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Income Tax Assessment Act 1997

Authoritative Version
  • - C2016C00680
  • In force - Superseded Version
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Act No. 38 of 1997 as amended, taking into account amendments up to Tax Laws Amendment (Tax Incentives for Innovation) Act 2016
An Act about income tax and related matters
Administered by: Treasury
General Comments: This compilation is affected by a retrospective amendment. Please see the Tax and Superannuation Laws Amendment (2016 Measures No. 2) Act 2017 (Act No. 15, 2017) for details.
Registered 30 Jun 2016
Start Date 30 Jun 2016
End Date 30 Jun 2016

Income Tax Assessment Act 1997

No. 38, 1997

Compilation No. 157

Compilation date:                              30 June 2016

Includes amendments up to:            Act No. 54, 2016

Registered:                                         30 June 2016

This compilation is in 11 volumes

Volume 1:       sections 1‑1 to 36‑55

Volume 2:       sections 40‑1 to 55‑10

Volume 3:       sections 58‑1 to 122‑205

Volume 4:       sections 124‑1 to 152‑430

Volume 5:       sections 164‑1 to 220‑800

Volume 6:       sections 230‑1 to 312‑15

Volume 7:       sections 315‑1 to 420‑70

Volume 8:       sections 615‑1 to 727‑910

Volume 9:       sections 768‑1 to 995‑1

Volume 10:     Endnotes 1 to 3

Volume 11:     Endnote 4

Each volume has its own contents

 

This compilation includes a commenced amendment made by Act No. 118, 2009

About this compilation

This compilation

This is a compilation of the Income Tax Assessment Act 1997 that shows the text of the law as amended and in force on 30 June 2016 (the compilation date).

The notes at the end of this compilation (the endnotes) include information about amending laws and the amendment history of provisions of the compiled law.

Uncommenced amendments

The effect of uncommenced amendments is not shown in the text of the compiled law. Any uncommenced amendments affecting the law are accessible on the Legislation Register (www.legislation.gov.au). The details of amendments made up to, but not commenced at, the compilation date are underlined in the endnotes. For more information on any uncommenced amendments, see the series page on the Legislation Register for the compiled law.

Application, saving and transitional provisions for provisions and amendments

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

Editorial changes

For more information about any editorial changes made in this compilation, see the endnotes.

Modifications

If the compiled law is modified by another law, the compiled law operates as modified but the modification does not amend the text of the law. Accordingly, this compilation does not show the text of the compiled law as modified. For more information on any modifications, see the series page on the Legislation Register for the compiled law.

Self‑repealing provisions

If a provision of the compiled law has been repealed in accordance with a provision of the law, details are included in the endnotes.

  

  

  


Contents

Chapter 4—International aspects of income tax                          1

Part 4‑5—General                                                                                                                  1

Division 768—Foreign non‑assessable income and gains                          1

Subdivision 768‑A—Returns on foreign investment                                         1

Guide to Subdivision 768‑A                                                                                     1

768‑1..................... What this Subdivision is about........................................... 1

Foreign equity distributions on participation interests                                    2

768‑5..................... Foreign equity distributions on participation interests......... 2

768‑10................... Meaning of foreign equity distribution............................... 3

768‑15................... Participation test—minimum 10% participation.................. 3

Subdivision 768‑B—Some items of income that are exempt from income tax               4

768‑100................. Foreign government officials in Australia........................... 4

768‑105................. Compensation arising out of Second World War................ 6

768‑110................. Foreign residents deriving income from certain activities in Australia’s exclusive economic zone or on or above Australia’s continental shelf..................................... 8

Subdivision 768‑G—Reduction in capital gains and losses arising from CGT events in relation to certain voting interests in active foreign companies                                      8

Guide to Subdivision 768‑G                                                                                     8

768‑500................. What this Subdivision is about........................................... 8

Operative provisions                                                                                               10

768‑505................. Reducing a capital gain or loss from certain CGT events in relation to certain voting interests                10

Active foreign business asset percentage                                                            10

768‑510................. Active foreign business asset percentage.......................... 10

768‑515................. Choices to apply market value method or book value method  12

768‑520................. Market value method—choice made under subsection 768‑515(1)          12

768‑525................. Book value method—choice made under subsection 768‑515(2)            14

768‑530................. Active foreign business asset percentage—modifications for foreign life insurance companies and foreign general insurance companies............................................. 18

768‑533................. Foreign company that is a FIF using CFC calculation method—treatment as AFI subsidiary under this Subdivision....................................................................... 21

768‑535................. Modified rules for foreign wholly‑owned groups............ 22

Types of assets of a foreign company                                                                 24

768‑540................. Active foreign business assets of a foreign company....... 24

768‑545................. Assets included in the total assets of a foreign company.. 26

Voting percentages in a company                                                                        27

768‑550................. Direct voting percentage in a company............................. 27

768‑555................. Indirect voting percentage in a company........................... 28

768‑560................. Total voting percentage in a company............................... 28

Subdivision 768‑R—Temporary residents                                                        29

Guide to Subdivision 768‑R                                                                                   29

768‑900................. What this Subdivision is about......................................... 29

Operative provisions                                                                                               30

768‑905................. Objects.............................................................................. 30

768‑910................. Income derived by temporary resident.............................. 30

768‑915................. Certain capital gains and capital losses of temporary resident to be disregarded      31

768‑950................. Individual becoming an Australian resident...................... 32

768‑955................. Temporary resident who ceases to be temporary resident but remains an Australian resident  32

768‑960................. Temporary resident not attributable taxpayer for purposes of controlled foreign companies rules           33

768‑970................. Modification of rules for accruals system of taxation of certain non‑resident trust estates       33

768‑980................. Interest paid by temporary resident................................... 33

Division 770—Foreign income tax offsets                                                       34

Guide to Division 770                                                                                              34

770‑1..................... What this Division is about............................................... 34

770‑5..................... Object............................................................................... 34

Subdivision 770‑A—Entitlement rules for foreign income tax offsets       35

Basic entitlement rule for foreign income tax offset                                      35

770‑10................... Entitlement to foreign income tax offset............................ 35

770‑15................... Meaning of foreign income tax, credit absorption tax and unitary tax     37

Subdivision 770‑B—Amount of foreign income tax offset                            38

Guide to Subdivision 770‑B                                                                                   38

770‑65................... What this Subdivision is about......................................... 38

Operative provisions                                                                                               39

770‑70................... Amount of foreign income tax offset................................ 39

770‑75................... Foreign income tax offset limit......................................... 39

770‑80................... Increase in offset limit for tax paid on amounts to which section 23AI or 23AK of the Income Tax Assessment Act 1936 apply.................................................................. 41

Subdivision 770‑C—Rules about payment of foreign income tax               41

Rules about when foreign tax is paid                                                                   41

770‑130................. When foreign income tax is considered paid—taxes paid by someone else             41

770‑135................. Foreign income tax paid by CFCs on attributed amounts. 42

Rules about when foreign tax is considered not paid                                      44

770‑140................. When foreign income tax is considered not paid—anti‑avoidance rule    44

Subdivision 770‑D—Administration                                                                   45

770‑190................. Amendment of assessments.............................................. 45

Division 775—Foreign currency gains and losses                                       46

Guide to Division 775                                                                                              46

775‑5..................... What this Division is about............................................... 46

Subdivision 775‑A—Objects of this Division                                                     47

775‑10................... Objects of this Division.................................................... 47

Subdivision 775‑B—Realisation of forex gains or losses                              48

775‑15................... Forex realisation gains are assessable............................... 49

775‑20................... Certain forex realisation gains are exempt income............ 51

775‑25................... Certain forex realisation gains are non‑assessable non‑exempt income    51

775‑27................... Certain forex realisation gains are non‑assessable non‑exempt income    51

775‑30................... Forex realisation losses are deductible.............................. 51

775‑35................... Certain forex realisation losses are disregarded................ 53

775‑40................... Disposal of foreign currency or right to receive foreign currency—forex realisation event 1  53

775‑45................... Ceasing to have a right to receive foreign currency—forex realisation event 2        55

775‑50................... Ceasing to have an obligation to receive foreign currency—forex realisation event 3              59

775‑55................... Ceasing to have an obligation to pay foreign currency—forex realisation event 4   61

775‑60................... Ceasing to have a right to pay foreign currency—forex realisation event 5              67

775‑65................... Only one forex realisation event to be counted................. 69

775‑70................... Tax consequences of certain short‑term forex realisation gains                71

775‑75................... Tax consequences of certain short‑term forex realisation losses              76

775‑80................... You may choose not to have sections 775‑70 and 775‑75 apply to you  79

775‑85................... Forex cost base of a right to receive foreign currency....... 80

775‑90................... Forex entitlement base of a right to pay foreign currency. 80

775‑95................... Proceeds of assuming an obligation to pay foreign currency 81

775‑100................. Net costs of assuming an obligation to receive foreign currency              82

775‑105................. Currency exchange rate effect........................................... 83

775‑110................. Constructive receipts and payments.................................. 83

775‑115................. Economic set‑off to be treated as legal set‑off................... 84

775‑120................. Non‑arm’s length transactions.......................................... 84

775‑125................. CGT consequences of the acquisition of foreign currency as a result of forex realisation event 2 or 3    85

775‑130................. Certain deductions not allowable...................................... 85

775‑135................. Right to receive or pay foreign currency........................... 85

775‑140................. Obligation to pay or receive foreign currency................... 86

775‑145................. Application of forex realisation events to currency and fungible rights and obligations           87

775‑150................. Transitional election.......................................................... 87

775‑155................. Applicable commencement date........................................ 88

775‑160................. Exception—event happens before the applicable commencement date     88

775‑165................. Exception—currency or right acquired, or obligation incurred, before the applicable commencement date.......................................................................................... 88

775‑168................. Exception—disposal or redemption of traditional securities 91

775‑175................. Application to things happening before commencement... 91

Subdivision 775‑C—Roll‑over relief for facility agreements                      91

Guide to Subdivision 775‑C                                                                                   91

775‑180................. What this Subdivision is about......................................... 91

Operative provisions                                                                                               93

775‑185................. What is a facility agreement?............................................ 93

775‑190................. What is an eligible security?.............................................. 93

775‑195................. You may choose roll‑over relief for a facility agreement.. 93

775‑200................. Forex realisation event 4 does not apply........................... 95

775‑205................. What is a roll‑over?.......................................................... 95

775‑210................. Notional loan.................................................................... 96

775‑215................. Discharge of obligation to pay the principal amount of a notional loan under a facility agreement—forex realisation event 6........................................................... 100

775‑220................. Material variation of a facility agreement—forex realisation event 7        102

Subdivision 775‑D—Qualifying forex accounts that pass the limited balance test        105

Guide to Subdivision 775‑D                                                                                 105

775‑225................. What this Subdivision is about....................................... 105

Operative provisions                                                                                             106

775‑230................. Election to have this Subdivision apply to one or more qualifying forex accounts   106

775‑235................. Variation of election........................................................ 107

775‑240................. Withdrawal of election.................................................... 107

775‑245................. When does a qualifying forex account pass the limited balance test?      107

775‑250................. Tax consequences of passing the limited balance test..... 112

775‑255................. Notional realisation when qualifying forex account starts to pass the limited balance test        112

775‑260................. Modification of tax recognition time............................... 113

Subdivision 775‑E—Retranslation for qualifying forex accounts            114

Guide to Subdivision 775‑E                                                                                 114

775‑265................. What this Subdivision is about....................................... 114

Operative provisions                                                                                             115

775‑270................. You may choose retranslation for a qualifying forex account  115

775‑275................. Withdrawal of choice...................................................... 116

775‑280................. Tax consequences of choosing retranslation for an account 116

775‑285................. Retranslation of gains and losses relating to a qualifying forex account—forex realisation event 8         117

Subdivision 775‑F—Retranslation under foreign exchange retranslation election under Subdivision 230‑D       119

Guide to Subdivision 775‑F                                                                                  119

775‑290................. What this Subdivision is about....................................... 119

775‑295................. When this Subdivision applies........................................ 120

775‑300................. Tax consequences of choosing retranslation for arrangement  121

775‑305................. Retranslation of gains and losses relating to arrangement to which foreign exchange retranslation election applies—forex realisation event 9................................... 122

775‑310................. When election ceases to apply to arrangement................ 123

775‑315................. Balancing adjustment when election ceases to apply to arrangement        123

Division 802—Foreign residents’ income with an underlying foreign source    125

Subdivision 802‑A—Conduit foreign income                                                 125

Guide to Subdivision 802‑A                                                                                 125

802‑5..................... What this Subdivision is about....................................... 125

Operative provisions                                                                                             126

802‑10................... Objects............................................................................ 126

802‑15................... Foreign residents—exempting CFI from Australian tax. 126

802‑17................... Trust estates and foreign resident beneficiaries—exempting CFI from Australian tax             127

802‑20................... Distributions between Australian corporate tax entities—non‑assessable non‑exempt income                128

802‑25................... Conduit foreign income of an Australian corporate tax entity  130

802‑30................... Foreign source income amounts..................................... 130

802‑35................... Capital gains and losses.................................................. 132

802‑40................... Effect of foreign income tax offset on conduit foreign income 132

802‑45................... Previous declarations of conduit foreign income............ 133

802‑50................... Receipt of an unfranked distribution from another Australian corporate tax entity   133

802‑55................... No double benefits.......................................................... 133

802‑60................... No streaming of distributions......................................... 134

Division 815—Cross‑border transfer pricing                                             136

Subdivision 815‑A—Treaty‑equivalent cross‑border transfer pricing rules  136

Guide to Subdivision 815‑A                                                                                 136

815‑1..................... What this Subdivision is about....................................... 136

Operative provisions                                                                                             137

815‑5..................... Object............................................................................. 137

815‑10................... Transfer pricing benefit may be negated......................... 137

815‑15................... When an entity gets a transfer pricing benefit................. 138

815‑20................... Cross‑border transfer pricing guidance........................... 140

815‑25................... Modified transfer pricing benefit for thin capitalisation.. 141

815‑30................... Determinations negating transfer pricing benefit............. 141

815‑35................... Consequential adjustments.............................................. 142

815‑40................... No double taxation.......................................................... 145

Subdivision 815‑B—Arm’s length principle for cross‑border conditions between entities         146

Guide to Subdivision 815‑B                                                                                 146

815‑101................. What this Subdivision is about....................................... 146

Operative provisions                                                                                             146

815‑105................. Object............................................................................. 146

815‑110................. Operation of Subdivision................................................ 147

815‑115................. Substitution of arm’s length conditions.......................... 147

815‑120................. When an entity gets a transfer pricing benefit................. 148

815‑125................. Meaning of arm’s length conditions............................... 151

815‑130................. Relevance of actual commercial or financial relations..... 152

815‑135................. Guidance......................................................................... 153

815‑140................. Modification for thin capitalisation................................. 153

815‑145................. Consequential adjustments.............................................. 154

815‑150................. Amendment of assessments............................................ 155

Subdivision 815‑C—Arm’s length principle for permanent establishments 156

Guide to Subdivision 815‑C                                                                                 156

815‑201................. What this Subdivision is about....................................... 156

Operative provisions                                                                                             156

815‑205................. Object............................................................................. 156

815‑210................. Operation of Subdivision................................................ 157

815‑215................. Substitution of arm’s length profits................................ 157

815‑220................. When an entity gets a transfer pricing benefit................. 158

815‑225................. Meaning of arm’s length profits..................................... 159

815‑230................. Source rules for certain arm’s length profits................... 159

815‑235................. Guidance......................................................................... 160

815‑240................. Amendment of assessments............................................ 160

Subdivision 815‑D—Special rules for trusts and partnerships                   161

Guide to Subdivision 815‑D                                                                                 161

815‑301................. What this Subdivision is about....................................... 161

Operative provisions                                                                                             161

815‑305................. Special rule for trusts...................................................... 161

815‑310................. Special rules for partnerships.......................................... 161

Subdivision 815‑E—Reporting obligations for significant global entities 162

Guide to Subdivision 815‑E                                                                                 162

815‑350................. What this Subdivision is about....................................... 162

Operative provisions                                                                                             162

815‑355................. Requirement to give statements....................................... 162

815‑360................. Replacement reporting periods........................................ 164

815‑365................. Exemptions..................................................................... 164

Division 820—Thin capitalisation rules                                                          165

Guide to Division 820                                                                                            166

820‑1..................... What this Division is about............................................. 166

820‑5..................... Does this Division apply to an entity?............................ 166

820‑10................... Map of Division............................................................. 168

Subdivision 820‑A—Preliminary                                                                       169

820‑30................... Object of Division.......................................................... 170

820‑32................... Exemption for private or domestic assets and non‑debt liabilities            170

820‑35................... Application—$2 million threshold.................................. 170

820‑37................... Application—assets threshold........................................ 170

820‑39................... Exemption of certain special purpose entities.................. 173

820‑40................... Meaning of debt deduction............................................. 174

Subdivision 820‑B—Thin capitalisation rules for outward investing entities (non‑ADI)             176

Guide to Subdivision 820‑B                                                                                 176

820‑65................... What this Subdivision is about....................................... 176

Operative provisions                                                                                             177

820‑85................... Thin capitalisation rule for outward investing entities (non‑ADI)            177

820‑90................... Maximum allowable debt................................................ 180

820‑95................... Safe harbour debt amount—outward investor (general). 182

820‑100................. Safe harbour debt amount—outward investor (financial) 184

820‑105................. Arm’s length debt amount.............................................. 187

820‑110................. Worldwide gearing debt amount—outward investor that is not also an inward investment vehicle         191

820‑111................. Worldwide gearing debt amount—outward investor that is also an inward investment vehicle               193

820‑115................. Amount of debt deduction disallowed............................ 195

820‑120................. Application to part year periods...................................... 195

Subdivision 820‑C—Thin capitalisation rules for inward investing entities (non‑ADI)               198

Guide to Subdivision 820‑C                                                                                 198

820‑180................. What this Subdivision is about....................................... 198

Operative provisions                                                                                             199

820‑185................. Thin capitalisation rule for inward investing entities (non‑ADI)              199

820‑190................. Maximum allowable debt................................................ 202

820‑195................. Safe harbour debt amount—inward investment vehicle (general)            204

820‑200................. Safe harbour debt amount—inward investment vehicle (financial)          205

820‑205................. Safe harbour debt amount—inward investor (general)... 208

820‑210................. Safe harbour debt amount—inward investor (financial). 209

820‑215................. Arm’s length debt amount.............................................. 212

820‑216................. Worldwide gearing debt amount—inward investment vehicle (general)  216

820‑217................. Worldwide gearing debt amount—inward investment vehicle (financial)                217

820‑218................. Worldwide gearing debt amount—inward investor (general).. 218

820‑219................. Worldwide gearing debt amount—inward investor (financial) 219

820‑220................. Amount of debt deduction disallowed............................ 220

820‑225................. Application to part year periods...................................... 220

Subdivision 820‑D—Thin capitalisation rules for outward investing entities (ADI)     223

Guide to Subdivision 820‑D                                                                                 223

820‑295................. What this Subdivision is about....................................... 223

Operative provisions                                                                                             224

820‑300................. Thin capitalisation rule for outward investing entities (ADI) 224

820‑305................. Minimum capital amount................................................ 225

820‑310................. Safe harbour capital amount............................................ 226

820‑315................. Arm’s length capital amount........................................... 228

820‑320................. Worldwide capital amount.............................................. 230

820‑325................. Amount of debt deduction disallowed............................ 232

820‑330................. Application to part year periods...................................... 233

Subdivision 820‑E—Thin capitalisation rules for inward investing entities (ADI)       234

Guide to Subdivision 820‑E                                                                                 234

820‑390................. What this Subdivision is about....................................... 234

Operative provisions                                                                                             235

820‑395................. Thin capitalisation rule for inward investing entities (ADI) 235

820‑400................. Minimum capital amount................................................ 236

820‑405................. Safe harbour capital amount............................................ 237

820‑410................. Arm’s length capital amount........................................... 237

820‑415................. Amount of debt deduction disallowed............................ 240

820‑420................. Application to part year periods...................................... 240

Subdivision 820‑EA—Some financial entities may choose to be treated as ADIs          242

820‑430................. When choice can be made, and what effect it has............ 242

820‑435................. Conditions...................................................................... 244

820‑440................. Revocation of choice....................................................... 246

820‑445................. How this Subdivision interacts with Subdivision 820‑FA 246

Subdivision 820‑FA—How the thin capitalisation rules apply to consolidated groups and MEC groups               247

Guide to Subdivision 820‑FA                                                                               247

820‑579................. What this Subdivision is about....................................... 247

Operative provisions                                                                                             247

820‑581................. How this Division applies to head company for income year in which group comes into existence or ceases to exist................................................................................ 247

820‑583................. Classification of head company...................................... 248

820‑584................. Exempt special purpose entities treated as not being member of group    251

820‑585................. Exemption for consolidated group headed by foreign‑controlled Australian ADI or its holding company........................................................................................ 251

820‑587................. Additional application of Subdivision 820‑D to MEC group that includes foreign‑controlled Australian ADI........................................................................................ 252

820‑588................. Choice to treat specialist credit card institutions as being financial entities and not ADIs        253

820‑589................. How Subdivision 820‑D applies to a MEC group.......... 254

Subdivision 820‑FB—Grouping branches of foreign banks and foreign financial entities with a consolidated group, MEC group or single Australian resident company        255

Guide to Subdivision 820‑FB                                                                               255

820‑595................. What this Subdivision is about....................................... 255

Choice to group with branches of foreign banks and foreign financial entities             256

820‑597................. Choice by head company of consolidated group or MEC group              256

820‑599................. Choice by Australian resident company outside consolidatable group and MEC group          257

Effect of choice                                                                                                       258

820‑601................. Application..................................................................... 258

820‑603................. General........................................................................... 258

820‑605................. Effect on establishment entity if certain debt deductions disallowed        260

820‑607................. Effect on test periods under this Division....................... 261

820‑609................. Effect on classification of head company or single company 262

820‑610................. Choice not to be outward investing entity (ADI) or inward investing entity (ADI) 264

820‑611................. Values to be based on what would be in consolidated accounts for group               265

820‑613................. How Subdivision 820‑D applies.................................... 265

820‑615................. How Subdivision 820‑E applies..................................... 267

Subdivision 820‑G—Calculating the average values                                    268

Guide to Subdivision 820‑G                                                                                 268

820‑625................. What this Subdivision is about....................................... 268

How to calculate the average values                                                                 269

820‑630................. Methods of calculating average values............................ 269

820‑635................. The opening and closing balances method...................... 270

820‑640................. The 3 measurement days method.................................... 271

820‑645................. The frequent measurement method................................. 272

Special rules about values and valuation                                                         275

820‑675................. Amount to be expressed in Australian currency............. 275

820‑680................. Valuation of assets, liabilities and equity capital............. 275

820‑682................. Recognition of assets and liabilities—modifying application of accounting standards             278

820‑683................. Recognition of internally generated intangible items—modifying application of accounting standards    279

820‑684................. Valuation of intangible assets if no active market—modifying application of accounting standards        281

820‑685................. Valuation of debt capital................................................. 282

820‑690................. Commissioner’s power................................................... 282

Subdivision 820‑H—Control of entities                                                            283

Guide to Subdivision 820‑H                                                                                 283

820‑740................. What this Subdivision is about....................................... 283

Australian controller of a foreign entity                                                          284

820‑745................. What is an Australian controlled foreign entity?............. 284

820‑750................. What is an Australian controller of a controlled foreign company?          284

820‑755................. What is an Australian controller of a controlled foreign trust? 285

820‑760................. What is an Australian controller of a controlled foreign corporate limited partnership?           285

Foreign controlled Australian entity                                                                 286

820‑780................. What is a foreign controlled Australian entity?............... 286

820‑785................. What is a foreign controlled Australian company?.......... 286

820‑790................. What is a foreign controlled Australian trust?................. 288

820‑795................. What is a foreign controlled Australian partnership?...... 290

Thin capitalisation control interest                                                                   291

820‑815................. General rule about thin capitalisation control interest in a company, trust or partnership         291

820‑820................. Special rules about calculating TC control interest held by an entity        292

820‑825................. Special rules about calculating TC control interests held by a group of entities        293

820‑830................. Special rules about determining percentage of TC control interest           294

820‑835................. Commissioner’s power................................................... 295

TC direct control interest, TC indirect control interest and TC control tracing interest             295

820‑855................. TC direct control interest in a company........................... 295

820‑860................. TC direct control interest in a trust.................................. 296

820‑865................. TC direct control interest in a partnership....................... 297

820‑870................. TC indirect control interest in a company, trust or partnership 298

820‑875................. TC control tracing interest in a company, trust or partnership  301

Subdivision 820‑HA—Controlled foreign entity debt and controlled foreign entity equity       302

Guide to Subdivision 820‑HA                                                                              302

820‑880................. What this Subdivision is about....................................... 302

820‑881................. Application..................................................................... 302

820‑885................. What is controlled foreign entity debt?............................ 302

820‑890................. What is controlled foreign entity equity?......................... 303

Subdivision 820‑I—Associate entities                                                               304

Guide to Subdivision 820‑I                                                                                   304

820‑900................. What this Subdivision is about....................................... 304

820‑905................. Associate entity............................................................... 304

820‑910................. Associate entity debt....................................................... 309

820‑915................. Associate entity equity.................................................... 311

820‑920................. Associate entity excess amount....................................... 312

Subdivision 820‑J—Equity interest in a trust or partnership                     317

Guide to Subdivision 820‑J                                                                                  317

820‑925................. What this Subdivision is about....................................... 317

820‑930................. Equity interest in a trust or partnership........................... 317

Subdivision 820‑JA—Worldwide debt and equity concepts                        320

Guide to Subdivision 820‑JA                                                                               320

820‑931................. What this Subdivision is about....................................... 320

Operative provisions                                                                                             321

820‑932................. Worldwide debt and worldwide equity........................... 321

820‑933................. Statement worldwide debt, statement worldwide equity and statement worldwide assets        322

820‑935................. Meaning of audited consolidated financial statements... 323

Subdivision 820‑K—Zero‑capital amount                                                       325

Guide to Subdivision 820‑K                                                                                 325

820‑940................. What this Subdivision is about....................................... 325

820‑942................. How to work out the zero‑capital amount....................... 325

Subdivision 820‑KA—Cost‑free debt capital and excluded equity interests 329

Guide to Subdivision 820‑KA                                                                              329

820‑945................. What this Subdivision is about....................................... 329

820‑946................. Cost‑free debt capital and excluded equity interest......... 330

Subdivision 820‑L—Record keeping requirements                                       332

Guide to Subdivision 820‑L                                                                                 332

820‑950................. What this Subdivision is about....................................... 332

Records about Australian permanent establishments                                   333

820‑960................. Records about Australian permanent establishments...... 333

820‑965................. Review of Commissioner’s decision.............................. 336

Records about arm’s length amounts                                                                337

820‑980................. Records about arm’s length debt amount and arm’s length capital amount              337

Records about asset revaluations                                                                       337

820‑985................. Methodology of revaluation and independence of valuer 337

Offences committed by certain entities                                                             338

820‑990................. Offences—treatment of partnerships.............................. 338

820‑995................. Offences—treatment of unincorporated companies........ 340

Division 830—Foreign hybrids                                                                            342

Guide to Division 830                                                                                            342

830‑1..................... What this Division is about............................................. 342

Subdivision 830‑A—Meaning of “foreign hybrid”                                       342

830‑5..................... Foreign hybrid................................................................ 343

830‑10................... Foreign hybrid limited partnership.................................. 343

830‑15................... Foreign hybrid company................................................. 344

Subdivision 830‑B—Extension of normal partnership provisions to foreign hybrid companies              347

830‑20................... Treatment of company as a partnership........................... 347

830‑25................... Partners are the shareholders in the company................. 348

830‑30................... Individual interest of a partner in net income etc. equals percentage of notional distribution of company’s profits............................................................................. 348

830‑35................... Partner’s interest in assets............................................... 348

830‑40................... Control and disposal of share in partnership income...... 348

Subdivision 830‑C—Special rules applicable while an entity is a foreign hybrid         349

830‑45................... Partner’s revenue and net capital losses from foreign hybrid not to exceed partner’s loss exposure amount........................................................................................ 349

830‑50................... Deduction etc. where partner’s foreign hybrid revenue loss amount and foreign hybrid net capital loss amount are less than partner’s loss exposure amount.................. 350

830‑55................... Meaning of foreign hybrid net capital loss amount........ 352

830‑60................... Meaning of loss exposure amount.................................. 352

830‑65................... Meaning of outstanding foreign hybrid revenue loss amount  354

830‑70................... Meaning of outstanding foreign hybrid net capital loss amount              355

830‑75................... Extended meaning of subject to foreign tax.................... 355

Subdivision 830‑D—Special rules applicable when an entity becomes or ceases to be a foreign hybrid 358

830‑80................... Setting the tax cost of partners’ interests in the assets of an entity that becomes a foreign hybrid            358

830‑85................... Setting the tax cost of assets of an entity when it ceases to be a foreign hybrid       359

830‑90................... What the expression tax cost is set means....................... 359

830‑95................... What the expression tax cost setting amount means....... 361

830‑100................. What the expression tax cost means................................ 364

830‑105................. What the expression asset‑based income tax regime means 365

830‑110................. No disposal of assets etc. on entity becoming or ceasing to be a foreign hybrid      365

830‑115................. Tax losses cannot be transferred to a foreign hybrid....... 366

830‑120................. End of CFC’s last statutory accounting period............... 366

830‑125................. How long interest in asset, or asset, held........................ 367

Division 840—Withholding taxes                                                                       368

Guide to Division 840                                                                                            368

840‑1..................... What this Division is about............................................. 368

Subdivision 840‑M—Managed investment trust withholding tax              369

Guide to Subdivision 840‑M                                                                                369

840‑800................. What this Subdivision is about....................................... 369

Operative provisions                                                                                             369

840‑805................. Liability for managed investment trust withholding tax.. 369

840‑810................. When managed investment trust withholding tax is payable 374

840‑815................. Certain income is non‑assessable non‑exempt income.... 375

840‑820................. Agency rules................................................................... 375

Subdivision 840‑S—Seasonal Labour Mobility Program withholding tax 376

Guide to Subdivision 840‑S                                                                                  376

840‑900................. What this Subdivision is about....................................... 376

Operative provisions                                                                                             376

840‑905................. Liability for Seasonal Labour Mobility Program withholding tax            376

840‑910................. When Seasonal Labour Mobility Program withholding tax is payable     377

840‑915................. Certain income is non‑assessable non‑exempt income.... 378

840‑920................. Overpayment of Seasonal Labour Mobility Program withholding tax     378

Division 842—Exempt Australian source income and gains of foreign residents            379

Subdivision 842‑B—Some items of Australian source income of foreign residents that are exempt from income tax                                                                                                       379

Guide to Subdivision 842‑B                                                                                 379

842‑100................. What this Subdivision is about....................................... 379

842‑105................. Amounts of Australian source ordinary income and statutory income that are exempt            379

Subdivision 842‑I—Investment manager regime                                          382

Guide to Subdivision 842‑I                                                                                   382

842‑200................. What this Subdivision is about....................................... 382

Object of this Subdivision                                                                                     383

842‑205................. Object of this Subdivision.............................................. 383

IMR concessions                                                                                                     384

842‑210................. IMR concessions apply only to foreign residents etc...... 384

842‑215................. IMR concessions............................................................ 384

842‑220................. Meaning of IMR entity.................................................... 388

842‑225................. Meaning of IMR financial arrangement......................... 388

IMR widely held entities                                                                                       388

842‑230................. Meaning of IMR widely held entity................................. 388

842‑235................. Rules for determining total participation interests for the purposes of the widely held test      389

842‑240................. Extended meaning of IMR widely held entity—temporary circumstances outside entity’s control            391

Independent Australian fund managers                                                           392

842‑245................. Meaning of independent Australian fund manager........ 392

842‑250................. Reductions in IMR concessions if independent Australian fund manager entitled to substantial share of IMR entity’s income................................................................ 392

Division 855—Capital gains and foreign residents                                   397

Guide to Division 855                                                                                            397

855‑1..................... What this Division is about............................................. 397

Subdivision 855‑A—Disregarding a capital gain or loss by foreign residents               397

855‑5..................... Objects of this Subdivision............................................. 398

855‑10................... Disregarding a capital gain or loss from CGT events..... 398

855‑15................... When an asset is taxable Australian property.................. 399

855‑16................... Meaning of permanent establishment article.................. 400

855‑20................... Taxable Australian real property..................................... 400

855‑25................... Indirect Australian real property interests....................... 400

855‑30................... Principal asset test........................................................... 401

855‑32................... Disregard market value of duplicated non‑TARP assets. 403

855‑35................... Reducing a capital gain or loss from a business asset—Australian permanent establishments 405

855‑40................... Capital gains and losses of foreign residents through fixed trusts            405

Subdivision 855‑B—Becoming an Australian resident                                407

855‑45................... Individual or company becomes an Australian resident.. 407

855‑50................... Trust becomes a resident trust......................................... 408

855‑55................... CFC becomes an Australian resident.............................. 408

Chapter 5—Administration                                                                            410

Part 5‑30—Record‑keeping and other obligations                                        410

Division 900—Substantiation rules                                                                   410

Guide to Division 900                                                                                            410

900‑1..................... What this Division is about............................................. 410

Subdivision 900‑A—Application of Division                                                  410

900‑5..................... Application of the requirements of Division 900............ 411

900‑10................... Substantiation requirement.............................................. 411

900‑12................... Application to recipients and payers of certain withholding payments     411

Subdivision 900‑B—Substantiating work expenses                                       412

900‑15................... Getting written evidence................................................. 413

900‑20................... Keeping travel records.................................................... 413

900‑25................... Retaining the written evidence and travel records........... 414

900‑30................... Meaning of work expense............................................... 414

900‑35................... Exception for small total of expenses.............................. 416

900‑40................... Exception for laundry expenses below a certain limit..... 417

900‑45................... Exception for work expense related to award transport payment             417

900‑50................... Exception for domestic travel allowance expenses.......... 418

900‑55................... Exception for overseas travel allowance expenses.......... 418

900‑60................... Exception for reasonable overtime meal allowance......... 419

900‑65................... Crew members on international flights need not keep travel records        419

Subdivision 900‑C—Substantiating car expenses                                          419

900‑70................... Getting written evidence................................................. 419

900‑75................... Retaining the written evidence and odometer records..... 420

Subdivision 900‑D—Substantiating business travel expenses                     420

900‑80................... Getting written evidence................................................. 421

900‑85................... Keeping travel records.................................................... 421

900‑90................... Retaining the written evidence and travel records........... 421

900‑95................... Meaning of business travel expense............................... 422

Subdivision 900‑E—Written evidence                                                              423

Guide to Subdivision 900‑E                                                                                 423

900‑100................. What this Subdivision is about....................................... 423

Operative provisions                                                                                             423

900‑105................. Ways of getting written evidence.................................... 423

900‑110................. Time limits...................................................................... 424

900‑115................. Written evidence from supplier....................................... 424

900‑120................. Written evidence of depreciating asset expense............... 425

900‑125................. Evidence of small expenses............................................ 426

900‑130................. Evidence of expenses considered otherwise too hard to substantiate       427

900‑135................. Evidence on a payment summary.................................... 427

Subdivision 900‑F—Travel records                                                                  427

Guide to Subdivision 900‑F                                                                                  427

900‑140................. What this Subdivision is about....................................... 427

900‑145................. Purpose of a travel record............................................... 428

Operative provisions                                                                                             428

900‑150................. Recording activities in travel records.............................. 428

900‑155................. Showing which of your activities were income‑producing activities        428

Subdivision 900‑G—Retaining and producing records                                429

Guide to Subdivision 900‑G                                                                                 429

900‑160................. What this Subdivision is about....................................... 429

900‑165................. The retention period........................................................ 429

Operative provisions                                                                                             429

900‑170................. Extending the retention period if an expense is disputed. 429

900‑175................. Commissioner may tell you to produce your records...... 430

900‑180................. How to comply with a notice.......................................... 430

900‑185................. What happens if you don’t comply................................. 430

Subdivision 900‑H—Relief from effects of failing to substantiate            431

900‑195................. Commissioner’s discretion to review failure to substantiate 431

900‑200................. Reasonable expectation that substantiation would not be required           431

900‑205................. What if your documents are lost or destroyed?............... 431

Subdivision 900‑I—Award transport payments                                             432

Guide to Subdivision 900‑I                                                                                   432

900‑210................. What this Subdivision is about....................................... 432

Operative provisions                                                                                             433

900‑215................. Deducting an expense related to an award transport payment  433

900‑220................. Definition of award transport payment.......................... 434

900‑225................. Substituted industrial instruments................................... 434

900‑230................. Changes to industrial instruments applied for before 29 October 1986    435

900‑235................. Changes to industrial instruments solely referable to matters in the instrument        435

900‑240................. Deducting in anticipation of receiving award transport payment              435

900‑245................. Effect of exception in this Subdivision on exception for small total of expenses     436

900‑250................. Effect of exception in this Subdivision on methods of calculating car expense deductions      436

Part 5‑35—Miscellaneous                                                                                              438

Division 905—Offences                                                                                           438

905‑5..................... Application of the Criminal Code................................... 438

Division 909—Regulations                                                                                     439

909‑1..................... Regulations..................................................................... 439

Chapter 6—The Dictionary                                                                            440

Part 6‑1—Concepts and topics                                                                                   440

Division 950—Rules for interpreting this Act                                             440

950‑100................. What forms part of this Act............................................ 440

950‑105................. What does not form part of this Act................................ 441

950‑150................. Guides, and their role in interpreting this Act................. 441

Division 960—General                                                                                             442

Subdivision 960‑B—Utilisation of tax attributes                                           442

960‑20................... Utilisation....................................................................... 442

Subdivision 960‑C—Foreign currency                                                             443

960‑49................... Objects of this Subdivision............................................. 443

960‑50................... Translation of amounts into Australian currency............ 444

960‑55................... Application of translation rules....................................... 452

Subdivision 960‑D—Functional currency                                                        453

Guide to Subdivision 960‑D                                                                                 453

960‑56................... What this Subdivision is about....................................... 453

Operative provisions                                                                                             454

960‑59................... Object of this Subdivision.............................................. 454

960‑60................... You may choose a functional currency........................... 454

960‑61................... Functional currency for calculating capital gains and losses on indirect Australian real property interests........................................................................................ 457

960‑65................... Backdated startup choice................................................. 458

960‑70................... What is the applicable functional currency?................... 463

960‑75................... What is a transferor trust?.............................................. 464

960‑80................... Translation rules............................................................. 465

960‑85................... Special rule about translation—events that happened before the current choice took effect      472

960‑90................... Withdrawal of choice...................................................... 473

Subdivision 960‑E—Entities                                                                                476

960‑100................. Entities............................................................................ 476

960‑105................. Certain entities treated as agents...................................... 477

Subdivision 960‑F—Distribution by corporate tax entities                         477

960‑115................. Meaning of corporate tax entity...................................... 478

960‑120................. Meaning of distribution.................................................. 478

Subdivision 960‑G—Membership of entities                                                   479

960‑130................. Members of entities........................................................ 479

960‑135................. Membership interest in an entity..................................... 480

960‑140................. Ordinary membership interest......................................... 480

Subdivision 960‑GP—Participation interests in entities                              481

960‑180................. Total participation interest............................................... 481

960‑185................. Indirect participation interest........................................... 481

960‑190................. Direct participation interest............................................. 482

960‑195................. Non‑portfolio interest test............................................... 483

Subdivision 960‑H—Abnormal trading in shares or units                          483

960‑220................. Meaning of trading......................................................... 484

960‑225................. Abnormal trading............................................................ 484

960‑230................. Abnormal trading—5% of shares or units in one transaction.. 485

960‑235................. Abnormal trading—suspected 5% of shares or units in a series of transactions      485

960‑240................. Abnormal trading—suspected acquisition or merger...... 485

960‑245................. Abnormal trading—20% of shares or units traded over 60 day period    486

Subdivision 960‑J—Family relationships                                                        486

Guide to Subdivision 960‑J                                                                                  486

960‑250................. What this Subdivision is about....................................... 486

Operative provisions                                                                                             487

960‑252................. Object of this Subdivision.............................................. 487

960‑255................. Family relationships........................................................ 487

Subdivision 960‑M—Indexation                                                                         488

Guide to Subdivision 960‑M                                                                                488

960‑260................. What this Subdivision is about....................................... 488

960‑265................. The provisions for which indexation is relevant............. 489

Operative provisions                                                                                             490

960‑270................. Indexing amounts........................................................... 490

960‑275................. Indexation factor............................................................. 490

960‑280................. Index number.................................................................. 492

960‑285................. Indexation—superannuation and employment termination 493

Subdivision 960‑S—Market value                                                                     495

Guide to Subdivision 960‑S                                                                                  495

960‑400................. What this Subdivision is about....................................... 495

Operative provisions                                                                                             495

960‑405................. Effect of GST on market value of an asset...................... 495

960‑410................. Market value of non‑cash benefits.................................. 496

960‑412................. Working out market value using an approved method.... 496

960‑415................. Amounts that depend on market value............................ 496

Subdivision 960‑T—Meaning of Australia                                                      497

Guide to Subdivision 960‑T                                                                                 497

960‑500................. What this Subdivision is about....................................... 497

Operative provisions                                                                                             497

960‑505................. Meaning of Australia...................................................... 497

Subdivision 960‑U—Significant global entities                                              498

Guide to Subdivision 960‑U                                                                                 498

960‑550................. What this Subdivision is about....................................... 498

Operative provisions                                                                                             499

960‑555................. Meaning of significant global entity................................ 499

960‑560................. Meaning of global parent entity...................................... 500

960‑565................. Meaning of annual global income.................................. 501

960‑570................. Meaning of global financial statements.......................... 501

Division 961—Notional tax offsets                                                                    502

Subdivision 961‑A—Dependant (non‑student child under 21 or student) notional tax offset      502

Guide to Subdivision 961‑A                                                                                 502

961‑1..................... What this Subdivision is about....................................... 502

Entitlement to the notional tax offset                                                                503

961‑5..................... Who is entitled to the notional tax offset......................... 503

Amount of the notional tax offset                                                                       504

961‑10................... Amount of the dependant (non‑student child under 21 or student) notional tax offset             504

961‑15................... Reduced amounts of the dependant (non‑student child under 21 or student) notional tax offset              504

961‑20................... Reductions to take account of the dependant’s income... 505

Subdivision 961‑B—Dependant (sole parent of a non‑student child under 21 or student) notional tax offset        505

Guide to Subdivision 961‑B                                                                                 505

961‑50................... What this Subdivision is about....................................... 505

Operative provisions                                                                                             506

961‑55................... Who is entitled to the notional tax offset......................... 506

961‑60................... Amount of the dependant (sole parent of a non‑student child under 21 or student) notional tax offset    506

961‑65................... Reductions to take account of change in circumstances.. 507

Division 974—Debt and equity interests                                                        508

Subdivision 974‑A—General                                                                               508

Guide to Division 974                                                                                            508

974‑1..................... What this Division is about............................................. 508

974‑5..................... Overview of Division..................................................... 509

Operative provisions                                                                                             510

974‑10................... Object............................................................................. 510

Subdivision 974‑B—Debt interests                                                                     512

974‑15................... Meaning of debt interest................................................. 513

974‑20................... The test for a debt interest............................................... 515

974‑25................... Exceptions to the debt test............................................... 517

974‑30................... Providing a financial benefit........................................... 518

974‑35................... Valuation of financial benefits—general rules................ 519

974‑40................... Valuation of financial benefits—rights and options to terminate early     521

974‑45................... Valuation of financial benefits—convertible interests..... 521

974‑50................... Valuation of financial benefits—value in present value terms  522

974‑55................... The debt interest and its issue......................................... 523

974‑60................... Debt interest arising out of obligations owed by a number of entities      524

974‑65................... Commissioner’s power................................................... 525

Subdivision 974‑C—Equity interests in companies                                       526

974‑70................... Meaning of equity interest in a company........................ 526

974‑75................... The test for an equity interest.......................................... 529

974‑80................... Equity interest arising from arrangement funding return through connected entities                532

974‑85................... Right or return contingent on aspects of economic performance              534

974‑90................... Right or return at discretion of company or connected entity 535

974‑95................... The equity interest........................................................... 535

Subdivision 974‑D—Common provisions                                                        536

974‑100................. Treatment of convertible and converting interests........... 536

974‑105................. Effect of action taken in relation to interest arising from related schemes 536

974‑110................. Effect of material change................................................. 537

974‑112................. Determinations by Commissioner................................... 540

Subdivision 974‑E—Non‑share distributions by a company                       542

974‑115................. Meaning of non‑share distribution................................. 542

974‑120................. Meaning of non‑share dividend...................................... 542

974‑125................. Meaning of non‑share capital return............................. 542

Subdivision 974‑F—Related concepts                                                               542

974‑130................. Financing arrangement.................................................... 543

974‑135................. Effectively non‑contingent obligation............................. 545

974‑140................. Ordinary debt interest..................................................... 546

974‑145................. Benchmark rate of return................................................ 546

974‑150................. Schemes.......................................................................... 547

974‑155................. Related schemes.............................................................. 548

974‑160................. Financial benefit.............................................................. 549

974‑165................. Convertible and converting interests............................... 549

Division 975—Concepts about companies                                                     551

Subdivision 975‑A—General                                                                               551

975‑150................. Position to affect rights in relation to a company............ 551

975‑155................. When is an entity a controller (for CGT purposes) of a company?         552

975‑160................. When an entity has an associate‑inclusive control interest 552

Subdivision 975‑G—What is a company’s share capital account?           553

975‑300................. Meaning of share capital account.................................. 553

Subdivision 975‑W—Wholly‑owned groups of companies                         554

975‑500................. Wholly‑owned groups.................................................... 554

975‑505................. What is a 100% subsidiary?............................................ 555

Division 976—Imputation                                                                                      556

976‑1..................... Franked part of a distribution.......................................... 556

976‑5..................... Unfranked part of a distribution...................................... 556

976‑10................... The part of a distribution that is franked with an exempting credit           556

976‑15................... The part of a distribution that is franked with a venture capital credit       556

Division 977—Realisation events, and the gains and losses they realise for income tax purposes         557

CGT assets                                                                                                                557

977‑5..................... Realisation event............................................................. 557

977‑10................... Loss realised for income tax purposes............................ 557

977‑15................... Gain realised for income tax purposes............................ 558

Trading stock                                                                                                          558

977‑20................... Realisation event............................................................. 558

977‑25................... Disposal of trading stock: loss realised for income tax purposes             558

977‑30................... Ending of an income year: loss realised for income tax purposes            559

977‑35................... Disposal of trading stock: gain realised for income tax purposes             560

977‑40................... Ending of an income year: gain realised for income tax purposes            560

Revenue assets                                                                                                         561

977‑50................... Meaning of revenue asset............................................... 561

977‑55................... Loss or gain realised for income tax purposes................ 561

Part 6‑5—Dictionary definitions                                                                               563

Division 995—Definitions                                                                                       563

995‑1..................... Definitions...................................................................... 563


Chapter 4International aspects of income tax

Part 4‑5General

Division 768Foreign non‑assessable income and gains

  

Table of Subdivisions

768‑A   Returns on foreign investment

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

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

768‑R    Temporary residents

Subdivision 768‑AReturns on foreign investment

Guide to Subdivision 768‑A

768‑1  What this Subdivision is about

If:

       (a)     an Australian corporate tax entity receives a foreign equity distribution from a foreign company, either directly or indirectly through one or more interposed trusts or partnerships; and

      (b)     the Australian corporate tax entity holds a participation interest of at least 10% in the foreign company;

the distribution is non‑assessable non‑exempt income for the Australian corporate tax entity.

Table of sections

Foreign equity distributions on participation interests

768‑5        Foreign equity distributions on participation interests

768‑10      Meaning of foreign equity distribution

768‑15      Participation test—minimum 10% participation

Foreign equity distributions on participation interests

768‑5  Foreign equity distributions on participation interests

Foreign equity distributions received directly

             (1)  A *foreign equity distribution is not assessable income, and is not *exempt income, of the entity to which it is made if:

                     (a)  the entity is an Australian resident and a *corporate tax entity; and

                     (b)  at the time the distribution is made, the entity satisfies the participation test in section 768‑15 in relation to the company that made the distribution; and

                     (c)  the entity:

                              (i)  does not receive the distribution in the capacity of a trustee; or

                             (ii)  receives the distribution in the capacity of a trustee of a *public trading trust.

Foreign equity distributions received through interposed trusts and partnerships

             (2)  An amount is not assessable income, and is not *exempt income, of an entity if:

                     (a)  the entity is a beneficiary of a trust or a partner in a partnership, an Australian resident and a *corporate tax entity; and

                     (b)  the amount is all or part of the *net income of the trust or partnership that would, apart from this subsection, be included in the entity’s assessable income because of:

                              (i)  Division 276; or

                             (ii)  Division 5 or 6 of Part III of the Income Tax Assessment Act 1936; and

                     (c)  the amount can be attributed (either directly or indirectly through one or more interposed trusts or partnerships that are not *corporate tax entities) to a *foreign equity distribution; and

                     (d)  at the time the distribution is made, the entity satisfies the participation test in section 768‑15 in relation to the company that made the distribution; and

                     (e)  the entity:

                              (i)  does not receive the distribution in the capacity of a trustee; or

                             (ii)  receives the distribution in the capacity of a trustee of a *public trading trust.

             (3)  An amount that is *non‑assessable non‑exempt income under subsection (2) is taken, for the purpose of section 25‑90 (about deductions relating to foreign non‑assessable non‑exempt income) to be derived from the same source as the *foreign equity distribution.

768‑10  Meaning of foreign equity distribution

                   A foreign equity distribution is a *distribution or *non‑share dividend made by a company that is a foreign resident in respect of an *equity interest in the company.

768‑15  Participation test—minimum 10% participation

                   An entity satisfies the participation test in this section in relation to another entity at a time if, at that time, the sum of the following is at least 10%:

                     (a)  the *direct participation interest the entity would have in the other entity if rights on winding‑up were disregarded;

                     (b)  the *indirect participation interest the entity would have in the other entity if:

                              (i)  rights on winding‑up were disregarded; and

                             (ii)  section 960‑185 only applied to intermediate entities that are not *corporate tax entities.

Subdivision 768‑BSome items of income that are exempt from income tax

Table of sections

768‑100    Foreign government officials in Australia

768‑105    Compensation arising out of Second World War

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

768‑100  Foreign government officials in Australia

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

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

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

 

Exempt amounts

Item

If you are:

the following amounts are exempt from income tax:

subject to these exceptions and special conditions:

1

(a) a representative in Australia of the government of a foreign country; or

(b) a member of the official staff of such a representative;

and you are neither an Australian citizen nor ordinarily resident in Australia

(a) your official salary; and

(b) your *ordinary income, and your *statutory income, from a source outside Australia

(a) no Convention listed in subsection (2) applies to the representative; and

(b) the country concerned grants in relation to Australia exemptions from taxes on income that correspond with the exemption in this item

2

(a) an officer of the government of a *Commonwealth of Nations country; and

(b) temporarily in Australia to render service on behalf of that country, or an *Australian government agency, in accordance with an *arrangement between the governments of that country and of the Commonwealth or of a State or Territory

(a) your official salary; and

(b) your *ordinary income, and your *statutory income, from a source outside Australia

that country exempts from income tax the salaries of officers of the government of the Commonwealth temporarily in that country for similar purposes in accordance with a similar arrangement

             (2)  The Conventions are:

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

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

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

768‑105  Compensation arising out of Second World War

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

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

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

                     (c)  the payment is in connection with:

                              (i)  any wrong or injury; or

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

                            (iii)  any other detriment;

                            suffered by you or another individual as a result of:

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

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

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

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

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

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

Duration of Second World War

             (2)  Subsection (1) applies to:

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

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

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

Regimes associated with an enemy of the Commonwealth

             (3)  This subsection covers a regime that was:

                     (a)  in alliance with; or

                     (b)  occupied by; or

                     (c)  effectively controlled by; or

                     (d)  under duress from; or

                     (e)  surrounded by;

either or both of the following:

                      (f)  the National Socialist regime of Germany;

                     (g)  any other enemy of the Commonwealth.

Legal personal representative

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

                     (a)  your *legal personal representative; or

                     (b)  a trust established by your will;

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

                     (c)  the payment had been to you; and

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

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

             (1)  The object of this section is to ensure Australia’s compliance with certain provisions of the *United Nations Convention on the Law of the Sea.

Note:          The text of the United Nations Convention on the Law of the Sea is in Australian Treaty Series 1994 No. 31 ([1994] ATS 31) and could in 2014 be viewed in the Australian Treaties Library on the AustLII website (http://www.austlii.edu.au).

             (2)  If you are a foreign resident, your *ordinary income and *statutory income is neither assessable income, nor *exempt income, to the extent that:

                     (a)  the income is from an activity carried on in an area that is:

                              (i)  part of Australia’s exclusive economic zone; or

                             (ii)  part of, or above, Australia’s continental shelf; and

                     (b)  the activity is specified by regulation to be a prescribed activity for the purpose of this section.

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

Guide to Subdivision 768‑G

768‑500  What this Subdivision is about

If:

               (a)     a company has a capital gain or capital loss arising from a CGT event that happens in relation to a share in a foreign company; and

              (b)     the company holds a direct voting percentage of 10% or more in the foreign company for a certain period before the CGT event happens;

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

Table of sections

Operative provisions

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

Active foreign business asset percentage

768‑510    Active foreign business asset percentage

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

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

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

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

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

768‑535    Modified rules for foreign wholly‑owned groups

Types of assets of a foreign company

768‑540    Active foreign business assets of a foreign company

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

Voting percentages in a company

768‑550    Direct voting percentage in a company

768‑555    Indirect voting percentage in a company

768‑560    Total voting percentage in a company

Operative provisions

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

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

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

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

                             (ii)  ended no later than that time; and

                     (b)  the share is not:

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

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

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

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

Active foreign business asset percentage

768‑510  Active foreign business asset percentage

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

Market value method

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

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

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

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

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

Book value method

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

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

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

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

Default method

             (4)  Otherwise, that percentage is:

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

                     (b)  zero (in any other case).

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

Choice for market value method

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

Choice for book value method

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

Method of making choice

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

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

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

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

Method statement

Step 1.   Work out the *market value at that time of all *assets included in the total assets of the foreign company at that time.

Step 2.   Work out the *market value (see subsection (2)) at that time of all *active foreign business assets of the foreign company at that time.

Step 3.   Divide the result of step 2 by the result of step 1.

Step 4.   Express the result of step 3 as a percentage, and round that percentage to the nearest whole percentage point (rounding a number ending in .5 upwards).

Step 5.   The active foreign business asset percentage is:

               (a)     if the result of step 4 is less than 10%—zero; or

              (b)     if the result of step 4 is 10% or more, but less than 90%—that result; or

               (c)     if the result of step 4 is 90% or more—100%.

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

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

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

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

                     (b)  the subsidiary company is a foreign resident;

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

 

Market value of a share in subsidiary company

Item

If:

treat the market value of the share as:

1

(a) the foreign company has a *direct voting percentage of 10% or more in the subsidiary company at that time; and

(b) the holding company has a *total voting percentage of 10% or more in the subsidiary company at that time

the *share’s *market value at that time, multiplied by the *active foreign business asset percentage of the subsidiary company in relation to the holding company at that time

2

item 1 does not apply

zero

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

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

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

Method statement

Step 1.   Work out the foreign company’s average value of total assets at that time under subsection (2).

Step 2.   Work out the foreign company’s average value of active foreign business assets at that time under subsection (3).

Step 3.   Divide the result of step 2 by the result of step 1.

Step 4.   Express the result of step 3 as a percentage, and round that percentage to the nearest whole percentage point (rounding a number ending in .5 upwards).

Step 5.   The active foreign business asset percentage is:

               (a)     if the result of step 4 is less than 10%—zero; or

              (b)     if the result of step 4 is 10% or more, but less than 90%—that result; or

               (c)     if the result of step 4 is 90% or more—100%.

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

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

Method statement

Step 1.   Work out the sum of the values (see subsection (5)) of every *asset included in the total assets of the foreign company at the end of the most recent period:

               (a)     that ends no later than that time, but no more than 12 months before that time; and

              (b)     for which the foreign company has *recognised company accounts.

Step 2.   Work out the sum of the values (see subsection (5)) of every *asset included in the total assets of the foreign company at the end of the most recent period:

               (a)     that ends at least 6 months, but no more than 18 months, before the end of the period mentioned in step 1; and

              (b)     for which the foreign company has *recognised company accounts.

                   Note:             See subsection (6) if the foreign company does not have recognised company accounts for a period mentioned in this step.

Step 3.   Work out the sum of the results of steps 1 and 2, and divide that sum by 2.

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

Method statement

Step 1.   Work out the sum of the values (see subsections (4) and (5)) of every *active foreign business asset of the foreign company at the end of the most recent period:

               (a)     that ends no later than that time, but no more than 12 months before that time; and

              (b)     for which the foreign company has *recognised company accounts.

Step 2.   Work out the sum of the values (see subsections (4) and (5)) of every *active foreign business asset of the foreign company at the end of the most recent period:

               (a)     that ends at least 6 months, but no more than 18 months, before the end of the period mentioned in step 1; and

              (b)     for which the foreign company has *recognised company accounts.

                   Note:             See subsection (6) if the foreign company does not have recognised company accounts for a period mentioned in this step.

Step 3.   Work out the sum of the results of steps 1 and 2, and divide that sum by 2.

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

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

 

Value of a share in subsidiary company

Item

If:

treat the value of the share as:

1

(a) the foreign company has a *direct voting percentage of 10% or more in the subsidiary company at that time; and

(b) the holding company has a *total voting percentage of 10% or more in the subsidiary company at that time

the *share’s value (see subsection (5)) at that time, multiplied by the *active foreign business asset percentage of the subsidiary company in relation to the holding company at that time

2

item 1 does not apply

zero

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

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

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

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

             (6)  The result of:

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

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

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

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

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

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

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

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

                     (b)  section 768‑525.

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

 

Modifications for foreign life insurance companies and foreign general insurance companies

Item

The result of this step:

is increased by the amount applicable under subsection (4) for this statutory accounting period:

1

step 2 of the method statement in subsection 768‑520(1)

the most recent *statutory accounting period of the foreign company ending at or before the time mentioned in that step

2

step 1 of the method statement in subsection 768‑525(3)

the *statutory accounting period mentioned in that step (as modified by subsection (2) of this section)

3

step 2 of the method statement in subsection 768‑525(3)

the *statutory accounting period mentioned in that step (as modified by subsection (2) of this section)

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

where:

active insurance amount means:

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

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

total insurance assets means:

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

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

value of non‑active foreign business assets means:

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

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

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

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

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

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

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

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

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

Active insurance amount for foreign general insurance company

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

where:

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

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

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

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

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

             (1)  This section applies if:

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

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

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

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

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

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

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

768‑535  Modified rules for foreign wholly‑owned groups

             (1)  This section applies if:

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

                     (b)  the top foreign company is not:

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

                             (ii)  a *foreign life insurance company; or

                            (iii)  a *foreign general insurance company; and

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Types of assets of a foreign company

768‑540  Active foreign business assets of a foreign company

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

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

                     (b)  the asset satisfies any of these conditions:

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

                             (ii)  the asset is goodwill;

                            (iii)  the asset is a *share; and

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

                              (i)  *taxable Australian property;

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

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

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

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

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

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

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

                     (b)  either:

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

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

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

                     (d)  a *life insurance policy; or

                     (e)  a right or option in respect of:

                              (i)  a financial instrument; or

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

                            (iii)  a life insurance policy; or

                      (f)  cash or cash equivalent; or

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

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

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

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

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

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

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

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

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

                     (a)  all of these conditions are satisfied:

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

                             (ii)  the asset was acquired from another entity;

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

                     (b)  both of these conditions are satisfied:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                              (i)  an asset;

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

                            (iii)  an index;

                            (iv)  a commodity; and

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

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

Voting percentages in a company

768‑550  Direct voting percentage in a company

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

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

                     (b)  otherwise—zero.

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

                     (a)  the entity is a company; and

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

768‑555  Indirect voting percentage in a company

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

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

by:

                     (b)  the sum of:

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

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

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

768‑560  Total voting percentage in a company

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

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

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

Subdivision 768‑RTemporary residents

Guide to Subdivision 768‑R

768‑900  What this Subdivision is about

This Subdivision modifies the general tax rules for people in Australia who are temporary residents, whether Australian residents or foreign residents.

Generally foreign income derived by temporary residents is non‑assessable non‑exempt income and capital gains and losses they make are also disregarded for CGT purposes. There are some exceptions for employment‑related income and capital gains on shares and rights acquired under employee share schemes.

Temporary residents are also partly relieved of record‑keeping obligations in relation to the controlled foreign company rules.

Interest paid by temporary residents is not subject to withholding tax and may be non‑assessable non‑exempt income for a foreign resident.

Table of sections

Operative provisions

768‑905    Objects

768‑910    Income derived by temporary resident

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

768‑950    Individual becoming an Australian resident

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

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

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

768‑980    Interest paid by temporary resident

Operative provisions

768‑905  Objects

                   The objects of this Subdivision are to:

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

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

768‑910  Income derived by temporary resident

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

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

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

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

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

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

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

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

Exception to subsection (1)

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

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

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

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

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

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

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

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

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

             (2)  Subsection (1) does not apply in relation to *CGT event I1 if:

                     (a)  the CGT event happens in relation to an *ESS interest that is a beneficial interest in a right (or to a *share acquired by exercising such a right); and

                     (b)  the provisions referred to in paragraphs 83A‑33(1)(a) to (c) (about start ups) apply to the ESS interest.

768‑950  Individual becoming an Australian resident

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

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

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

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

                     (b)  is not *taxable Australian property; and

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

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

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

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

                     (a)  Subdivision 83A‑C (about employee share schemes) applies to the interest, and the *ESS deferred taxing point for the interest has not yet occurred; or

                     (b)  the provisions referred to in paragraphs 83A‑33(1)(a) to (c) (about start ups) apply to the ESS interest.

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

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

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

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

768‑980  Interest paid by temporary resident

                   Interest that is paid by a *temporary resident:

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

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

                              (i)  *derived by a foreign resident; and

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

Division 770Foreign income tax offsets

Table of Subdivisions

             Guide to Division 770

770‑A   Entitlement rules for foreign income tax offsets

770‑B    Amount of foreign income tax offset

770‑C    Rules about payment of foreign income tax

770‑D   Administration

Guide to Division 770

770‑1  What this Division is about

You may get a non‑refundable tax offset for foreign income tax paid on your assessable income.

There is a limit on the amount of the tax offset.

A resident of a foreign country does not get the offset for some foreign income taxes.

You may also get the offset for foreign income tax paid on some amounts that are not taxed in Australia.

770‑5  Object

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

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

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

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

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

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

Subdivision 770‑AEntitlement rules for foreign income tax offsets

Table of sections

Basic entitlement rule for foreign income tax offset

770‑10      Entitlement to foreign income tax offset

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

Basic entitlement rule for foreign income tax offset

770‑10  Entitlement to foreign income tax offset

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

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

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

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

Taxes paid on section 23AI or 23AK amounts

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

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

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

Exception for certain residence‑based foreign income taxes

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

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

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

Exception for previously complying funds and previously foreign funds

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

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

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

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

Exception for credit absorption tax and unitary tax

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

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

             (1)  Foreign income tax means tax that:

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

                     (b)  is:

                              (i)  tax on income; or

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

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

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

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

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

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

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

Subdivision 770‑BAmount of foreign income tax offset

Guide to Subdivision 770‑B

770‑65  What this Subdivision is about

The amount of your tax offset is based on the amount of foreign income tax you have paid.

However, there is a limit on the maximum amount of your offset. The limit is the greater of $1,000 and an amount worked out under this Subdivision. This amount is based on a comparison between your tax liability and the tax liability you would have if certain foreign‑taxed and foreign‑sourced income and related deductions were disregarded.

You may choose to use the limit of $1,000 and not work out this amount.

There is an increase in the limit to ensure foreign income tax paid on some amounts that are not taxed always forms part of the offset.

Table of sections

Operative provisions

770‑70      Amount of foreign income tax offset

770‑75      Foreign income tax offset limit

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

Operative provisions

770‑70  Amount of foreign income tax offset

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

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

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

770‑75  Foreign income tax offset limit

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

             (2)  Your offset limit is the greater of:

                     (a)  $1,000; and

                     (b)  this amount:

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

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

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

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

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

             (4)  Assume that:

                     (a)  your assessable income did not include:

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

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

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

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

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

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

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

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

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

Subdivision 770‑CRules about payment of foreign income tax

Table of sections

Rules about when foreign tax is paid

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

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

Rules about when foreign tax is considered not paid

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

Rules about when foreign tax is paid

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Tax paid condition

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

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

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

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

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

Association condition

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

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

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

Amount of foreign income tax

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

                     (a)  for a section 456 case—the sum of all the tax amounts for the statutory accounting period multiplied by the company’s *attribution percentage in relation to the *CFC at the time mentioned in paragraph (5)(a); or

                     (b)  for a section 457 case—the sum of all the tax amounts to the extent they are attributable to the amount included in the company’s assessable income under section 457 of the 1936 Act.

Grossing‑up of attributed amount

             (8)  For the purposes of this Act except this section and section 371 of the 1936 Act (for a section 456 case or a section 457 case), the amount included in the entity’s assessable income as described in subsection (2) is taken to be increased by the amount of tax worked out under subsection (7).

Note:          Section 371 of the 1936 Act records an amount in an attribution account when the amount is included in the assessable income of an attributable taxpayer in relation to a CFC.

Rules about when foreign tax is considered not paid

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

                   Despite anything else in this Division, this Act applies to you as if you had not paid an amount of *foreign income tax to the extent that you or any other entity become entitled to:

                     (a)  a refund of the foreign income tax; or

                     (b)  any other benefit worked out by reference to the amount of the foreign income tax (other than a reduction in the amount of the foreign income tax).

Subdivision 770‑DAdministration

Table of sections

770‑190    Amendment of assessments

770‑190  Amendment of assessments

             (1)  Section 170 of the Income Tax Assessment Act 1936 does not prevent the amendment of an assessment for the purpose of giving effect to this Division for an income year if:

                     (a)  an event described in subsection (2) (an amendment event) happens after the time you lodged your *income tax return for that year; and

                     (b)  the amendment is made at any time during the period of 4 years starting immediately after the amendment event.

Note:          Section 170 of that Act specifies the periods within which assessments may be amended.

             (2)  The following are amendment events:

                     (a)  you pay an amount of *foreign income tax that counts towards your *tax offset for the year;

                     (b)  there is an increase in an amount of foreign income tax you paid that counts towards your offset for the year;

                     (c)  there is a reduction in an amount of foreign income tax you paid that counts towards your offset for the year.

Division 775Foreign currency gains and losses

  

Table of Subdivisions

             Guide to Division 775

775‑A   Objects of this Division

775‑B    Realisation of forex gains or losses

775‑C    Roll‑over relief for facility agreements

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

775‑E    Retranslation for qualifying forex accounts

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

Guide to Division 775

775‑5  What this Division is about

Your assessable income includes a forex realisation gain you make as a result of a forex realisation event.

You can deduct a forex realisation loss that you make as a result of a forex realisation event.

There are 5 main types of forex realisation events:

               (a)     forex realisation event 1 happens if you dispose of foreign currency, or a right to receive foreign currency, to another entity;

              (b)     forex realisation event 2 happens if you cease to have a right to receive foreign currency (otherwise than because you disposed of the right to another entity);

               (c)     forex realisation event 3 happens if you cease to have an obligation to receive foreign currency;

              (d)     forex realisation event 4 happens if you cease to have an obligation to pay foreign currency;

               (e)     forex realisation event 5 happens if you cease to have a right to pay foreign currency.

There are special rules for certain short‑term forex realisation gains and losses.

You may choose roll‑over relief for certain facility agreements.

You may elect to receive concessional tax treatment for a qualifying forex account that passes the limited balance test.

You may choose retranslation for a qualifying forex account.

Subdivision 775‑AObjects of this Division

Table of sections

775‑10      Objects of this Division

775‑10  Objects of this Division

                   The objects of this Division are as follows:

                     (a)  to recognise *foreign currency gains and losses for income tax purposes;

                     (b)  to quantify those gains and losses by reference to the change in the Australian dollar value of rights and obligations;

                     (c)  to treat certain foreign currency denominated financing facilities that are the economic equivalent of a loan as if the relevant facility were a loan;

                     (d)  to reduce compliance costs by not requiring the recognition of certain low‑value foreign currency gains and losses that involve substantial calculations.

Subdivision 775‑BRealisation of forex gains or losses

Table of sections

775‑15      Forex realisation gains are assessable

775‑20      Certain forex realisation gains are exempt income

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

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

775‑30      Forex realisation losses are deductible

775‑35      Certain forex realisation losses are disregarded

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

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

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

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

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

775‑65      Only one forex realisation event to be counted

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

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

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

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

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

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

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

775‑105    Currency exchange rate effect

775‑110    Constructive receipts and payments

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

775‑120    Non‑arm’s length transactions

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

775‑130    Certain deductions not allowable

775‑135    Right to receive or pay foreign currency

775‑140    Obligation to pay or receive foreign currency

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

775‑150    Transitional election

775‑155    Applicable commencement date

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

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

775‑168    Exception—disposal or redemption of traditional securities

775‑175    Application to things happening before commencement

775‑15  Forex realisation gains are assessable

Basic rule

             (1)  Your assessable income for an income year includes a *forex realisation gain you make as a result of a *forex realisation event that happens during that year.

Exceptions

             (2)  However, your assessable income does not include a *forex realisation gain to the extent that it:

                     (a)  is a gain of a private or domestic nature; and

                     (b)  is not covered by an item of the table:

 

Forex realisation gains to which this subsection does not apply

Item

You make the forex realisation gain as a result of this event...

happening to...

and the following condition is satisfied...

1

forex realisation event 1 or 2

*foreign currency or a right, or a part of a right, to receive foreign currency

a gain that would result from the occurrence of a *realisation event in relation to the foreign currency, or to the right, or the part of the right, would, apart from this Division, be taken into account under Part 3‑1 or 3‑3

2

forex realisation event 2

a right, or a part of a right, created or acquired in return for the occurrence of a *realisation event in relation to a *CGT asset you own, where subparagraph 775‑45(1)(b)(iv) applies

a gain or loss that would result from the occurrence of the realisation event in relation to the CGT asset would be taken into account for the purposes of Part 3‑1 or 3‑3

3

forex realisation event 4

an obligation, or a part of an obligation, you incurred in return for the acquisition of a *CGT asset

a gain or loss that would result from the occurrence of a *realisation event in relation to the CGT asset would be taken into account for the purposes of Part 3‑1 or 3‑3

Note:          Parts 3‑1 and 3‑3 deal with capital gains and losses.

             (3)  Section 775‑70 provides for additional exceptions.

Note:          Section 775‑70 is about the tax consequences of certain short‑term forex realisation gains.

No double taxation

             (4)  To the extent that a *forex realisation gain would be included in your assessable income under this section and another provision of this Act, the gain is only included in your assessable income under this section.

Note:          Under section 230‑20, foreign exchange gains from a Division 230 financial arrangement are dealt with under Division 230 and not under this Division.

775‑20  Certain forex realisation gains are exempt income

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

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

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

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

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

775‑30  Forex realisation losses are deductible

Basic rule

             (1)  You can deduct from your assessable income for an income year a *forex realisation loss that you make as a result of a *forex realisation event that happens during that year.

Exceptions

             (2)  However, you cannot deduct a *forex realisation loss under this section to the extent that it:

                     (a)  is a loss of a private or domestic nature; and

                     (b)  is not covered by an item of the table:

 

Forex realisation losses to which this subsection does not apply

Item

You make the forex realisation loss as a result of this event...

happening to...

and the following condition is satisfied...

1

forex realisation event 2

a right, or a part of a right, created or acquired in return for the occurrence of a *realisation event in relation to a *CGT asset you own, where subparagraph 775‑45(1)(b)(iv) applies

a gain or loss that would result from the occurrence of the realisation event in relation to the CGT asset would be taken into account for the purposes of Part 3‑1 or 3‑3

2

forex realisation event 4

an obligation, or a part of an obligation, you incurred in return for the acquisition of a *CGT asset

a gain or loss that would result from the occurrence of a *realisation event in relation to the CGT asset would be taken into account for the purposes of Part 3‑1 or 3‑3

Note:          Parts 3‑1 and 3‑3 deal with capital gains and losses.

             (3)  Section 775‑75 provides for additional exceptions.

Note:          Section 775‑75 is about the tax consequences of certain short‑term forex realisation losses.

No double deductions

             (4)  To the extent that this section and another provision of this Act would allow you a deduction for a *forex realisation loss, you can only deduct the loss under this section.

Note:          Under section 230‑20, foreign exchange losses from a Division 230 financial arrangement are dealt with under Division 230 and not under this Division.

775‑35  Certain forex realisation losses are disregarded

             (1)  A *forex realisation loss you make as a result of forex realisation event 1, 2 or 5 is disregarded to the extent that it is made in gaining or producing *exempt income or *non‑assessable non‑exempt income.

             (2)  A *forex realisation loss you make as a result of forex realisation event 3, 4 or 6 is disregarded to the extent that:

                     (a)  it is made in gaining or producing *exempt income or *non‑assessable non‑exempt income; and

                     (b)  the obligation, or the part of the obligation, does not give rise to a deduction.

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

Forex realisation event 1

             (1)  Forex realisation event 1 is *CGT event A1 that happens if you dispose of:

                     (a)  *foreign currency; or

                     (b)  a right, or a part of a right, to receive foreign currency.

Note:          For extended meaning of right to receive foreign currency, see section 775‑135.

Disposal

             (2)  For the purposes of this section, use subsection 104‑10(2) to work out whether you have disposed of:

                     (a)  *foreign currency; or

                     (b)  a right, or a part of a right, to receive foreign currency.

Note:          Under subsection 104‑10(2), a disposal requires a change of ownership.

Time of event

             (3)  For the purposes of this section, subsection 104‑10(3) is modified so that the time of the event is when:

                     (a)  the *foreign currency is disposed of; or

                     (b)  the right, or the part of the right, is disposed of.

Forex realisation gain

             (4)  You make a forex realisation gain if:

                     (a)  you make a *capital gain from the event; and

                     (b)  some or all of the capital gain is attributable to a *currency exchange rate effect.

The amount of the forex realisation gain is so much of the capital gain as is attributable to a currency exchange rate effect.

Note:          For currency exchange rate effect, see section 775‑105.

             (5)  For the purposes of paragraph (4)(a), Part 3‑1 is modified so that section 118‑20 is disregarded in working out the *capital gain.

Note:          Section 118‑20 deals with reducing capital gains if an amount is otherwise assessable.

Forex realisation loss

             (6)  You make a forex realisation loss if:

                     (a)  you make a *capital loss from the event; and

                     (b)  some or all of the capital loss is attributable to a *currency exchange rate effect.

The amount of the forex realisation loss is so much of the capital loss as is attributable to a currency exchange rate effect.

Note:          For currency exchange rate effect, see section 775‑105.

No indexation of cost base

             (7)  For the purposes of this section, disregard Division 114.

Note:          Division 114 deals with indexation of the cost base.

Foreign currency hedging gains and losses

             (8)  For the purposes of this section, disregard section 118‑55.

Note:          Section 118‑55 deals with foreign currency hedging gains and losses.

Capital proceeds

             (9)  For the purposes of this section, if the *capital proceeds from the event are more or less than the *market value of:

                     (a)  the *foreign currency; or

                     (b)  the right, or the part of the right;

the capital proceeds from the event are taken to be the market value. (The market value is worked out as at the time of the event.)

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

Forex realisation event 2

             (1)  Forex realisation event 2 happens if:

                     (a)  you cease to have a right, or a part of a right, to receive *foreign currency; and

                     (b)  the right, or the part of the right, is one of the following:

                              (i)  a right, or a part of a right, to receive, or that represents, *ordinary income or *statutory income (other than statutory income that is assessable under this Division or Division 102);

                             (ii)  a right, or a part of a right, created or acquired in return for your ceasing to *hold a *depreciating asset;

                            (iii)  a right, or a part of a right, created or acquired in return for your paying, or agreeing to pay, an amount of Australian currency or foreign currency;

                            (iv)  a right, or a part of a right, created or acquired in return for the occurrence of a *realisation event in relation to a *CGT asset you own, and none of subparagraphs (i), (ii) and (iii) applies; and

                     (c)  you did not cease to have the right, or the part of the right, because you disposed of the right or the part of the right (within the meaning of section 775‑40).

Note 1:       Disposals are dealt with by section 775‑40 (forex realisation event 1).

Note 2:       For extended meaning of right to receive foreign currency, see section 775‑135.

Time of event

             (2)  The time of the event is when you cease to have the right or the part of the right.

Forex realisation gain

             (3)  You make a forex realisation gain if:

                     (a)  the amount you receive in respect of the event happening exceeds the *forex cost base of the right or the part of the right (the forex cost base is worked out as at the tax recognition time); and

                     (b)  some or all of the excess is attributable to a *currency exchange rate effect.

The amount of the forex realisation gain is so much of the excess as is attributable to a currency exchange rate effect.

Note 1:       For forex cost base, see section 775‑85.

Note 2:       For tax recognition time, see subsection (7).

Note 3:       For currency exchange rate effect, see section 775‑105.

Forex realisation loss

             (4)  You make a forex realisation loss if:

                     (a)  the amount you receive in respect of the event happening falls short of the *forex cost base of the right or the part of the right (the forex cost base is worked out as at the tax recognition time); and

                     (b)  some or all of the shortfall is attributable to a *currency exchange rate effect.

The amount of the forex realisation loss is so much of the shortfall as is attributable to a currency exchange rate effect.

Note 1:       For forex cost base, see section 775‑85.

Note 2:       For tax recognition time, see subsection (7).

Note 3:       For currency exchange rate effect, see section 775‑105.

             (5)  You make a forex realisation loss if:

                     (a)  the event happens because an option to buy *foreign currency expires without having been exercised, or is cancelled, released or abandoned; and

                     (b)  you were capable of exercising the option immediately before the event happened.

The amount of the forex realisation loss is the amount you paid in return for the grant or acquisition of the option.

Non‑cash benefit

             (6)  The amount you receive in respect of the event happening can include a *non‑cash benefit. Use the *market value of the benefit to work out the amount you receive.

Tax recognition time

             (7)  For the purposes of this section, the tax recognition time is worked out using the table:

 

Tax recognition time

Item

If the right, or part of the right, is...

the tax recognition time is...

1

a right, or a part of a right, to receive, or that represents, *ordinary income or *statutory income (other than statutory income that is assessable under this Division or Division 102)

(a) in the case of ordinary income—when the ordinary income is *derived; or

(b) in the case of statutory income—when the requirement first arose to include the statutory income in your assessable income.

2

a right, or a part of a right, created or acquired in return for your ceasing to *hold a *depreciating asset

when you stop holding the asset.

3

a right, or a part of a right, referred to in subsection 775‑165(3) (which deals with extensions of loans)

the extension time referred to in that subsection.

4

a right, or a part of a right, created or acquired in return for your paying, or agreeing to pay, an amount of Australian currency, where item 3 does not apply

when the amount is paid.

5

a right, or a part of a right, created or acquired in return for your paying, or agreeing to pay, an amount of *foreign currency, where item 3 does not apply

when the amount is paid.

6

a right, or a part of a right, created in return for the occurrence of a *realisation event in relation to a *CGT asset you own, and none of the above items apply

when the realisation event occurs.

Note:          Subsection 775‑260(1) modifies the tax recognition time if forex realisation event 2 happens in relation to a qualifying forex account that has ceased to pass the limited balance test.

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

Forex realisation event 3

             (1)  Forex realisation event 3 happens if:

                     (a)  you cease to have an obligation, or a part of an obligation, to receive *foreign currency; and

                     (b)  the obligation, or the part of the obligation, is one of the following:

                              (i)  an obligation, or a part of the obligation, incurred in return for the creation or acquisition of a right to pay foreign currency;

                             (ii)  an obligation, or a part of the obligation, incurred in return for the creation or acquisition of a right to pay Australian currency;

                            (iii)  an obligation, or a part of an obligation, under an option to sell foreign currency.

Note 1:       For extended meaning of obligation to receive foreign currency, see section 775‑140.

Note 2:       For extended meaning of right to pay foreign currency, see section 775‑135.

Time of event

             (2)  The time of the event is when you cease to have the obligation or the part of the obligation.

Forex realisation gain

             (3)  You make a forex realisation gain if:

                     (a)  the amount you receive in respect of the event happening exceeds the net costs of assuming the obligation or the part of the obligation (the net costs are worked out as at the tax recognition time); and

                     (b)  some or all of the excess is attributable to a *currency exchange rate effect.

The amount of the forex realisation gain is so much of the excess as is attributable to a currency exchange rate effect.

Note 1:       For net costs of assuming the obligation, see section 775‑100.

Note 2:       For tax recognition time, see subsection (7).

Note 3:       For currency exchange rate effect, see section 775‑105.

             (4)  You make a forex realisation gain if:

                     (a)  the event happens because an option to sell *foreign currency expires without having been exercised, or is cancelled, released or abandoned; and

                     (b)  if the option had been exercised immediately before the event, you would have been obliged to buy the foreign currency.

The amount of the forex realisation gain is the amount you received in return for granting or assuming obligations under the option.

Forex realisation loss

             (5)  You make a forex realisation loss if:

                     (a)  the amount you receive in respect of the event happening falls short of the net costs of assuming the obligation or the part of the obligation (the net costs are worked out as at the tax recognition time); and

                     (b)  some or all of the shortfall is attributable to a *currency exchange rate effect.

The amount of the forex realisation loss is so much of the shortfall as is attributable to a currency exchange rate effect.

Note 1:       For net costs of assuming the obligation, see section 775‑100.

Note 2:       For tax recognition time, see subsection (7).

Note 3:       For currency exchange rate effect, see section 775‑105.

Non‑cash benefit

             (6)  The amount you receive in respect of the event happening can include a *non‑cash benefit. Use the *market value of the benefit to work out the amount you receive.

Tax recognition time

             (7)  For the purposes of this section, the tax recognition time is the time when you received an amount in respect of the event happening.

Right to pay Australian currency

             (8)  To avoid doubt, for the purposes of this section, a right to pay Australian currency includes a right to pay Australian currency, where the right is subject to a contingency.

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

Forex realisation event 4

             (1)  Forex realisation event 4 happens if:

                     (a)  you cease to have an obligation, or a part of an obligation, to pay *foreign currency; and

                     (b)  any of the following applies:

                              (i)  the obligation, or the part of the obligation, is an expense or outgoing that you deduct;

                             (ii)  the obligation, or the part of the obligation, is an element in the calculation of a net amount included in your assessable income (other than under this Division or Division 102 of this Act or Division 5 or 6 of Part III of the Income Tax Assessment Act 1936);

                            (iii)  the obligation, or the part of the obligation, is an element in the calculation of a net amount that is deductible (other than under Division 5 of Part III of the Income Tax Assessment Act 1936);

                            (iv)  you incurred the obligation, or the part of the obligation, in return for the acquisition of a *CGT asset;

                             (v)  you incurred the obligation, or the part of the obligation, as the second, third, fourth or fifth element of the *cost base of a CGT asset;

                            (vi)  you incurred the obligation, or the part of the obligation, in return for your starting to hold a *depreciating asset, and you deduct an amount under Division 40 or 328 for the depreciating asset;

                           (vii)  you incurred the obligation, or the part of the obligation, as the second element of the *cost of a depreciating asset, and you deduct an amount under Division 40 or 328 for the depreciating asset;

                          (viii)  you incurred the obligation, or the part of the obligation, as a *project amount;

                            (ix)  you incurred the obligation, or the part of the obligation, in return for receiving an amount of Australian currency or foreign currency;

                             (x)  you incurred the obligation, or the part of the obligation, in return for the creation or acquisition of a right to receive an amount of Australian currency or foreign currency;

                            (xi)  the obligation, or the part of the obligation, is under an option to buy foreign currency.

Note:          For extended meaning of obligation to pay foreign currency, see section 775‑140.

Time of event

             (2)  The time of the event is when you cease to have the obligation or the part of the obligation.

Forex realisation gain

             (3)  You make a forex realisation gain if:

                     (a)  the amount you paid in respect of the event happening falls short of the proceeds of assuming the obligation or the part of the obligation (the proceeds are worked out as at the tax recognition time); and

                     (b)  some or all of the shortfall is attributable to a *currency exchange rate effect.

The amount of the forex realisation gain is so much of the shortfall as is attributable to a currency exchange rate effect.

Note 1:       For proceeds of assuming the obligation, see section 775‑95.

Note 2:       For tax recognition time, see subsection (7).

Note 3:       For currency exchange rate effect, see section 775‑105.

             (4)  You make a forex realisation gain if:

                     (a)  the event happens because an option to buy *foreign currency expires without having been exercised, or is cancelled, released or abandoned; and

                     (b)  if the option had been exercised immediately before the event, you would have been obliged to sell the foreign currency.

The amount of the forex realisation gain is the amount you received in return for granting or assuming obligations under the option.

Forex realisation loss

             (5)  You make a forex realisation loss if:

                     (a)  the amount you paid in respect of the event happening exceeds the proceeds of assuming the obligation or the part of the obligation (the proceeds are worked out as at the tax recognition time); and

                     (b)  some or all of the excess is attributable to a *currency exchange rate effect.

The amount of the forex realisation loss is so much of the excess as is attributable to a currency exchange rate effect.

Note 1:       For proceeds of assuming the obligation, see section 775‑95.

Note 2:       For tax recognition time, see subsection (7).

Note 3:       For currency exchange rate effect, see section 775‑105.

Non‑cash benefit

             (6)  The amount you paid in respect of the event happening can include a *non‑cash benefit. Use the *market value of the benefit to work out the amount you paid.

Tax recognition time

             (7)  For the purposes of this section, the tax recognition time is worked out using the table:

 

Tax recognition time

Item

In this case...

the tax recognition time is...

1

(a) the obligation, or the part of the obligation, is an expense or outgoing that you deduct; and

(b) the obligation, or the part of the obligation, was not incurred:

(i) in return for the acquisition of an item of *trading stock; or

(ii) in return for your starting to hold a *depreciating asset; and

(c) the obligation, or the part of the obligation, was not incurred as the second element of the cost of a depreciating asset

the time when the expense or outgoing became deductible.

2

(a) the obligation, or the part of the obligation, is an expense or outgoing that you deduct; and

(b) the obligation, or the part of the obligation, was incurred in return for the acquisition of an item of *trading stock

the time when the item becomes part of your trading stock on hand.

3

the obligation, or the part of the obligation, is an element in the calculation of a net amount included in your assessable income (other than under this Division or Division 102 of this Act or Division 5 or 6 of Part III of the Income Tax Assessment Act 1936)

the time of the determination of the exchange rate used to translate the element for the purpose of calculating the net amount.

4

the obligation, or the part of the obligation, is an element in the calculation of a net amount that is deductible (other than under Division 5 of Part III of the Income Tax Assessment Act 1936)

the time of the determination of the exchange rate used to translate the element for the purpose of calculating the net amount.

5

(a) you incurred the obligation, or the part of the obligation:

(i) in return for your starting to hold a *depreciating asset; or

(ii) as the second element of the cost of a depreciating asset; and

(b) you deduct an amount under Division 40 or 328 for the depreciating asset

(a) in the case of the acquisition of a depreciating asset—when you began to hold the depreciating asset (worked out under Division 40); or

(b) in the case of the second element of the cost of a depreciating asset—when you incurred the relevant expenditure.

6

you incurred the obligation, or the part of the obligation, as a *project amount

the first time when any part of the amount became deductible.

7

the obligation, or the part of the obligation, is referred to in subsection 775‑165(5) (which deals with extension of loans)

the extension time referred to in that subsection.

8

you incurred the obligation, or the part of the obligation, in return for:

(a) receiving Australian currency or *foreign currency; or

(b) the creation or acquisition of a right to receive an amount of Australian currency or foreign currency;

where item 7 does not apply

the time when you received the currency.

9

(a) you incurred the obligation, or the part of the obligation, in return for the acquisition of a *CGT asset; and

(b) none of the above items apply

the time when you acquired the CGT asset (worked out under Division 109).

10

(a) you incurred the obligation, or the part of the obligation, as the second, third, fourth or fifth element of the *cost base of a CGT asset; and

(b) none of the above items apply

the time of the transaction under which you incurred the obligation.

Note 1:       Foreign currency is a CGT asset. If you acquire foreign currency as the borrower under a loan, item 8 will apply to your obligation to repay the foreign currency borrowed under the loan.

Note 2:       If you have made a choice for roll‑over relief for a facility agreement, and forex realisation event 7 (material variation of a facility agreement) happens, subsection 775‑220(6) modifies the tax recognition time for an obligation under a security that was in existence under the agreement at the time of that event.

Note 3:       Subsection 775‑260(2) modifies the tax recognition time if forex realisation event 4 happens in relation to a qualifying forex account that has ceased to pass the limited balance test.

Note 4:       If you have made a choice for roll‑over relief for a facility agreement, a forex realisation gain or forex realisation loss you make under the agreement as a result of forex realisation event 4 is disregarded—see section 775‑200.

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

Forex realisation event 5

             (1)  Forex realisation event 5 happens if:

                     (a)  you cease to have a right, or a part of a right, to pay *foreign currency; and

                     (b)  the right, or the part of the right, is one of the following:

                              (i)  a right, or a part of a right, created or acquired in return for the assumption of an obligation to pay foreign currency;

                             (ii)  a right, or a part of a right, created or acquired in return for the assumption of an obligation to pay Australian currency;

                            (iii)  a right, or a part of a right, under an option to sell foreign currency.

Note 1:       For extended meaning of right to pay foreign currency, see section 775‑135.

Note 2:       For extended meaning of obligation to pay foreign currency, see section 775‑140.

Time of event

             (2)  The time of the event is when you cease to have the right or the part of the right.

Forex realisation gain

             (3)  You make a forex realisation gain if:

                     (a)  the amount you pay in respect of the event happening falls short of the *forex entitlement base of the right or the part of the right (the forex entitlement base is worked out as at the tax recognition time); and

                     (b)  some or all of the shortfall is attributable to a *currency exchange rate effect.

The amount of the forex realisation gain is so much of the shortfall as is attributable to a currency exchange rate effect.

Note 1:       For forex entitlement base, see section 775‑90.

Note 2:       For tax recognition time, see subsection (7).

Note 3:       For currency exchange rate effect, see section 775‑105.

Forex realisation loss

             (4)  You make a forex realisation loss if:

                     (a)  the amount you pay in respect of the event happening exceeds the *forex entitlement base of the right or the part of the right (the forex entitlement base is worked out as at the tax recognition time); and

                     (b)  some or all of the excess is attributable to a *currency exchange rate effect.

The amount of the forex realisation loss is so much of the excess as is attributable to a currency exchange rate effect.

Note 1:       For forex entitlement base, see section 775‑90.

Note 2:       For tax recognition time, see subsection (7).

Note 3:       For currency exchange rate effect, see section 775‑105.

             (5)  You make a forex realisation loss if:

                     (a)  the event happens because an option to sell *foreign currency expires without having been exercised, or is cancelled, released or abandoned; and

                     (b)  you were capable of exercising the option immediately before the event happened.

The amount of the forex realisation loss is the amount you paid in return for the grant or acquisition of the option.

Non‑cash benefit

             (6)  The amount you pay in respect of the event happening can include a *non‑cash benefit. Use the *market value of the benefit to work out the amount you pay.

Tax recognition time

             (7)  For the purposes of this section, the tax recognition time is the time when you pay an amount in respect of the event happening.

Obligation to pay Australian currency

             (8)  To avoid doubt, for the purposes of this section, an obligation to pay Australian currency includes an obligation to pay Australian currency, where the obligation is subject to a contingency.

775‑65  Only one forex realisation event to be counted

Option to buy foreign currency

             (1)  The following table applies to an option to buy a particular *foreign currency if the exercise price is payable in another foreign currency:

 

Option to buy foreign currency

Item

If you are...

and both of these events happen when the option is exercised...

this is the result...

1

the entity who is capable of exercising the option

(a) forex realisation event 1;

(b) forex realisation event 4

ignore forex realisation event 4.

2

the entity who is capable of exercising the option

(a) forex realisation event 2;

(b) forex realisation event 4

ignore forex realisation event 4.

3

the entity who granted the option

(a) forex realisation event 3;

(b) forex realisation event 4

ignore forex realisation event 3.

Option to sell foreign currency

             (2)  The following table applies to an option to sell a particular *foreign currency if the exercise price is payable in another foreign currency:

 

Option to sell foreign currency

Item

If you are...

and both of these events happen when the option is exercised...

this is the result...

1

the entity who is capable of exercising the option

(a) forex realisation event 3;

(b) forex realisation event 5

ignore forex realisation event 3.

2

the entity who granted the option

(a) forex realisation event 3;

(b) forex realisation event 4

ignore forex realisation event 3.

Forward contracts

             (3)  The following table applies to a contract to buy a particular *foreign currency in return for another foreign currency:

 

Forward contracts

Item

If both of these events happen when the contract is carried out...

this is the result...

1

(a) forex realisation event 1;

(b) forex realisation event 4

ignore forex realisation event 4.

2

(a) forex realisation event 2;

(b) forex realisation event 4

ignore forex realisation event 4.

Residual rule

             (4)  If:

                     (a)  2 or more of forex realisation events 1, 2, 3, 4 and 5 happen to you at the same time in relation to the same rights and/or obligations; and

                     (b)  none of the above subsections applies;

apply the forex realisation event that is most appropriate, and ignore the remaining event or events.

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

             (1)  The following table has effect unless you have made a choice under section 775‑80:

 

Tax consequences of certain short‑term forex realisation gains

Item

In this case...

this is the result...

1

you make a *forex realisation gain as a result of forex realisation event 2, and:

(a) the right to receive *foreign currency was created in return for the occurrence of a *realisation event in relation to a *CGT asset you own; and

(b) item 6 of the table in subsection 775‑45(7) applies; and

(c) the foreign currency became due for payment within 12 months after the occurrence of the realisation event

(a) the forex realisation gain is not included in your assessable income under section 775‑15; and

(b) CGT event K10 happens.

2

you make a *forex realisation gain as a result of forex realisation event 4, and:

(a) the obligation to pay *foreign currency was incurred:

(i) in return for the acquisition of a *CGT asset; or

(ii) as the second, third, fourth or fifth element of the *cost base of a CGT asset; and

(b) item 9 of the table in subsection 775‑55(7) applies; and

(c) the foreign currency became due for payment within 12 months after the time when:

(i) if subparagraph (a)(i) applies—you acquired the CGT asset (worked out under Division 109); or

(ii) if subparagraph (a)(ii) applies—you incurred the relevant expenditure

(a) the forex realisation gain is not included in your assessable income under section 775‑15; and

(b) both the *cost base and the *reduced cost base of the CGT asset are reduced by an amount equal to the forex realisation gain.

3

you make a *forex realisation gain as a result of forex realisation event 4, and:

(a) the obligation to pay *foreign currency was incurred:

(i) in return for your starting to hold a *depreciating asset; or

(ii) as the second element of the cost of a depreciating asset; and

(b) if subparagraph (a)(i) applies—the foreign currency became due for payment within the 24‑month period that began 12 months before the time when you began to hold the depreciating asset (worked out under Division 40); and

(c) if subparagraph (a)(ii) applies—the foreign currency became due for payment within 12 months after the time when you incurred the relevant expenditure

(a) the forex realisation gain is not included in your assessable income under section 775‑15; and

(b) if:

(i) the forex realisation event happens in the income year in which the asset’s *start time occurs; and

(ii) the asset is not allocated to a pool under Subdivision 40‑E or 328‑D;

      the asset’s *cost is reduced (but not below zero) by an amount equal to the forex realisation gain; and

(c) if:

(i) the forex realisation event happens in an income year that is later than the one in which the asset’s *start time occurs; and

(ii) the asset is not allocated to a pool under Subdivision 40‑E or 328‑D;

      the depreciating asset’s *opening adjustable value for the income year in which the forex realisation event happens is reduced (but not below zero) by an amount equal to the forex realisation gain; and

(d) if the asset is allocated to a pool under Subdivision 40‑E or 328‑D—the opening pool balance of the pool for the income year in which the forex realisation event happens is reduced (but not below zero) by an amount equal to the forex realisation gain.

4

you make a *forex realisation gain as a result of forex realisation event 4, and:

(a) the obligation to pay *foreign currency was incurred as a project amount; and

(b) the foreign currency became due for payment within 12 months after the time when you incurred the project amount; and

(c) the project amount is allocated to a project pool

(a) the forex realisation gain is not included in your assessable income under section 775‑15; and

(b) the pool value of the project pool for the income year in which you incurred the project amount is reduced (but not below zero) by an amount equal to the forex realisation gain.

Additional result where forex realisation gain exceeds cost etc.

             (2)  The following table has effect:

 

Additional result where forex realisation gain exceeds cost etc.

Item

If...

and the following conditions are satisfied...

this is the result...

1

item 3 of the table in subsection (1) applies in relation to a *depreciating asset

(a) the forex realisation event happens in the income year in which the asset’s *start time occurs; and

(b) the asset is not allocated to a pool under Subdivision 40‑E or 328‑D; and

(c) the forex realisation gain exceeds the asset’s *cost

the excess is included in your assessable income.

2

item 3 of the table in subsection (1) applies in relation to a *depreciating asset

(a) the forex realisation event happens in an income year that is later than the one in which the asset’s *start time occurs; and

(b) the asset is not allocated to a pool under Subdivision 40‑E or 328‑D; and

(c) the forex realisation gain exceeds the asset’s *opening adjustable value for the income year in which the forex realisation event happens

the excess is included in your assessable income.

3

item 3 of the table in subsection (1) applies in relation to a *depreciating asset

(a) the asset is allocated to a pool under Subdivision 40‑E or 328‑D; and

(b) the forex realisation gain exceeds the opening pool balance of the pool for the income year in which the forex realisation event happens

the excess is included in your assessable income.

4

item 4 of the table in subsection (1) applies in relation to a project amount

the forex realisation gain exceeds the pool value of the project pool for the income year in which you incurred the project amount

the excess is included in your assessable income.

             (3)  To the extent that a *forex realisation gain:

                     (a)  would have been included in your assessable income under section 775‑15 if this section had not been enacted; and

                     (b)  would, apart from this subsection, be included in your assessable income under another provision of this Act;

the gain is not included in your assessable income under that other provision.

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

             (1)  The following table has effect unless you have made a choice under section 775‑80:

 

Tax consequences of certain short‑term forex realisation losses

Item

In this case...

this is the result...

1

you make a *forex realisation loss as a result of forex realisation event 2, and:

(a) the right to receive *foreign currency was created in return for the occurrence of a *realisation event in relation to a *CGT asset you own; and

(b) item 6 of the table in subsection 775‑45(7) applies; and

(c) the foreign currency became due for payment within 12 months after the occurrence of the realisation event

(a) the forex realisation loss is not deductible under section 775‑30; and

(b) CGT event K11 happens.

2

you make a *forex realisation loss as a result of forex realisation event 4, and:

(a) the obligation to pay *foreign currency was incurred:

(i) in return for the acquisition of a *CGT asset; or

(ii) as the second, third, fourth or fifth element of the *cost base of a CGT asset; and

(b) item 9 of the table in subsection 775‑55(7) applies; and

(c) the foreign currency became due for payment within 12 months after the time when:

(i) if subparagraph (a)(i) applies—you acquired the CGT asset (worked out under Division 109); or

(ii) if subparagraph (a)(ii) applies—you incurred the relevant expenditure

(a) the forex realisation loss is not deductible under section 775‑30; and

(b) both the *cost base and the *reduced cost base of the CGT asset are increased by an amount equal to the *forex realisation loss.

3

you make a *forex realisation loss as a result of forex realisation event 4, and:

(a) the obligation to pay *foreign currency was incurred:

(i) in return for your starting to hold a *depreciating asset; or

(ii) as the second element of the cost of a depreciating asset; and

(b) if subparagraph (a)(i) applies—the foreign currency became due for payment within the 24‑month period that began 12 months before the time when you began to hold the depreciating asset (worked out under Division 40); and

(c) if subparagraph (a)(ii) applies—the foreign currency became due for payment within 12 months after the time when you incurred the relevant expenditure

(a) the forex realisation loss is not deductible under section 775‑30; and

(b) if:

(i) the forex realisation event happens in the income year in which the asset’s *start time occurs; and

(ii) the asset is not allocated to a pool under Subdivision 40‑E or 328‑D;

      the asset’s *cost is increased by an amount equal to the forex realisation loss; and

(c) if:

(i) the forex realisation event happens in an income year that is later than the one in which the asset’s *start time occurs; and

(ii) the asset is not allocated to a pool under Subdivision 40‑E or 328‑D;

      the depreciating asset’s *opening adjustable value for the income year in which the forex realisation event happens is increased by an amount equal to the forex realisation loss; and

(d) if the asset is allocated to a pool under Subdivision 40‑E or 328‑D—the opening pool balance of the pool for the income year in which the forex realisation event happens is increased by an amount equal to the forex realisation loss.

4

you make a *forex realisation loss as a result of forex realisation event 4, and:

(a) the obligation to pay *foreign currency was incurred as a project amount; and

(b) the foreign currency became due for payment within 12 months after the time when you incurred the project amount

(a) the forex realisation loss is not deductible under section 775‑30; and

(b) the pool value of the project pool for the income year in which you incurred the project amount is increased by an amount equal to the forex realisation loss.

             (2)  To the extent that:

                     (a)  section 775‑30 would have allowed you a deduction for a *forex realisation loss if this section had not been enacted; and

                     (b)  apart from this subsection, another provision of this Act would allow you a deduction for the loss;

you cannot deduct the loss under that other provision.

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

             (1)  You may choose not to have sections 775‑70 and 775‑75 apply to you.

             (2)  A choice must be in writing.

             (3)  A choice must be made:

                     (a)  if you were in existence at the start of the applicable commencement date:

                              (i)  within 90 days after the applicable commencement date; or

                             (ii)  within 30 days after the commencement of this subsection; or

                     (b)  if you came into existence within 90 days after the start of the applicable commencement date:

                              (i)  within 90 days after you came into existence; or

                             (ii)  within 30 days after the commencement of this subsection; or

                     (c)  if the Commissioner allows a longer period—within that longer period.

Note:          For applicable commencement date, see section 775‑155.

             (4)  A choice has effect from the start of the applicable commencement date.

             (5)  A choice may not be revoked.

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

                   The forex cost base of a right, or a part of a right, to receive *foreign currency is the total of:

                     (a)  the money you:

                              (i)  paid; or

                             (ii)  are required to pay; or

                            (iii)  would be required to pay in the event of the exercise of an option;

                            in respect of acquiring the right or part of the right; and

                     (b)  the *market value of any *non‑cash benefit you:

                              (i)  provided; or

                             (ii)  are required to provide; or

                            (iii)  would be required to provide in the event of the exercise of an option;

                            in respect of acquiring the right or part of the right;

reduced by any amounts that are deductible under a provision of this Act other than this Division.

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

                   The forex entitlement base of a right, or a part of a right, to pay *foreign currency is the total of:

                     (a)  the money you:

                              (i)  are entitled to receive; or

                             (ii)  would be entitled to receive in the event of the exercise of an option;

                            in respect of the discharge or satisfaction of the right or the part of the right; and

                     (b)  the *market value of any *non‑cash benefit you:

                              (i)  are entitled to acquire or obtain; or

                             (ii)  would be entitled to acquire or obtain in the event of the exercise of an option;

                            in respect of the discharge or satisfaction of the right or the part of the right;

reduced by:

                     (c)  any amounts that you paid to acquire the right or the part of the right, where the amounts are not deductible under a provision of this Act other than this Division; and

                     (d)  the market value of any non‑cash benefit that you provided to acquire the right or the part of the right, where the market value is not deductible under a provision of this Act other than this Division.

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

                   For the purposes of this Division, the proceeds of assuming an obligation, or a part of an obligation, to pay *foreign currency are the total of:

                     (a)  the money you:

                              (i)  received; or

                             (ii)  are entitled to receive; or

                            (iii)  would be entitled to receive in the event of the exercise of an option;

                            in return for incurring the obligation or the part of the obligation; and

                     (b)  the *market value of any *non‑cash benefit you:

                              (i)  acquired or obtained; or

                             (ii)  are entitled to acquire or obtain; or

                            (iii)  would be entitled to acquire or obtain in the event of the exercise of an option;

                            in return for incurring the obligation or the part of the obligation;

reduced by any amounts that are included in assessable income under a provision of this Act other than this Division.

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

             (1)  For the purposes of this Division, the net costs of assuming an obligation, or a part of an obligation, to receive *foreign currency are the total of:

                     (a)  the money you:

                              (i)  are required to pay; or

                             (ii)  would be required to pay in the event of the exercise of an option;

                            in respect of the fulfilment of the obligation or the part of the obligation; and

                     (b)  the *market value of any *non‑cash benefit you:

                              (i)  are required to provide; or

                             (ii)  would be required to provide in the event of the exercise of an option;

                            in respect of the fulfilment of the obligation or the part of the obligation;

reduced by the amount worked out under subsection (2).

             (2)  The amount worked out under this subsection is the total of:

                     (a)  the money you:

                              (i)  received; or

                             (ii)  are entitled to receive;

                            because you incurred the obligation or the part of the obligation; and

                     (b)  the *market value of any *non‑cash benefit you:

                              (i)  received or obtained; or

                             (ii)  are entitled to receive or obtain;

                            because you incurred the obligation or the part of the obligation;

reduced by any amounts that are included in assessable income under a provision of this Act other than this Division.

             (3)  To avoid doubt, paragraphs (2)(a) and (b) do not apply to money or a *non‑cash benefit that you:

                     (a)  received or obtained; or

                     (b)  are entitled to receive or obtain;

because of the fulfilment of the obligation or the part of the obligation.

775‑105  Currency e