withholding tax or the additional withholding tax, as the case may be, that the person would be so liable to pay.

             (2)  Where:

                     (a)  an attributable agreement payment or attributable agreement payments were made by a person under a relevant agreement before the commencement of section 128AC; and

                     (b)  the Commissioner is of the opinion that the payment or payments were made before the commencement of that section, or that the payment or payments were of a greater amount than they would otherwise have been, for the sole or dominant purpose of securing the result that the total amount (in this subsection referred to as the actual withholding tax) of withholding tax payable under that section in relation to all attributable agreement payments made under the relevant agreement after the commencement of that section would be less than the amount (in this subsection referred to as the notional withholding tax) that would otherwise have been payable;

then, for the purposes of this section, there shall be taken to be an avoided withholding tax amount in relation to the person of an amount equal to the amount by which the notional withholding tax exceeds the actual withholding tax.

             (3)  For the purposes of subsection (2), expressions used in that subsection that are also used in section 128AC have the same respective meanings in that subsection as in that section.

             (4)  Where there is an avoided withholding tax amount in relation to a person under this section, the person is liable to pay income tax, as imposed by the Income Tax (Securities and Agreements) (Withholding Tax Recoupment) Act 1986, in respect of the avoided withholding tax amount.

128NB  Special tax payable in respect of certain dealings by current and former offshore banking units

             (1)  Where a person who is or has been an offshore banking unit transfers to another person an amount of tax exempt loan money or tax exempt gold, other than by way of:

                     (a)  payment in carrying on an OB activity or what would be an OB activity if the person were an OBU; or

                     (b)  repayment of an offshore borrowing or offshore gold borrowing;

the person is liable to pay income tax, as imposed by the Income Tax (Offshore Banking Units) (Withholding Tax Recoupment) Act 1988, on the lost withholding tax amount in respect of the transfer.

             (2)  For the purposes of subsection (1), the lost withholding tax amount in respect of the transfer is an amount ascertained in accordance with the formula:

where:

IWT rate is the rate declared by the Parliament in respect of income to which subsection 128B(5) applies.

PB rate is the prevailing borrowing rate in relation to the person at the time of the transfer.

PB term is the number of years in the prevailing borrowing term in relation to the person at the time of the transfer; and

TA is the amount of tax exempt loan money or tax exempt gold transferred.

             (3)  Tax under this section is due and payable by the person liable to pay the tax at the end of:

                     (a)  21 days after the end of the month in which the transfer to which it relates takes place; or

                     (b)  such further period as the Commissioner, in special circumstances, allows.

Application

          (3A)  The Commissioner must not exercise his or her power under paragraph (3)(b) on or after 1 July 2000.

Note:          For provisions about collection and recovery of tax on or after 1 July 2000, see Part 4‑15 in Schedule 1 to the Taxation Administration Act 1953.

             (4)  Section 128C (other than subsections (1) and (4AA)) applies, in addition to its application apart from this subsection, as if references in that section to withholding tax were references to tax payable under this section.

             (5)  The Commissioner may remit the whole or part of an amount of tax payable under this section in relation to the transfer of an amount of tax exempt loan money or tax exempt gold to another person if:

                     (a)  the Commissioner is satisfied that:

                              (i)  the liability to pay the amount of tax arose because the person mistakenly believed, on reasonable grounds, that the other person was a non‑resident or an offshore banking unit, that interest payable to the person in respect of the amount transferred would be an outgoing of a particular kind or that the amount transferred was not tax exempt loan money or tax exempt gold; and

                             (ii)  the person had taken reasonable steps to ascertain the matter to which the mistaken belief related; or

                     (b)  the Commissioner is satisfied that there are special circumstances justifying the remission of the whole or part of the amount of tax.

128NBA  Credits in respect of amounts assessed in relation to certain financial arrangements

When section applies

             (1)  This section applies if:

                     (a)  the amount of any withholding tax that has become payable by a taxpayer on a payment of interest under, or in relation to the transfer of, a qualifying security or a Division 230 financial arrangement has been paid; and

                     (b)  there is a net financial arrangement amount (see subsection (5)) in relation to the taxpayer in relation to:

                              (i)  if the payment of interest is a payment in relation to the transfer of the qualifying security—the security; or

                             (ii)  if the payment of interest is such a payment by virtue of the application of section 128AC in relation to an attributable agreement payment within the meaning of that section—the attributable agreement payment; or

                            (iii)  in any other case—the payment of interest; and

                     (c)  the amount of the withholding tax payable on the interest exceeds the amount that would have been payable on the interest if the interest were reduced by the net financial arrangement amount.

Entitlement to apply for credit

             (2)  The taxpayer may apply to the Commissioner for a credit of an amount equal to the excess.

Requirements for application

             (3)  The application must be in the approved form.

Entitlement to credit

             (4)  If the Commissioner is satisfied as to the matters mentioned in paragraphs (1)(a), (b) and (c), the applicant is entitled to a credit of an amount equal to the excess.

Net financial arrangement amount

             (5)  For the purposes of this section, if:

                     (a)  in the case of a qualifying security—the sum of all amounts (if any) included in the assessable income of the taxpayer of any years of income in relation to the qualifying security, attributable agreement payment or payment of interest under section 159GQ; or

                     (b)  in the case of a Division 230 financial arrangement—the sum of all amounts (if any) included in the assessable income of the taxpayer of any years of income in relation to the arrangement under Division 230 of the Income Tax Assessment Act 1997;

exceeds:

                     (c)  in the case of a qualifying security—the sum of all amounts (if any) allowable as deductions from the assessable income of the taxpayer of any years of income in relation to the security or the payment, as the case may be, under that section; or

                     (d)  in the case of a Division 230 financial arrangement—the sum of:

                              (i)  all amounts (if any) allowable as deductions from the assessable income of the taxpayer of any years of income in relation to the arrangement under Division 230 of the Income Tax Assessment Act 1997; and

                             (ii)  all amounts (if any) of interest paid under the arrangement before the interest mentioned in paragraph (1)(a) is paid;

there is a net financial arrangement amount equal to the excess.

             (6)  For the purposes of paragraph (5)(b) and subparagraph (5)(d)(i), disregard any year of income in which the taxpayer was not an
Australian resident.

             (7)  For the purposes of subsection (6):

                     (a)  if section 230‑485 of the Income Tax Assessment Act 1997 applies in relation to a year of income:

                              (i)  treat the foreign residency period mentioned in that section as a year of income in which the taxpayer was not an Australian resident; and

                             (ii)  treat the Australian residency period mentioned in that section as a year of income in which the taxpayer was an Australian resident; and

                     (b)  if section 230‑490 of that Act applies in relation to a year of income:

                              (i)  treat the period during that year in which the taxpayer was not an Australian resident as a year of income in which the taxpayer was not an Australian resident; and

                             (ii)  treat the period during that year in which the taxpayer was an Australian resident as a year of income in which the taxpayer was an Australian resident.

128P  Objections

                   If an applicant for a certificate under this Division is dissatisfied with a decision of the Commissioner:

                     (a)  in any case—to refuse to issue the certificate; or

                     (b)  in the case of a certificate under section 128AB—to specify a particular amount in the certificate;

the applicant may object against the decision in the manner set out in Part IVC of the Taxation Administration Act 1953.

128Q  Power of Commissioner to obtain information

                   Section 264 applies, for the purposes of this Division, as if the reference in paragraph (1)(b) of that section to a person’s income or assessment were a reference to a matter relevant to the administration or operation of this Division.

128R  Informal arrangements

                   For the purposes of this Division, the Commissioner may have regard to arrangements, understandings and practices not having legal force in the same manner as if they had legal force.


 

Division 11BEquity investments in small‑medium enterprises

128TG  Summary of this Division

             (1)  The following is a summary of this Division.

             (2)  If, in connection with a money‑lending business, a taxpayer is issued shares in a small‑medium enterprise, any profit or loss the taxpayer makes when it disposes of certain shares that would be dealt with under section 6‑5 or 8‑1 of the Income Tax Assessment Act 1997 is, to the extent that it relates to the period after the issue, instead dealt with under Parts 3‑1 and 3‑3 (about CGT) of the Income Tax Assessment Act 1997.

             (3)  For this to apply, the taxpayer must, after the issue, hold shares representing at least 10% of the value of the small‑medium enterprise.

128TH  When Division applies

                   This Division applies if:

                     (a)  a taxpayer acquires a threshold interest in an SME (see section 128TJ); and

                     (b)  afterwards, the taxpayer disposes of ordinary shares, or an interest in ordinary shares, in the SME that were issued to the taxpayer (whether before, at the time of, or after acquiring the threshold interest); and

                   (ba)  the disposal takes place:

                              (i)  in any case—in the course of the taxpayer carrying on a business of lending money or otherwise in connection with such a business of the taxpayer; or

                             (ii)  if the taxpayer is a company that is a subsidiary of another company—while the one or more members of the direct ownership group of the taxpayer (see subsection 128TL(3)) are each carrying on a business of lending money; and

                     (c)  the shares are not trading stock of the taxpayer; and

                     (d)  apart from this section:

                              (i)  any profit on the disposal would be included in the taxpayer’s assessable income of a year of income under section 6‑5 of the Income Tax Assessment Act 1997; and

                             (ii)  any loss on the disposal would be allowable as a deduction from the taxpayer’s assessable income of a year of income under section 8‑1 of that Act.

128TI  Consequences of Division applying

                   If this Division applies:

                     (a)  no profit on the disposal is included in the taxpayer’s assessable income of any year of income under section 6‑5 of the Income Tax Assessment Act 1997; and

                     (b)  no loss on the disposal is allowable as a deduction from the taxpayer’s assessable income of any year of income under section 8‑1 of that Act; and

                     (c)  the taxpayer is taken:

                              (i)  to have disposed of the shares, at the time of acquiring the threshold interest in the SME, for a consideration equal to their market value at the time; and

                             (ii)  to have re‑acquired the shares immediately afterwards (for the purposes of this section, as if they had been issued to the taxpayer) for an amount equal to that consideration; and

                     (d)  any profit or loss on the disposal that is taken to have happened by subparagraph (c)(i) is included in the taxpayer’s assessable income under section 6‑5 of that Act, or is an allowable deduction under section 8‑1 of that Act, in the year of income in which the shares are actually (disregarding that subparagraph) disposed of, and not in any other year of income.

Note:          As a result of this section, the tax consequences of the actual disposal will be dealt with under section 6‑5 or 8‑1 of that Act in respect of any period of holding before the acquisition of the threshold interest and under Parts 3‑1 and 3‑3 (about CGT) of the Income Tax Assessment Act 1997 in respect of any period after the acquisition of that interest.

128TJ  Acquiring a threshold interest in an SME

                   A taxpayer acquires a threshold interest in an SME if:

                     (a)  ordinary shares in an SME (see section 128TK) are issued to the taxpayer; and

                     (b)  the shares are issued:

                              (i)  in any case—in the course of the taxpayer carrying on a business of lending money or otherwise in connection with such a business of the taxpayer; or

                     (ii)  if the taxpayer is a company that is a subsidiary of another company—while the one or more members of the direct ownership group of the taxpayer (see subsection 128TL(3)) are each carrying on a business of lending money; and

                     (c)  immediately after the shares, and any other ordinary shares forming part of the same issue, are issued to the taxpayer and any other persons, the percentage of the value of the SME represented by ordinary shares issued to the taxpayer (whether before or as part of the threshold share issue) is at least 10%; and

                     (d)  no previous issue of shares to the taxpayer had resulted in the taxpayer acquiring a threshold interest in the SME.

128TK  SME or small‑medium enterprise

             (1)  An SME or small‑medium enterprise is a company the total value of whose assets, as determined under this section, is no more than $50 million.

             (2)  The total value of the company’s assets is the total value of its assets (both current and non‑current) as shown in the last audited accounts prepared in relation to the company for the purposes of Division 4 of Part 3.6 of the Corporations Act 2001 before the investment is made.

             (3)  If:

                     (a)  no such audited accounts have been prepared within the 12 months ending when the shares are issued; or

                     (b)  the last such audited accounts prepared relate to a period that ended more than 18 months before the shares are issued;

then the company is not an SME unless:

                     (c)  before the shares are issued, the taxpayer gets an audited statement (see subsection (4)) showing the total value of the company’s assets as at a time no more than 12 months before the shares are issued; and

                     (d)  that value is no more than $50 million.

             (4)  In subsection (3), an audited statement is a statement audited by a person or firm:

                     (a)  who is appointed as the company’s auditor in accordance with the Corporations Act 2001; or

                     (b)  who is eligible to consent to being so appointed.

128TL  Subsidiary and direct ownership group

             (1)  A company (the first company) is a subsidiary of another company (the second company) if all the shares in the first company are beneficially owned by:

                     (a)  the second company; or

                     (b)  a company that is, or 2 or more companies each of which is, a subsidiary of the second company; or

                     (c)  the second company and a company that is, or 2 or more companies each of which is, a subsidiary of the second company.

             (2)  For the purposes of subsection (1), if a company is a subsidiary of another company (including a company that is such a subsidiary because of a previous application or applications of this subsection), every company that is a subsidiary of the first‑mentioned company is taken to be a subsidiary of that other company.

             (3)  The one or more companies in whichever of paragraph (1)(a), (b) or (c) applies are the direct ownership group of the first company.


 

Division 11CPayments in respect of mining operations on Aboriginal land

128U  Interpretation

             (1)  In this Division, unless the contrary intention appears:

Aboriginal means a person who is:

                     (a)  a member of the Aboriginal race of Australia; or

                     (b)  a member of the race to which Torres Strait Islanders belong.

Aboriginal land means any estate or interest in land that, under provisions of a law of the Commonwealth or of a State or Territory that relate to Aboriginals, is held for the use or benefit of Aboriginals.

Aboriginals Benefit Account means the Aboriginals Benefit Account continued in existence by section 62 of the Aboriginal Land Rights (Northern Territory) Act 1976.

distributing body means:

                     (a)  an Aboriginal Land Council established by or under the Aboriginal Land Rights (Northern Territory) Act 1976;

                     (b)  a corporation registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006; or

                     (d)  any other incorporated body that:

                              (i)  is established by or under provisions of a law of the Commonwealth or of a State or Territory that relate to Aboriginals; and

                             (ii)  is empowered or required (whether under that law or otherwise) to pay moneys received by the body to Aboriginals or to apply such moneys for the benefit of Aboriginals, either directly or indirectly.

mineral royalties means royalties payable in respect of the mining of minerals.

minerals means:

                     (a)  gold, silver, copper, tin and other metals;

                     (b)  coal, shale, petroleum (within the meaning of the Income Tax Assessment Act 1997) and valuable earths and substances;

                     (c)  mineral substances;

                     (d)  gems and precious stones; and

                     (e)  ores and other substances containing minerals;

whether suspended in water or not, and includes water.

miner’s right means a miner’s right or other authority issued or granted under a law of the Commonwealth or of a State or Territory relating to mining of minerals, being a right or authority that empowers the holders to take possession of, mine or occupy land or take any other action in relation to land for any purpose in connection with mining.

mining includes the obtaining of minerals from alluvial or surface deposits.

mining interests, in relation to any land, means any lease or other interest in the land (including a right to prospect or explore for minerals in or on the land) issued or granted under a law of the Commonwealth or of a State or Territory relating to mining of minerals.

mining payment means a payment made to a distributing body or made to, or applied for the benefit of, an Aboriginal or Aboriginals, being:

                     (a)  a payment made on or after 1 July 1979 and before the day that the Financial Management Legislation Amendment Act 1999 commenced, out of the Aboriginals Benefit Reserve to the extent that the payment represents money paid into the Aboriginals Benefit Reserve on or after 1 July 1979 in pursuance of subsection 63(2) or (4) of the Aboriginal Land Rights (Northern Territory) Act 1976; and

                    (aa)  a payment made on or after the day that the Financial Management Legislation Amendment Act 1999 commenced by the Commonwealth in respect of a debit from the Aboriginals Benefit Account to the extent that the payment represents an amount credited to the Aboriginals Benefit Account in pursuance of subsection 63(1) or (4) of the Aboriginal Land Rights (Northern Territory) Act 1976; and

                     (b)  any payment made on or after 1 July 1979 that is of the kind referred to in subsection 44 (1) or (2) of the Aboriginal Land Rights (Northern Territory) Act 1976; and

                     (c)  any other payment made on or after 1 July 1979 under provisions of a law of the Commonwealth or of a State or Territory that relate to Aboriginals or under an agreement made in accordance with such provisions, being a payment made:

                              (i)  in consideration of the issuing, granting or renewal of a miner’s right or mining interest in respect of Aboriginal land;

                             (ii)  in consideration of the granting of permission to a person to enter or remain on Aboriginal land or to do any act on Aboriginal land in relation to prospecting or exploring for, or mining of, minerals; or

                            (iii)  by way of payment of mineral royalties payable in respect of the mining of minerals on Aboriginal land or by way of payment of an amount determined by reference to an amount of mineral royalties received by the Commonwealth, a State or the Northern Territory in respect of the mining of minerals on Aboriginal land;

but does not include a payment made by a distributing body.

             (2)  In section 260, income tax or tax includes mining withholding tax.

             (3)  For the purposes of this Division, a mining payment is taken to include any amount that has been, or purports to have been, withheld from the mining payment for the purposes of section 12‑320 in Schedule 1 to the Taxation Administration Act 1953.

             (4)  For the purposes of the succeeding provisions of this Division, where a mining payment (in this subsection referred to as the relevant mining payment) is made to, or applied for the benefit of, 2 or more persons, there shall be deemed to have been made to, or applied for the benefit of, each of those persons, a mining payment of an amount equal to so much of the relevant mining payment as bears to the relevant mining payment the same proportion as 1 bears to the number of persons to whom the relevant mining payment was made or for whose benefit the relevant mining payment was applied, as the case may be.

128V  Liability to mining withholding tax

             (1)  Where a mining payment is made to, or applied for the benefit of, a person, that person is liable to pay income tax on the amount of the mining payment at the rate declared by the Parliament for the purposes of this section.

             (2)  Income tax payable by a person in accordance with this section is in addition to other income tax payable by that person upon amounts that are not mining payments.

128W  Payment of mining withholding tax

             (1)  Mining withholding tax is due and payable by a person liable to pay the tax at the expiration of 21 days after the end of the month in which the payment of the amount to which the tax relates was made, or of such further period as the Commissioner, in special circumstances, allows.

Note:          For provisions about collection and recovery of mining withholding tax and other amounts, see Part 4‑15 in Schedule 1 to the Taxation Administration Act 1953.

             (4)  The ascertainment of the amount of any mining withholding tax shall not be deemed to be an assessment within the meaning of any of the provisions of this Act.

             (5)  The Commissioner may serve on a person liable to pay mining withholding tax, by post or otherwise, a notice in which is specified:

                     (a)  the amount of any mining withholding tax that the Commissioner has ascertained is payable by that person; and

                     (b)  the date on which that tax became due and payable.

             (6)  The production of a notice served under subsection (5), or of a document under the hand of the Commissioner, a Second Commissioner or a Deputy Commissioner purporting to be a copy of such a notice, is evidence that the amount of mining withholding tax specified in the notice became due and payable by the person on whom the notice was served on the date specified in the notice as the date on which that tax became due and payable.

128X  Power of Commissioner to obtain information

                   Section 264 applies, for the purposes of this Division, as if the reference in paragraph (1)(b) of that section to a person’s income or assessment were a reference to a matter relevant to the administration or operation of this Division.


 

Division 12Oversea ships

129  Taxable income of ship‑owner or charterer

                   Where a ship belonging to or chartered by a person whose principal place of business is out of Australia carries passengers, live‑stock, mails or goods shipped in Australia, 5% of the amount paid or payable to him or her in respect of such carriage, whether that amount is payable in or out of Australia, shall be deemed to be taxable income derived by him or her in Australia.

130  Master or agent to make return

                   The master of the ship, or the agent or other representative in Australia of the owner or charterer, shall, when called upon by the Commissioner by notice in the Gazette or by any other notice to him or her, make a return of the amounts so paid or payable.

131  Determination by Commissioner

                   If such return is not made, or if the Commissioner is not satisfied with the return, the Commissioner may determine the amount so paid or payable.

132  Assessment of tax

                   The master, agent or representative, as agent for the owner or charterer, may be assessed upon the taxable income and shall be liable to pay the tax assessed.

133  Master liable to pay

             (1)  Where the assessment is made on the agent or representative, and the tax is not paid forthwith upon receipt of notice of the assessment, the master shall be liable to pay the tax.

             (2)  This section shall not, so long as any tax for which the master becomes liable under this section remains unpaid, relieve any other person to whom the notice of assessment has been given in respect of that tax, from liability to pay the tax remaining unpaid.

134  Notice of assessment

                   Where any person is liable to pay tax under this Division, the Commissioner shall give notice to the person of the assessment, and he or she shall forthwith pay the tax.

135  Clearance of ship

                   A collector or officer of customs for any State or Territory shall not grant a clearance to the ship until he or she is satisfied that any tax which has been or may be assessed under this Division has been paid, or that arrangements for its payment have been made to the satisfaction of the Commissioner.

135A  Freights payable under certain agreements

                   Where goods are shipped in pursuance of an agreement of the kind specified in section 7C of the Australian Industries Preservation Act 1906‑1937, the amount paid or payable to the owner or charterer of the ship in respect of the carriage of those goods shall, for the purposes of this Division, be deemed to be the amount remaining after deducting from the amount which would be payable according to the gross rate of freight specified in the agreement the amount of any rebate allowed in pursuance of the agreement or any payment, whenever made, by the owner or charterer, or out of funds provided by the owner or charterer, to any person or persons being the owner or shipper of the goods or the agent of either of them in respect of the shipment.


 

Division 13International agreements and determination of source of certain income

136AA  Interpretation

             (1)  In this Division, unless the contrary intention appears:

acquire includes:

                     (a)  acquire by way of purchase, exchange, lease, hire or hire‑purchase; and

                     (b)  obtain, gain or receive.

agreement means any agreement, arrangement, transaction, understanding or scheme, whether formal or informal, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings.

area covered by an international tax sharing treaty has the meaning given by subsection (4).

derive includes gain or produce.

expenditure includes loss or outgoing.

income includes any amount that is, or may be, included in assessable income or taken into account in calculating an amount that is, or may be, included in assessable income.

permanent establishment, in relation to a taxpayer, means:

                     (a)  a place that is a permanent establishment of the taxpayer by virtue of the definition of permanent establishment in section 6; or

                     (b)  a place at which any property of the taxpayer is manufactured or processed for the taxpayer, whether by the taxpayer or another person.

property includes:

                     (a)  a chose in action;

                     (b)  any estate, interest, right or power, whether at law or in equity, in or over property;

                     (c)  any right to receive income; and

                     (d)  services.

right to receive income means a right of a person to have income that will or may be derived (whether from property or otherwise) paid to, or applied or accumulated for the benefit of, the person.

services includes any rights, benefits, privileges or facilities and, without limiting the generality of the foregoing, includes the rights, benefits, privileges or facilities that are, or are to be, provided, granted or conferred under:

                     (a)  an agreement for or in relation to:

                              (i)  the performance of work (including work of a professional nature);

                             (ii)  the provision of, or the use or enjoyment of facilities for, amusement, entertainment, recreation or instruction;

                            (iii)  the conferring of rights, benefits or privileges for which consideration is payable in the form of a royalty, tribute, levy or similar exaction; or

                            (iv)  the carriage, storage or packaging of any property or the doing of any other act in relation to property;

                     (b)  an agreement of insurance;

                     (c)  an agreement between a banker and a customer of the banker entered into in the course of the carrying on by the banker of the business of banking; or

                     (d)  an agreement for or in relation to the lending of moneys.

supply includes:

                     (a)  supply by way of sale, exchange, lease, hire or hire‑purchase; and

                     (b)  provide, grant or confer.

taxpayer includes a partnership and a taxpayer in the capacity of a trustee.

             (2)  The definition of taxpayer in subsection (1) shall not be taken to affect in any way the interpretation of that expression where it is used in this Act other than this Division.

             (3)  In this Division, unless the contrary intention appears:

                     (a)  a reference to the supply or acquisition of property includes a reference to agreeing to supply or acquire property;

                     (b)  a reference to consideration includes a reference to property supplied or acquired as consideration and a reference to the amount of any such consideration is a reference to the value of the property;

                     (c)  a reference to the arm’s length consideration in respect of the supply of property is a reference to the consideration that might reasonably be expected to have been received or receivable as consideration in respect of the supply if the property had been supplied under an agreement between independent parties dealing at arm’s length with each other in relation to the supply;

                     (d)  a reference to the arm’s length consideration in respect of the acquisition of property is a reference to the consideration that might reasonably be expected to have been given or agreed to be given in respect of the acquisition if the property had been acquired under an agreement between independent parties dealing at arm’s length with each other in relation to the acquisition; and

                     (e)  a reference to the supply or acquisition of property under an agreement includes a reference to the supply or acquisition of property in connection with an agreement.

             (4)  If, under an international tax sharing treaty, Australia and another country share tax revenues from activities undertaken in an area identified by or under the agreement, that area is referred to in this Division as the area covered by the international tax sharing treaty.

136AB  Operation of Division

             (1)  Nothing in the provisions of this Act other than this Division shall be taken to limit the operation of this Division.

Note:          This Division is subject to Subdivision 815‑A of the Income Tax Assessment Act 1997 (about cross‑border transfer pricing): see section 815‑40 of that Act.

             (2)  In the application of this Division, the operation of sections 70‑20, 420‑20 and 420‑30 of the Income Tax Assessment Act 1997, and of section 355‑400 of that Act, shall be disregarded.

136AC  International agreements

                   For the purposes of this Division, an agreement is an international agreement if:

                     (a)  a non‑resident supplied or acquired property under the agreement otherwise than in connection with a business carried on in Australia by the non‑resident at or through a permanent establishment of the non‑resident in Australia; or

                     (b)  a resident carrying on a business outside Australia supplied or acquired property under the agreement, being property supplied or acquired in connection with that business; or

                     (c)  a taxpayer:

                              (i)  supplied or acquired property under the agreement in connection with a business; and

                             (ii)  carries on that business in an area covered by an international tax sharing treaty.

136AD  Arm’s length consideration deemed to be received or given

             (1)  Where:

                     (a)  a taxpayer has supplied property under an international agreement;

                     (b)  the Commissioner, having regard to any connection between any 2 or more of the parties to the agreement or to any other relevant circumstances, is satisfied that the parties to the agreement, or any 2 or more of those parties, were not dealing at arm’s length with each other in relation to the supply;

                     (c)  consideration was received or receivable by the taxpayer in respect of the supply but the amount of that consideration was less than the arm’s length consideration in respect of the supply; and

                     (d)  the Commissioner determines that this subsection should apply in relation to the taxpayer in relation to the supply;

then, for all purposes of the application of this Act in relation to the taxpayer, consideration equal to the arm’s length consideration in respect of the supply shall be deemed to be the consideration received or receivable by the taxpayer in respect of the supply.

             (2)  Where:

                     (a)  a taxpayer has supplied property under an international agreement;

                     (b)  the Commissioner, having regard to any connection between any 2 or more of the parties to the agreement or to any other relevant circumstances, is satisfied that the parties to the agreement, or any 2 or more of those parties, were not dealing at arm’s length with each other in relation to the supply;

                     (c)  no consideration was received or receivable by the taxpayer in respect of the supply; and

                     (d)  the Commissioner determines that this subsection should apply in relation to the taxpayer in relation to the supply;

then, for all purposes of the application of this Act in relation to the taxpayer, consideration equal to the arm’s length consideration in respect of the supply shall be deemed to have been received and receivable by the taxpayer in respect of the supply at the time when the property was supplied or, as the case requires, any of the property was first supplied, or at such later time or times as the Commissioner considers appropriate.

             (3)  Where:

                     (a)  a taxpayer has acquired property under an international agreement;

                     (b)  the Commissioner, having regard to any connection between any 2 or more of the parties to the agreement or to any other relevant circumstances, is satisfied that the parties to the agreement, or any 2 or more of those parties, were not dealing at arm’s length with each other in relation to the acquisition;

                     (c)  the taxpayer gave or agreed to give consideration in respect of the acquisition and the amount of that consideration exceeded the arm’s length consideration in respect of the acquisition; and

                     (d)  the Commissioner determines that this subsection should apply in relation to the taxpayer in relation to the acquisition;

then, for all purposes of the application of this Act in relation to the taxpayer, consideration equal to the arm’s length consideration in respect of the acquisition shall be deemed to be the consideration given or agreed to be given by the taxpayer in respect of the acquisition.

             (4)  For the purposes of this section, where, for any reason (including an insufficiency of information available to the Commissioner), it is not possible or not practicable for the Commissioner to ascertain the arm’s length consideration in respect of the supply or acquisition of property, the arm’s length consideration in respect of the supply or acquisition shall be deemed to be such amount as the Commissioner determines.

136AE  Determination of source of income etc.

             (1)  Where:

                     (a)  by the application of section 136AD in relation to a taxpayer other than a partnership or trustee, the arm’s length consideration in respect of the supply or acquisition of property by the taxpayer is deemed to have been received or receivable or received and receivable, or to have been given or agreed to be given, as the case may be; and

                     (b)  a question arises whether, and if so, as to the extent to which:

                              (i)  any income, being that consideration, is derived by the taxpayer from sources in Australia or sources out of Australia;

                             (ii)  any income in the calculation of which that consideration is taken into account is derived by the taxpayer from sources in Australia or sources out of Australia; or

                            (iii)  that consideration is expenditure incurred by the taxpayer in deriving income from sources in Australia or sources out of Australia;

the income or expenditure shall be deemed, for all purposes of this Act, to have been derived or to have been incurred in deriving income, as the case may be, from such source, or from such sources and in such proportions, as the Commissioner determines.

             (2)  Where:

                     (a)  by the application of section 136AD in relation to a taxpayer being a partnership, the arm’s length consideration in respect of the supply or acquisition of property by the taxpayer is deemed to have been received or receivable or received and receivable, or to have been given or agreed to be given, as the case may be; and

                     (b)  in determining the net income, exempt income or partnership loss of the taxpayer or the extent to which the individual interest of a partner in the net income, exempt income or partnership loss of the taxpayer is attributable to sources in Australia, a question arises whether, and if so, as to the extent to which:

                              (i)  any income, being that consideration, is derived by the taxpayer from sources in Australia or sources out of Australia;

                             (ii)  any income in the calculation of which that consideration is taken into account is derived by the taxpayer from sources in Australia or sources out of Australia; or

                            (iii)  that consideration is expenditure incurred by the taxpayer in deriving income from sources in Australia or sources out of Australia;

the income or expenditure shall be deemed, for all purposes of this Act, to have been derived or to have been incurred in deriving income, as the case may be, from such source, or from such sources and in such proportions, as the Commissioner determines.

             (3)  Where:

                     (a)  by the application of section 136AD in relation to a taxpayer being the trustee of a trust estate, the arm’s length consideration in respect of the supply or acquisition of property by the taxpayer is deemed to have been received or receivable or received and receivable, or to have been given or agreed to be given, as the case may be; and

                     (b)  in determining the net income or exempt income of the trust estate or the extent to which the share of a beneficiary of the net income or exempt income of the trust estate is attributable to sources in Australia, a question arises whether, and if so, as to the extent to which:

                              (i)  any income, being that consideration, is derived by the taxpayer from sources in Australia or sources out of Australia;

                             (ii)  any income in the calculation of which that consideration is taken into account is derived by the taxpayer from sources in Australia or sources out of Australia; or

                            (iii)  that consideration is expenditure incurred by the taxpayer in deriving income from sources in Australia or sources out of Australia;

the income or expenditure shall be deemed, for all purposes of this Act, to have been derived or to have been incurred in deriving income, as the case may be, from such source, or from such sources and in such proportions, as the Commissioner determines.

             (4)  Where:

                     (a)  a taxpayer (other than a partnership or trustee):

                              (i)  is a resident and carries on a business in a country other than Australia at or through a permanent establishment of the taxpayer in that other country; or

                             (ii)  is a resident and carries on a business in an area covered by an international tax sharing treaty; or

                            (iii)  is a non‑resident and carries on a business in Australia at or through a permanent establishment of the taxpayer in Australia; or

                            (iv)  is a non‑resident and carries on a business in an area covered by an international tax sharing treaty and also carries on a business somewhere else in Australia at or through a permanent establishment of the taxpayer in Australia; and

                     (b)  a question arises whether, and if so, as to the extent to which:

                              (i)  any income derived by the taxpayer is derived from sources in Australia or sources out of Australia; or

                             (ii)  any expenditure incurred by the taxpayer is incurred in deriving income from sources in Australia or sources out of Australia;

                     (c)  none of the preceding provisions of this section applies in relation to the determination of that question;

                     (d)  that question, if determined on the basis of the return furnished by the taxpayer, would have a tax result more favourable to the taxpayer than the result that would occur if that question were determined in accordance with this subsection; and

                     (e)  in the Commissioner’s opinion, the derivation of the income or the incurring of the expenditure is attributable, in whole or in part, to activities carried on by the taxpayer:

                              (i)  at or through the permanent establishment that is referred to in subparagraph (a)(i) or (iii); or

                             (ii)  in the area covered by the international tax sharing treaty that is referred to in paragraph (a)(ii) or (iv);

the income or expenditure shall be deemed, for all purposes of this Act, to have been derived or to have been incurred in deriving income, as the case may be, from such source, or from such sources and in such proportions, as the Commissioner determines.

             (5)  Where:

                     (a)  a taxpayer:

                              (i)  is a partnership and carries on a business in a country other than Australia at or through a permanent establishment of the taxpayer in that other country; or

                             (ii)  is a partnership and carries on a business in an area covered by an international tax sharing treaty; or

                            (iii)  carries on a business in Australia at or through a permanent establishment of the taxpayer in Australia and is a partnership in which any of the partners is a non‑resident; or

                            (iv)  carries on a business in an area covered by an international tax sharing treaty and also carries on a business somewhere else in Australia at or through a permanent establishment of the taxpayer in Australia and is a partnership in which any of the partners is a non‑resident; and

                     (b)  in determining the net income, exempt income or partnership loss of the taxpayer or the extent to which the individual interest of a partner in the net income, exempt income or partnership loss of the taxpayer is attributable to sources in Australia, a question arises whether, and if so, as to the extent to which:

                              (i)  any income derived by the taxpayer is derived from sources in Australia or sources out of Australia; or

                             (ii)  any expenditure incurred by the taxpayer is incurred in deriving income from sources in Australia or sources out of Australia;

                     (c)  none of the preceding provisions of this section applies in relation to the determination of that question;

                     (d)  that question, if determined on the basis of the return furnished by the taxpayer, would have a tax result more favourable to a taxpayer than the result that would occur if that question were determined in accordance with this subsection; and

                     (e)  in the Commissioner’s opinion, the derivation of the income or the incurring of the expenditure is attributable, in whole or in part, to activities carried on by the taxpayer:

                              (i)  at or through the permanent establishment that is referred to in subparagraph (a)(i) or (iii); or

                             (ii)  in the area covered by the international tax sharing treaty that is referred to in paragraph (a)(ii) or (iv);

the income or expenditure shall be deemed, for all purposes of this Act, to have been derived or to have been incurred in deriving income, as the case may be, from such source, or from such sources and in such proportions, as the Commissioner determines.

             (6)  Where:

                     (a)  a taxpayer:

                              (i)  is the trustee of a trust estate and carries on a business in a country other than Australia at or through a permanent establishment of the taxpayer in that other country; or

                             (ii)  is the trustee of a trust estate and carries on a business in an area covered by an international tax sharing treaty; or

                            (iii)  carries on a business in Australia at or through a permanent establishment of the taxpayer in Australia and is the trustee of a trust estate of which any of the beneficiaries is a non‑resident; or

                            (iv)  carries on a business in an area covered by an international tax sharing treaty and also carries on a business somewhere else in Australia at or through a permanent establishment of the taxpayer in Australia and is the trustee of a trust estate of which any of the beneficiaries is a non‑resident; and

                     (b)  in determining the net income or exempt income of the trust estate or the extent to which the share of a beneficiary of the net income or exempt income of the trust estate is attributable to sources in Australia, a question arises whether, and if so, as to the extent to which:

                              (i)  any income derived by the taxpayer is derived from sources in Australia or sources out of Australia; or

                             (ii)  any expenditure incurred by the taxpayer is incurred in deriving income from sources in Australia or sources out of Australia;

                     (c)  none of the preceding provisions of this section applies in relation to the determination of that question;

                     (d)  that question, if determined on the basis of the return furnished by the taxpayer, would have a tax result more favourable to a taxpayer than the result that would occur if that question were determined in accordance with this subsection; and

                     (e)  in the Commissioner’s opinion, the derivation of the income or the incurring of the expenditure is attributable, in whole or in part, to activities carried on by the taxpayer:

                              (i)  at or through the permanent establishment that is referred to in subparagraph (a)(i) or (iii); or

                             (ii)  in the area covered by the international tax sharing treaty that is referred to in paragraph (a)(ii) or (iv);

the income or expenditure shall be deemed, for all purposes of this Act, to have been derived or to have been incurred in deriving income, as the case may be, from such source, or such sources and in such proportions, as the Commissioner determines.

             (7)  In the application of the preceding provisions of this section in determining the source or sources of any income derived by a taxpayer or the extent to which expenditure incurred by the taxpayer was incurred in deriving income from a particular source or sources, the Commissioner shall have regard to:

                     (a)  the nature and extent of any relevant business carried on by the taxpayer and the place or places at which the business is carried on;

                     (b)  if any relevant business carried on by the taxpayer is carried on at or through a permanent establishment—the circumstances that would have, or might reasonably be expected to have, existed if the permanent establishment were a distinct and separate entity dealing at arm’s length with the taxpayer and other persons; and

                     (c)  such other matters as the Commissioner considers relevant.

             (8)  A reference in this section to expenditure incurred by a taxpayer in deriving income includes a reference to expenditure incurred by the taxpayer in carrying on a business for the purpose of deriving income.

          (8A)  In this section:

                     (a)  a reference to income being derived from a source in Australia is to be read as including a separate reference to income being derived from a source in an area in Australia that is covered by an international tax sharing treaty; and

                     (b)  a reference to expenditure being incurred in deriving income from a source in Australia is to be read as including a separate reference to expenditure being incurred in deriving income from a source in an area in Australia that is covered by an international tax sharing treaty.

Note:          This means that the following are the 3 different kinds of sources referred to in this section:

(a)    a source in Australia (but not in an area covered by an international tax sharing treaty);

(b)    a source in an area in Australia that is covered by an international tax sharing treaty;

(c)    a source out of Australia.

136AF  Consequential adjustments to assessable income and allowable deductions

             (1)  Where, by reason of the application of section 136AD in relation to the supply or acquisition of property by a taxpayer, an amount is included in the assessable income of the taxpayer of a year of income or a deduction is not allowable or is not, in part, allowable, to the taxpayer in respect of a year of income, the Commissioner may, in relation to any taxpayer (in this subsection referred to as the relevant taxpayer):

                     (a)  if, in the opinion of the Commissioner:

                              (i)  there has been included, or would but for this subsection be included, in the assessable income of the relevant taxpayer of a year of income an amount that would not have been included or would not be included, as the case may be, in the assessable income of the relevant taxpayer of that year of income if the property had been supplied or acquired, as the case may be, under an agreement between independent parties dealing at arm’s length with each other in relation to the supply or acquisition; and

                             (ii)  it is fair and reasonable that that amount or a part of that amount should not be included in the assessable income of the relevant taxpayer of that year of income;

                            determine that that amount or that part of that amount, as the case may be, should not have been included or shall not be included, as the case may be, in the assessable income of the relevant taxpayer of that year of income; and

                     (b)  if, in the opinion of the Commissioner:

                              (i)  an amount would have been allowed or would be allowable to the relevant taxpayer as a deduction in relation to a year of income if the property had been supplied or acquired, as the case may be, under an agreement between independent parties dealing at arm’s length with each other in relation to the supply or acquisition, being an amount that was not allowed or would not, but for this subsection, be allowable, as the case may be, as a deduction to the relevant taxpayer in relation to that year of income; and

                             (ii)  it is fair and reasonable that that amount or a part of that amount should be allowable as a deduction to the relevant taxpayer in relation to that year of income;

                            determine that that amount or that part of that amount, as the case may be, should have been allowed or shall be allowable, as the case may be, as a deduction to the relevant taxpayer in relation to that year of income;

and the Commissioner shall take such action as the Commissioner considers necessary to give effect to any such determination.

          (1A)  Subsection (1) also has the effect that it would have if the reference in that subsection to the application of section 136AD in relation to a taxpayer included references to:

                     (a)  the application of section 136AD in accordance with section 102AAZA for the purpose of calculating the attributable income of a trust estate; and

                     (b)  the application of section 136AD in accordance with section 400 for the purpose of calculating the attributable income of a CFC.

             (2)  Where the Commissioner makes a determination under subsection (1) by virtue of which an amount is allowed as a deduction to a taxpayer in relation to a year of income, that amount shall be deemed to be so allowed as a deduction by virtue of such provision of this Act as the Commissioner determines.

             (3)  Where:

                     (a)  by reason of the application of section 136AD in relation to the supply or acquisition of property by a taxpayer, an amount is included in the assessable income of the taxpayer of a year of income or a deduction is not allowable or is not, in part, allowable, to the taxpayer in respect of a year of income;

                     (b)  in the opinion of the Commissioner, an amount of withholding tax has become payable and has been paid in respect of interest or royalties paid to a taxpayer (in this subsection referred to as the relevant taxpayer), being withholding tax that would not have become payable if the property had been supplied or acquired by the first‑mentioned taxpayer under an agreement between independent parties dealing at arm’s length with each other in relation to the supply or acquisition; and

                     (c)  in the opinion of the Commissioner, it is fair and reasonable that that amount of withholding tax or part of that amount of withholding tax should not have become payable by the relevant taxpayer;

the Commissioner may determine that that amount of withholding tax or that part of that amount of withholding tax, as the case may be, should not have become payable by the relevant taxpayer and the Commissioner shall take such action as the Commissioner considers necessary to give effect to any such determination.

             (4)  Where, at any time, a taxpayer considers that the Commissioner ought to make a determination under subsection (1) or (3) in relation to the taxpayer, the taxpayer may post to or lodge with the Commissioner a request in writing for the making by the Commissioner of a determination under the subsection concerned.

             (5)  The Commissioner shall consider the request and serve on the taxpayer, by post or otherwise, a written notice of the Commissioner’s decision on the request.

             (6)  If the taxpayer is dissatisfied with the Commissioner’s decision on the request, the taxpayer may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953.


 

Division 15Insurance with non‑residents

141  Interpretation

                   In this Division:

insurance contract means a contract or guarantee whereby liability is undertaken, contingent upon the happening of any specified event, to pay any money or make good any loss or damage, but does not include a contract of life assurance.

insured event means an event upon the happening of which the liability under an insurance contract arises.

insured person means a person with whom any insurance contract is entered into by an insurer.

insured property means the property the subject of an insurance contract made or given by an insurer.

insurer means any non‑resident who undertakes liability under an insurance contract.

142  Income derived by non‑resident insurer

             (1)  Where an insured person, whether a resident or non‑resident, has entered into an insurance contract with an insurer, and the insured property at the time of the making of the contract is situated in Australia, or the insured event is one which can happen only in Australia, the premium paid or payable under the contract shall be included in the assessable income of the insurer, and shall be deemed to be derived by the insurer from sources in Australia, and, unless the contract was made by a principal office or branch established by the insurer in Australia, this Division shall apply to that premium.

             (2)  Where an insured person who is a resident has entered into an insurance contract with an insurer, and an agent or representative in Australia of the insurer was in any way instrumental in inducing the entry of the insured person into that contract, any premium paid or payable under the contract shall, wherever the insured property is situate, or the insured event may happen, be included in the assessable income of the insurer and shall be deemed to be derived by the insurer from sources in Australia, and, unless the contract was made by a principal office or branch established by the insurer in Australia, this Division shall apply to that premium.

143  Taxable income of non‑resident insurer

                   The insurer shall be deemed to have derived in any year, in respect of the premiums paid or payable in that year under such contracts, a taxable income equal to 10% of the total amount of such premiums:

Provided that, where the actual profit or loss derived or made by the insurer in respect of such premiums is established to the satisfaction of the Commissioner, the taxable income of the insurer in respect thereof, or the amount of the loss so made by the insurer shall, subject to this Act, be calculated by reference to receipts and expenditure taken into account in calculating that profit or loss.

144  Liability of agents of insurer

                   The insured person and any person in Australia acting on behalf of the insurer shall be the agents of the insurer, and shall be jointly and severally liable as such for all purposes of this Act. If either of those persons pays or credits to the insurer any amount in respect of the insurance contract before arrangements have been made to the satisfaction of the Commissioner for the payment of any income tax which has been or may be assessed under this Division in respect of that amount, that person shall be personally liable to pay that tax.

145  Deduction of premiums

                   Notwithstanding any other provision of this Act, no such premium shall be an allowable deduction to the insured person unless arrangements have been made to the satisfaction of the Commissioner for the payment of any income tax which has been or may be assessed in respect of that premium.

146  Exporter to furnish information

                   Every person who exports any goods from Australia shall furnish to the Collector of Customs for transmission to the Commissioner a copy of the customs entry for such goods, and shall show thereon such information as is prescribed regarding the insurance of such goods.

147  Rate of tax in special circumstances

                   Where the insurer satisfies the Commissioner that, on account of special circumstances, it is necessary that the rate of tax payable by the insurer under this Division should be ascertained at the time when premiums are paid to the insurer, the Commissioner may direct that the tax so payable in respect of premiums paid during any financial year shall be calculated at the rate which would have been payable if an assessment had been made in respect of those premiums at the date when they were paid.

148  Reinsurance with non‑residents

             (1)  Notwithstanding anything contained in this Act other than section 177F, but subject to this section, where a person carrying on the business of insurance in Australia reinsures out of Australia the whole or part of any risk with a non‑resident:

                     (a)  the premiums paid or credited in respect of the reinsurance shall not be:

                              (i)  an allowable deduction to the person carrying on the business of insurance in Australia; or

                             (ii)  included in the assessable income of the non‑resident; and

                     (b)  the income of the person carrying on the business of insurance in Australia shall not include sums recovered from that non‑resident in respect of a loss on any risk so reinsured.

             (2)  A person carrying on the business of insurance in Australia who reinsures out of Australia the whole or part of any risk with a non‑resident may elect, in accordance with this section, that the provisions of subsection (1) shall not be applied in arriving at that person’s taxable income, and thereupon:

                     (a)  those provisions shall not apply in arriving at that person’s taxable income of a year of income to which the election applies; and

                     (b)  that person shall be liable to furnish returns, and to pay tax, in accordance with the succeeding provisions of this section, as agent for all non‑residents with whom that person so reinsures.

             (3)  Where a person makes an election under subsection (2), he or she shall, subject to subsection (5), be assessed and liable to pay tax as agent, on an amount equal to 10% of the sum of the gross amounts of the premiums paid or credited by him or her in the year of income (being a year of income to which the election applies) to non‑residents in respect of all such reinsurances, as if that amount were the taxable income of a non‑resident company (not being a private company) not carrying on business in Australia by means either of a principal office or a branch.

             (4)  A person who has made an election under this section shall, as agent, furnish to the Commissioner, within the prescribed time, or within such further time as the Commissioner allows, in respect of every year of income to which the election applies:

                     (a)  a return showing the gross amounts of the premiums paid or credited by that person to non‑residents in respect of all such reinsurances; or

                     (b)  2 returns, of which:

                              (i)  one shall show the gross amounts of such premiums paid or credited by that person to non‑residents which are companies; and

                             (ii)  the other shall show the gross amounts of such premiums paid or credited by that person to non‑residents who are not companies.

             (5)  Where returns are furnished by a person in accordance with paragraph (4)(b), there shall be excluded from the amount on which that person shall be assessed and liable to pay tax as agent in pursuance of subsection (3) an amount equal to 10% of the sum of the gross premiums properly shown in the return specified in subparagraph (4)(b)(ii), and that person shall, in addition to any other tax which that person is liable under this section to pay as agent, be assessed and liable to pay tax as agent on the amount so excluded as if it were the taxable income of a non‑resident company (being a private company) not carrying on business in Australia by means either of a principal office or a branch.

             (6)  An election for the purposes of this section shall:

                     (c)  be made on or before the last day for the furnishing of the taxpayer’s return of income of the year of income in respect of which the election is first to apply, or within such further time as the Commissioner allows;

                     (d)  first apply in respect of a year of income which shall be specified in the election; and

                     (e)  apply in respect of all subsequent years of income.

             (7)  An assessment for the purposes of subsection (3) or (5) shall be made and notified separately from any other assessment.

             (8)  Where a person is liable, in pursuance of an assessment for the purposes of this section, to pay tax, in respect of any premiums, as agent for more than one non‑resident, the amount which that person shall be liable to pay as agent for any one of those non‑residents shall be so much of the tax so payable as bears to the whole of that tax the same proportion as the total amount of such of those premiums as were paid to that non‑resident bears to the total amount of those premiums.

             (9)  Where a person is or may become liable under this section to pay tax as agent for a non‑resident in respect of any premium paid or credited by that person to that non‑resident:

                     (a)  that person shall, for the purposes of section 254, be deemed to have received the premium in that person’s representative capacity immediately before it was so paid or credited; and

                     (b)  if that person pays or credits the premium before arrangements have been made to the satisfaction of the Commissioner for the payment of any tax which may be assessed in respect of that premium, that person shall be personally liable to pay that tax.

Application to a life assurance company

           (10)  This section applies to a life assurance company in relation to the whole or a part of a risk if, and only if, the risk or that part of the risk:

                     (a)  is covered by a disability policy as defined in subsection 995‑1(1) of the Income Tax Assessment Act 1997; and

                     (b)  relates to a benefit that is payable in an event mentioned in that definition.

Division 16Averaging of incomes

149  Average income

             (1)  For the purposes of the application of this Division in relation to a taxpayer in relation to a year of income, a reference in this Division to the average income of the taxpayer shall be construed as a reference to the average of the taxable incomes of the taxpayer of the years of income (in this Division referred to as average years) beginning with the first average year and ending with the first‑mentioned year of income.

149A  Capital gains, abnormal income and certain death benefits to be disregarded

             (1)  For the purposes of this Division (including the purpose of determining whether this Division applies to the income of a taxpayer):

                     (a)  references in this Division to the assessable income of a taxpayer shall be read as references to the amount that would have been the assessable income if the assessable income did not include any net capital gain and did not include any amount under section 82‑65, 82‑70 or 302‑145 of the Income Tax Assessment Act 1997; and

                     (b)  references in this Division to the taxable income of a taxpayer shall be read as references to the amount that would have been the taxable income if:

                              (i)  the assessable income did not include any net capital gain and did not include any amount under section 82‑65, 82‑70 or 302‑145 of the Income Tax Assessment Act 1997; and

                             (ii)  the taxable income were reduced by so much of the taxable income as consists of above‑average special professional income within the meaning of the Income Tax Assessment Act 1997.

             (2)  A reference in subsection (1) to the assessable income or taxable income of a taxpayer of a year of income shall, in relation to a taxpayer in the capacity of trustee of a trust estate, be read as a reference to the assessable income or net income, as the case may be, of the trust estate of the year of income.

150  First average year

                   Subject to this Division, the first average year shall be the fourth year before the year of income. A year the income of which was subject to assessment under the previous Act shall be capable of being a first or subsequent average year.

151  First application of Division in relation to a taxpayer

             (1)  For the purposes of the first application of this Division in determining the tax payable by a taxpayer, the first average year shall be the first year which is otherwise capable of being an average year, and in which the taxable income is not greater than that of the next succeeding year. No year prior to that first average year shall, for the purposes of any application of this Division in determining the tax payable by a taxpayer, be capable of being an average year.

             (2)  Any year in which the taxpayer was not carrying on business and was not in receipt of a taxable income shall not be counted as a first average year for the purposes of the first application of this Division in determining the tax payable by a taxpayer.

             (3)  This section shall not apply to a taxpayer whose income has been or is liable to be assessed at an average rate of tax determined under the provisions of the previous Act.

152  Taxpayer not in receipt of assessable income

                   Any year in which the taxpayer was not carrying on business and was not in receipt of assessable income shall not be counted as an average year, and the provisions of this Division shall apply to the income thereafter derived by the taxpayer as if he or she had never been a taxpayer before that year.

153  Taxpayer with no taxable income

                   Any year in which the taxpayer was carrying on business but had no taxable income shall be capable of being an average year.

154  Excess of allowable deductions

                   Any excess of allowable deductions over the assessable income of the taxpayer in any average year shall not be taken into account in calculating the average income.

155  Permanent reduction of income

             (1)  Where a taxpayer establishes that, owing to his or her retirement from his or her occupation, or from any other cause (but not including a change in the investment of assets from which assessable income was derived into assets from which the taxpayer derives income which is not liable to be assessed under this Act), his or her taxable income has been permanently reduced to an amount which is less than two‑thirds of his or her average taxable income, he or she shall be assessed, and the provisions of this Division shall apply to the income thereafter derived by him or her, as if he or she had never been a taxpayer before that year.

             (2)  For the purposes of the application of subsection (1) in relation to a taxpayer in relation to a year of income, a reference in that subsection to the average taxable income of the taxpayer shall be construed as a reference to the amount that would be the average income of the taxpayer in relation to that year of income ascertained in accordance with section 149 if there were excluded from the assessable income of the taxpayer of the average years any income received by him or her from sources from which he or she does not usually receive income.

156  Rebate of tax for, or complementary tax payable by, certain primary producers

             (1)  In this section:

actual taxable income from primary production, in relation to a taxpayer in relation to a year of income, means the amount (if any) remaining after deducting from the assessable primary production income of the taxpayer of the year of income so much of the aggregate of the relevant primary production deductions of the taxpayer of the year of income as does not exceed that assessable income.

assessable primary production income, in relation to a taxpayer in relation to a year of income, means so much of the assessable income of the taxpayer of the year of income as was derived from the carrying on of a primary production business by the taxpayer or was included in the assessable income of the taxpayer of the year of income in consequence of the carrying on of a primary production business by the taxpayer.

deemed taxable income from primary production, in relation to a taxpayer in relation to a year of income, means:

                     (a)  if the taxpayer did not have a non‑primary production profit in relation to the year of income—the taxable income of the taxpayer; and

                     (b)  in any other case—the sum of the actual taxable income from primary production of the taxpayer of the year of income and the notional taxable income from primary production of the taxpayer of the year of income.

notional taxable income from primary production, in relation to a taxpayer in relation to a year of income, being a taxpayer who had a non‑primary production profit in relation to the year of income, means:

                     (a)  where the taxpayer did not incur a primary production loss in relation to the year of income:

                              (i)  in a case to which subparagraph (ii) does not apply—the amount ascertained by deducting from the taxable income of the taxpayer of the year of income the actual taxable income from primary production of the taxpayer of the year of income; and

                             (ii)  where the taxable income of the taxpayer of the year of income exceeds the actual taxable income from primary production of the taxpayer of the year of income and that excess is greater than $5,000—$5,000 reduced by $1 for each whole dollar by which the amount of that excess exceeds $5,000; and

                     (b)  where the taxpayer incurred a primary production loss in relation to the year of income:

                              (i)  in a case where the sum of the taxable income of the taxpayer of the year of income and the amount of the primary production loss is less than or equal to $5,000—the taxable income of the taxpayer of the year of income; and

                             (ii)  in a case where the sum of the taxable income of the taxpayer of the year of income and the amount of the primary production loss (which sum is in this subparagraph referred to as the non‑farm income) exceeds $5,000—an amount ascertained by deducting from $5,000 one dollar for each whole dollar by which so much of the non‑farm income as does not exceed $10,000 exceeds $5,000 and deducting from the resultant amount so much (if any) of the amount of the primary production loss as does not exceed that resultant amount.

relevant primary production deductions, in relation to a taxpayer in relation to a year of income, means:

                     (a)  any deductions allowed or allowable in the taxpayer’s assessment in respect of income of the year of income that relate exclusively to assessable primary production income of the taxpayer of a year of income;

                     (b)  so much of any other deductions (other than apportionable deductions) allowed or allowable in the taxpayer’s assessment in respect of income of the year of income as, in the opinion of the Commissioner, may appropriately be related to assessable primary production income of the taxpayer of a year of income; and

                     (c)  the amount that bears to the apportionable deductions allowed or allowable in the taxpayer’s assessment the same proportion as the amount ascertained by deduction from the assessable primary production income of the taxpayer of the year of income any deductions allowable from that assessable income in accordance with paragraphs (a) and (b) bears to the sum of the taxable income of the taxpayer of the year of income and the apportionable deductions.

             (2)  For the purposes of subsection (1), a taxpayer shall be taken to have a non‑primary production profit in relation to a year of income if the assessable income of the taxpayer of the year of income other than assessable primary production income exceeds the aggregate of the deductions (other than relevant primary production deductions) allowable to the taxpayer in respect of the year of income.

             (3)  For the purposes of subsection (1), a taxpayer shall be taken to have incurred a primary production loss in relation to a year of income if the aggregate of the relevant primary production deductions in relation to the year of income exceeds the assessable primary production income of the taxpayer of the year of income, and the amount of that loss shall be taken to be the amount of the excess.

             (5)  Where:

                     (a)  this Division applies to a share of the net income of a trust estate of a year of income in respect of which a trustee is liable to be assessed and to pay tax in pursuance of subsection 98(1) or (2) or to the net income or a part of the net income of a trust estate of a year of income in respect of which a trustee is liable to be assessed and to pay tax in pursuance of section 99 (which share, net income or part, as the case may be, is in this subsection referred to as the eligible net income); and

                     (b)  the amount of tax that would, apart from this section, section 94, Division 6AA and Part VIIB and but for any rebate or credit to which the trustee is entitled, be payable by the trustee in respect of the eligible net income exceeds the amount of tax that would, apart from this section, section 94, Division 6AA and Part VIIB and but for any rebate or credit to which the trustee is entitled, be payable by the trustee in respect of the eligible net income if the notional rates declared by the Parliament for the purposes of this section were the rates of tax payable by the trustee in respect of the eligible net income;

the trustee is entitled, in his or her assessment in respect of the eligible net income, to a rebate of tax of an amount ascertained in accordance with the formula , where:

A  is the number of whole dollars in the amount of the deemed net income from primary production.

B  is the excess referred to in paragraph (b); and

C  is the number of whole dollars in the eligible net income.

          (5A)  Where:

                     (a)  this Division applies to a share of the net income of a trust estate of a year of income in respect of which a trustee is liable to be assessed and to pay tax in pursuance of subsection 98(1) or (2) or to the net income or a part of the net income of a trust estate of a year of income in respect of which a trustee is liable to be assessed and to pay tax in pursuance of section 99 (which share, net income or part, as the case may be, is in this subsection referred to as the eligible net income); and

                     (b)  the amount of tax that would, apart from this section, section 94, Division 6AA and Part VIIB and but for any rebate or credit to which the trustee is entitled, be payable by the trustee in respect of the eligible net income if the notional rates declared by the Parliament for the purposes of this section were the rates of tax payable by the trustee in respect of the eligible net income exceeds the amount of tax that would, apart from this section, section 94, Division 6AA and Part VIIB and but for any rebate or credit to which the trustee is entitled, be payable by the trustee in respect of the eligible net income;

the trustee is liable to pay complementary tax, at the rate declared by the Parliament for the purposes of this subsection, on so much of the net income of the trust estate as is equal to the deemed net income from primary production.

             (6)  For the purposes of the application of this section in relation to a share of the net income of a trust estate of a year of income in respect of which a trustee is liable to be assessed and to pay tax in pursuance of subsection 98(1) or (2) or in relation to the net income or a part of the net income of a trust estate of a year of income in respect of which a trustee is liable to be assessed and to pay tax in pursuance of section 99 (which share, net income or part, as the case may be, is in this subsection referred to as the eligible net income):

actual net income from primary production means so much of the net income from primary production of the trust estate as is included in the eligible net income.

assessable primary production income means so much of the assessable income of the trust estate of the year of income as was derived from the carrying on of a primary production business by the trustee or was included in the assessable income of the trust estate of the year of income in consequence of the carrying on of a primary production business by the trustee.

deemed net income from primary production means:

                     (a)  if the trust estate did not have a non‑primary production profit in relation to the year of income—the eligible net income; and

                     (b)  in any other case—the sum of the actual net income from primary production of the trust estate of the year of income and the notional net income from primary production of the trust estate of the year of income.

eligible part of the primary production loss, in relation to a primary production loss incurred by the trust estate in the year of income, means so much of the primary production loss as is equal to the amount by which the eligible net income would have been increased if the aggregate of the relevant primary production deductions allowable in calculating the amount of the net income of the trust estate of the year of income had been equal to the assessable primary production income of the trust estate of the year of income.

net income from primary production means the amount (if any) remaining after deducting from the assessable primary production income of the trust estate of the year of income so much of the aggregate of the relevant primary production deductions allowable in calculating the net income of the trust estate as does not exceed that assessable primary production income.

notional net income from primary production means:

                     (a)  where the trust estate had a non‑primary production profit in relation to the year of income and did not incur a primary production loss in relation to the year of income:

                              (i)  in a case to which subparagraph (ii) does not apply—the amount ascertained by deducting from the eligib