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Income Tax Assessment Act 1997

Authoritative Version
  • - C2016C00760
  • In force - Superseded Version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 retrospective amendments. Please see the Tax and Superannuation Laws Amendment (2016 Measures No. 2) Act 2017 (Act No. 15, 2017) and the Treasury Laws Amendment (Enterprise Tax Plan) Act 2017 (Act No. 41, 2017) for details.
Registered 08 Jul 2016
Start Date 01 Jul 2016
End Date 30 Sep 2016

Income Tax Assessment Act 1997

No. 38, 1997

Compilation No. 158

Compilation date:                              1 July 2016

Includes amendments up to:            Act No. 54, 2016

Registered:                                         8 July 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:     Endnotes 4 and 5

Each volume has its own contents

 

This compilation includes commenced amendments made by Act No. 16, 2011, Act No. 85, 2013, Act No. 32, 2014, Act No. 53, 2015, Act No. 20, 2016 and Act No. 52, 2016

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 1 July 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 3—Specialist liability rules                                                           1

Part 3‑10—Financial transactions                                                                                1

Division 230—Taxation of financial arrangements                                     1

Guide to Division 230                                                                                                1

230‑1..................... What this Division is about................................................. 1

230‑5..................... Scope of this Division........................................................ 2

Subdivision 230‑A—Core rules                                                                              3

Objects                                                                                                                           4

230‑10................... Objects of this Division...................................................... 4

Tax treatment of gains and losses from financial arrangements                  4

230‑15................... Gains are assessable and losses deductible......................... 4

230‑20................... Gain or loss to be taken into account only once under this Act                7

230‑25................... Associated financial benefits to be taken into account only once under this Act      8

230‑30................... Treatment of gains and losses related to exempt income and non‑assessable non‑exempt income           9

230‑35................... Treatment of gains and losses of private or domestic nature 10

Method to be applied to take account of gain or loss                                      11

230‑40................... Methods for taking gain or loss into account.................... 11

Financial arrangement concept                                                                            13

230‑45................... Financial arrangement....................................................... 13

230‑50................... Financial arrangement (equity interest or right or obligation in relation to equity interest)       15

230‑55................... Rights, obligations and arrangements (grouping and disaggregation rules)             16

General rules                                                                                                             18

230‑60................... When financial benefit provided or received under financial arrangement                18

230‑65................... Amount of financial benefit relating to more than one financial arrangement etc.     19

230‑70................... Apportionment when financial benefit received or right ceases                20

230‑75................... Apportionment when financial benefit provided or obligation ceases      20

230‑80................... Consistency in working out gains or losses (integrity measure)              21

230‑85................... Rights and obligations include contingent rights and obligations             22

Subdivision 230‑B—The accruals/realisation methods                                 23

Guide to Subdivision 230‑B                                                                                   24

230‑90................... What this Subdivision is about......................................... 24

Objects of Subdivision                                                                                             25

230‑95................... Objects of this Subdivision............................................... 25

When accruals method or realisation method applies                                    25

230‑100................. When accruals method or realisation method applies........ 25

230‑105................. Sufficiently certain overall gain or loss............................. 27

230‑110................. Sufficiently certain gain or loss from particular event....... 28

230‑115................. Sufficiently certain financial benefits................................ 29

230‑120................. Financial arrangements with notional principal................. 32

The accruals method                                                                                               33

230‑125................. Overview of the accruals method...................................... 33

230‑130................. Applying accruals method to work out period over which gain or loss is to be spread            34

230‑135................. How gain or loss is spread............................................... 35

230‑140................. Method of spreading gain or loss—effective interest method  37

230‑145................. Application of effective interest method where differing income and accounting years           38

230‑150................. Election for portfolio treatment of fees.............................. 40

230‑155................. Election for portfolio treatment of fees where differing income and accounting years             40

230‑160................. Portfolio treatment of fees................................................. 42

230‑165................. Portfolio treatment of premiums and discounts for acquiring portfolio    43

230‑170................. Allocating gain or loss to income years............................ 45

230‑172................. Applying accruals method to loss resulting from impairment  46

230‑175................. Running balancing adjustments........................................ 47

Realisation method                                                                                                  49

230‑180................. Realisation method............................................................ 49

Reassessment and re‑estimation                                                                           51

230‑185................. Reassessment.................................................................... 51

230‑190................. Re‑estimation.................................................................... 53

230‑192................. Re‑estimation—impairments and reversals....................... 55

230‑195................. Balancing adjustment if rate of return maintained on re‑estimation          57

230‑200................. Re‑estimation if balancing adjustment on partial disposal. 58

Subdivision 230‑C—Fair value method                                                             60

230‑205................. Objects of this Subdivision............................................... 60

230‑210................. Fair value election............................................................. 61

230‑215................. Fair value election where differing income and accounting years             62

230‑220................. Financial arrangements to which fair value election applies 63

230‑225................. Financial arrangements to which election does not apply.. 65

230‑230................. Applying fair value method to gains and losses................ 66

230‑235................. Splitting financial arrangements into 2 financial arrangements 67

230‑240................. When election ceases to apply........................................... 68

230‑245................. Balancing adjustment if election ceases to apply............... 69

Subdivision 230‑D—Foreign exchange retranslation method                      70

230‑250................. Objects of this Subdivision............................................... 70

230‑255................. Foreign exchange retranslation election............................ 70

230‑260................. Foreign exchange retranslation election where differing income and accounting years            72

230‑265................. Financial arrangements to which general election applies. 73

230‑270................. Financial arrangements to which general election does not apply             75

230‑275................. Balancing adjustment for election in relation to qualifying forex accounts               76

230‑280................. Applying foreign exchange retranslation method to gains and losses      77

230‑285................. When election ceases to apply........................................... 79

230‑290................. Balancing adjustment if election ceases to apply............... 80

Subdivision 230‑E—Hedging financial arrangements method                    81

230‑295................. Objects of this Subdivision............................................... 82

230‑300................. Applying hedging financial arrangement method to gains and losses      82

230‑305................. Table of events and allocation rules.................................. 84

230‑310................. Aligning tax classification of gain or loss from hedging financial arrangement with tax classification of hedged item................................................................................... 86

230‑315................. Hedging financial arrangement election............................ 90

230‑320................. Hedging financial arrangement election where differing income and accounting years            91

230‑325................. Hedging financial arrangements to which election applies 91

230‑330................. Hedging financial arrangements to which election does not apply           92

230‑335................. Hedging financial arrangement and hedged item............. 93

230‑340................. Generally whole arrangement must be hedging financial arrangement     97

230‑345................. Requirements not satisfied because of honest mistake or inadvertence    98

230‑350................. Derivative financial arrangement and foreign currency hedge                99

230‑355................. Recording requirements.................................................. 100

230‑360................. Determining basis for allocating gain or loss.................. 102

230‑365................. Effectiveness of the hedge.............................................. 103

230‑370................. When election ceases to apply......................................... 103

230‑375................. Balancing adjustment if election ceases to apply............. 104

230‑380................. Commissioner may determine that requirement met........ 104

230‑385................. Consequences of failure to meet requirements................ 106

Subdivision 230‑F—Reliance on financial reports                                        107

230‑390................. Objects of this Subdivision............................................. 108

230‑395................. Election to rely on financial reports................................. 108

230‑400................. Financial reports election where differing income and accounting years  110

230‑405................. Commissioner discretion to waive requirements in paragraphs 230‑395(2)(c) and (e)            111

230‑410................. Financial arrangements to which the election applies...... 112

230‑415................. Financial arrangements not covered by election.............. 115

230‑420................. Effect of election to rely on financial reports................... 116

230‑425................. When election ceases to apply......................................... 117

230‑430................. Balancing adjustment if election ceases to apply............. 118

Subdivision 230‑G—Balancing adjustment on ceasing to have a financial arrangement           119

230‑435................. When balancing adjustment made................................... 119

230‑440................. Exceptions...................................................................... 121

230‑445................. Balancing adjustment...................................................... 122

Subdivision 230‑H—Exceptions                                                                         127

230‑450................. Short‑term arrangements where non‑money amount involved 127

230‑455................. Certain taxpayers where no significant deferral.............. 128

230‑460................. Various rights and/or obligations.................................... 131

230‑465................. Ceasing to have a financial arrangement in certain circumstances            137

230‑470................. Forgiveness of commercial debts.................................... 138

230‑475................. Clarifying exceptions...................................................... 138

230‑480................. Treatment of gains in form of franked distribution etc.... 139

230‑481................. Registered emissions units.............................................. 139

Subdivision 230‑I—Other provisions                                                                139

230‑485................. Effect of change of residence—rules for particular methods 140

230‑490................. Effect of change of residence—disposal and reacquisition etc. after ceasing to be Australian resident where no further recognised gains or losses from arrangement...... 142

230‑495................. Effect of change of accounting principles or standards... 142

230‑500................. Comparable foreign accounting and auditing standards.. 143

230‑505................. Financial arrangement as consideration for provision or acquisition of a thing        144

230‑510................. Non‑arm’s length dealings in relation to financial arrangement                146

230‑515................. Arm’s length dealings in relation to financial arrangement—adjustment to gain or loss in certain situations........................................................................................ 148

230‑520................. Disregard gains or losses covered by value shifting regime 148

230‑525................. Consolidated financial reports......................................... 149

230‑527................. Elections—reporting documents of foreign ADIs.......... 149

Subdivision 230‑J—Additional operation of Division                                  150

230‑530................. Additional operation of Division.................................... 150

Division 235—Particular financial transactions                                        153

Guide to Division 235                                                                                            153

235‑1..................... What this Division is about............................................. 153

Subdivision 235‑I—Instalment trusts                                                                153

Guide to Subdivision 235‑I                                                                                   153

235‑805................. What this Subdivision is about....................................... 153

Operative provisions                                                                                             154

235‑810................. Object of this Subdivision.............................................. 154

235‑815................. Application of Subdivision............................................. 154

235‑820................. Look‑through treatment for instalment trusts.................. 155

235‑825................. Meaning of instalment trust and instalment trust asset.. 155

235‑830................. What trusts are covered—instalment trust arrangements. 156

235‑835................. Requirement for underlying investments to be listed or widely held        157

235‑840................. What trusts are covered—limited recourse borrowings by regulated superannuation funds    158

235‑845................. Interactions with other provisions................................... 159

Division 240—Arrangements treated as a sale and loan                      160

Guide to Division 240                                                                                            160

240‑1..................... What this Division is about............................................. 160

240‑3..................... How the recharacterisation affects the notional seller...... 160

240‑7..................... How the recharacterisation affects the notional buyer..... 161

Subdivision 240‑A—Application and scope of Division                               162

Operative provisions                                                                                             162

240‑10................... Application of this Division............................................ 162

240‑15................... Scope of Division........................................................... 163

Subdivision 240‑B—The notional sale and notional loan                            163

Operative provisions                                                                                             163

240‑17................... Who is the notional seller and the notional buyer?.......... 163

240‑20................... Notional sale of property by notional seller and notional acquisition of property by notional buyer        164

240‑25................... Notional loan by notional seller to notional buyer........... 164

Subdivision 240‑C—Amounts to be included in notional seller’s assessable income    165

Guide to Subdivision 240‑C                                                                                 165

240‑30................... What this Subdivision is about....................................... 165

Operative provisions                                                                                             166

240‑35................... Amounts to be included in notional seller’s assessable income                166

240‑40................... Arrangement payments not to be included in notional seller’s assessable income    167

Subdivision 240‑D—Deductions allowable to notional buyer                     167

Guide to Subdivision 240‑D                                                                                 167

240‑45................... What this Subdivision is about....................................... 167

Operative provisions                                                                                             168

240‑50................... Extent to which deductions are allowable to notional buyer 168

240‑55................... Arrangement payments not to be deductions.................. 168

Subdivision 240‑E—Notional interest and arrangement payments          168

Operative provisions                                                                                             169

240‑60................... Notional interest.............................................................. 169

240‑65................... Arrangement payments................................................... 170

240‑70................... Arrangement payment periods........................................ 170

Subdivision 240‑F—The end of the arrangement                                          171

Operative provisions                                                                                             171

240‑75................... When is the end of the arrangement?.............................. 171

240‑80................... What happens if the arrangement is extended or renewed 172

240‑85................... What happens if an amount is paid by or on behalf of the notional buyer to acquire the property            173

240‑90................... What happens if the notional buyer ceases to have the right to use the property      173

Subdivision 240‑G—Adjustments if total amount assessed to notional seller differs from amount of interest     174

Guide to Subdivision 240‑G                                                                                 174

240‑100................. What this Subdivision is about....................................... 174

Operative provisions                                                                                             175

240‑105................. Adjustments for notional seller....................................... 175

240‑110................. Adjustments for notional buyer...................................... 176

Subdivision 240‑H—Application of Division 16E to certain arrangements 177

240‑112................. Division 16E applies to certain arrangements................. 177

Subdivision 240‑I—Provisions applying to hire purchase agreements    178

Operative provisions                                                                                             178

240‑115................. Another person, or no person taken to own property in certain cases      178

Division 242—Leases of luxury cars                                                                180

Guide to Division 242                                                                                            180

242‑1..................... What this Division is about............................................. 180

Subdivision 242‑A—Notional sale and loan                                                    181

Guide to Subdivision 242‑A                                                                                 181

242‑5..................... What this Subdivision is about....................................... 181

Operative provisions                                                                                             181

242‑10................... Application..................................................................... 181

242‑15................... Notional sale and acquisition.......................................... 182

242‑20................... Consideration for notional sale, and cost, of car............. 183

242‑25................... Notional loan by lessor to lessee..................................... 183

Subdivision 242‑B—Amount to be included in lessor’s assessable income 184

Guide to Subdivision 242‑B                                                                                 184

242‑30................... What this Subdivision is about....................................... 184

Operative provisions                                                                                             185

242‑35................... Amount to be included in lessor’s assessable income..... 185

242‑40................... Treatment of lease payments........................................... 186

Subdivision 242‑C—Deductions allowable to lessee                                      187

Guide to Subdivision 242‑C                                                                                 187

242‑45................... What this Subdivision is about....................................... 187

Operative provisions                                                                                             187

242‑50................... Extent to which deductions are allowable to lessee......... 187

242‑55................... Lease payments not deductible........................................ 188

Subdivision 242‑D—Adjustments if total amount assessed to lessor differs from amount of interest      188

Guide to Subdivision 242‑D                                                                                 188

242‑60................... What this Subdivision is about....................................... 188

Operative provisions                                                                                             189

242‑65................... Adjustments for lessor.................................................... 189

242‑70................... Adjustments for lessee.................................................... 190

Subdivision 242‑E—Extension, renewal and final ending of the lease     190

Guide to Subdivision 242‑E                                                                                 190

242‑75................... What this Subdivision is about....................................... 190

Operative provisions                                                                                             191

242‑80................... What happens if the term of the lease is extended or the lease is renewed                191

242‑85................... What happens if an amount is paid by the lessee to acquire the car          193

242‑90................... What happens if the lessee stops having the right to use the car               193

Division 243—Limited recourse debt                                                               195

Guide to Division 243                                                                                            195

243‑10................... What this Division is about............................................. 195

Subdivision 243‑A—Circumstances in which Division operates                195

Operative provisions                                                                                             196

243‑15................... When does this Division apply?..................................... 196

243‑20................... What is limited recourse debt?........................................ 197

243‑25................... When is a debt arrangement terminated?......................... 199

243‑30................... What is the financed property and the debt property?..... 200

Subdivision 243‑B—Working out the excessive deductions                        200

Operative provisions                                                                                             201

243‑35................... Working out the excessive deductions............................ 201

Subdivision 243‑C—Amounts included in assessable income and deductions                203

Operative provisions                                                                                             204

243‑40................... Amount included in debtor’s assessable income............. 204

243‑45................... Deduction for later payments in respect of debt.............. 204

243‑50................... Deduction for payments for replacement debt................. 205

243‑55................... Effect of Division on later capital allowance deductions. 206

243‑57................... Effect of Division on later capital allowance balancing adjustments         207

243‑58................... Adjustment where debt only partially used for expenditure 208

Subdivision 243‑D—Special provisions                                                            209

Operative provisions                                                                                             209

243‑60................... Application of Division to partnerships.......................... 209

243‑65................... Application where partner reduces liability..................... 209

243‑70................... Application of Division to companies ceasing to be 100% subsidiary     211

243‑75................... Application of Division where debt forgiveness rules also apply            211

Division 245—Forgiveness of commercial debts                                       212

Guide to Division 245                                                                                            212

245‑1..................... What this Division is about............................................. 212

245‑2..................... Simplified outline of this Division.................................. 212

Subdivision 245‑A—Debts to which operative rules apply                          214

Guide to Subdivision 245‑A                                                                                 214

245‑5..................... What this Subdivision is about....................................... 214

Application of Division                                                                                         214

245‑10................... Commercial debts........................................................... 214

245‑15................... Non‑equity shares........................................................... 215

245‑20................... Parts of debts.................................................................. 215

Subdivision 245‑B—What constitutes forgiveness of a debt                       215

Guide to Subdivision 245‑B                                                                                 215

245‑30................... What this Subdivision is about....................................... 215

Operative provisions                                                                                             216

245‑35................... What constitutes forgiveness of a debt............................ 216

245‑36................... What constitutes forgiveness of a debt if the debt is assigned  216

245‑37................... What constitutes forgiveness of a debt if a subscription for shares enables payment of the debt              217

245‑40................... Forgivenesses to which operative rules do not apply...... 217

245‑45................... Application of operative rules if forgiveness involves an arrangement    217

Subdivision 245‑C—Calculation of gross forgiven amount of a debt      218

Guide to Subdivision 245‑C                                                                                 218

245‑48................... What this Subdivision is about....................................... 218

Working out the value of a debt                                                                         219

245‑50................... Extent of forgiveness if consideration is given............... 219

245‑55................... General rule for working out the value of a debt............. 220

245‑60................... Special rule for working out the value of a non‑recourse debt 221

245‑61................... Special rule for working out the value of a previously assigned debt       222

Working out if an amount is offset against the value of the debt               222

245‑65................... Amount offset against amount of debt............................ 222

Working out the gross forgiven amount                                                          225

245‑75................... Gross forgiven amount of a debt.................................... 225

245‑77................... Gross forgiven amount shared between debtors............. 226

Subdivision 245‑D—Calculation of net forgiven amount of a debt          226

Guide to Subdivision 245‑D                                                                                 226

245‑80................... What this Subdivision is about....................................... 226

Operative provisions                                                                                             227

245‑85................... Reduction of gross forgiven amount............................... 227

245‑90................... Agreement between companies under common ownership for creditor to forgo capital loss or deduction........................................................................................ 227

Subdivision 245‑E—Application of net forgiven amounts                          229

Guide to Subdivision 245‑E                                                                                 229

245‑95................... What this Subdivision is about....................................... 229

General operative provisions                                                                              231

245‑100................. Subdivision not to apply to calculation of attributable income  231

245‑105................. How total net forgiven amount is applied....................... 231

Reduction of tax losses                                                                                          232

245‑115................. Total net forgiven amount is applied in reduction of tax losses                232

245‑120................. Allocation of total net forgiven amount in respect of tax losses               232

Reduction of net capital losses                                                                            232

245‑130................. Remaining total net forgiven amount is applied in reduction of net capital losses    232

245‑135................. Allocation of remaining total net forgiven amount in respect of net capital losses    233

Reduction of expenditure                                                                                     233

245‑145................. Remaining total net forgiven amount is applied in reduction of expenditure            233

245‑150................. Allocation of remaining total net forgiven amount in respect of expenditures          235

245‑155................. How expenditure is reduced—straight line deductions... 235

245‑157................. How expenditure is reduced—diminishing balance deductions               236

245‑160................. Amount applied in reduction of expenditure included in assessable income in certain circumstances      237

Reduction of cost bases of assets                                                                         237

245‑175................. Remaining total net forgiven amount is applied in reduction of cost bases of CGT assets       237

245‑180................. Allocation of remaining total net forgiven amount among relevant cost bases of CGT assets  238

245‑185................. Relevant cost bases of investments in associated entities are reduced last                238

245‑190................. Reduction of the relevant cost bases of a CGT asset....... 239

Unapplied total net forgiven amount                                                                240

245‑195................. No further consequences if there is any remaining unapplied total net forgiven amount          240

Subdivision 245‑F—Special rules relating to partnerships                         240

Guide to Subdivision 245‑F                                                                                  240

245‑200................. What this Subdivision is about....................................... 240

Operative provisions                                                                                             240

245‑215................. Unapplied total net forgiven amount of a partnership is transferred to partners       240

Subdivision 245‑G—Record keeping                                                                242

245‑265................. Keeping and retaining records......................................... 242

Division 247—Capital protected borrowings                                              245

Guide to Division 247                                                                                            245

247‑1..................... What this Division is about............................................. 245

Operative provisions                                                                                             245

247‑5..................... Object of Division.......................................................... 245

247‑10................... What capital protected borrowing and capital protection are  246

247‑15................... Application of this Division............................................ 246

247‑20................... Treating capital protection as a put option....................... 247

247‑25................... Number of put options.................................................... 249

247‑30................... Exercise or expiry of option............................................ 250

Division 250—Assets put to tax preferred use                                            251

Guide to Division 250                                                                                            251

250‑1..................... What this Division is about............................................. 251

Subdivision 250‑A—Objects                                                                                252

250‑5..................... Main objects................................................................... 252

Subdivision 250‑B—When this Division applies to you and an asset        252

Overall test                                                                                                               253

250‑10................... When this Division applies to you and an asset.............. 253

250‑15................... General test..................................................................... 253

250‑20................... First exclusion—small business entities......................... 254

250‑25................... Second exclusion—financial benefits under minimum value limit           254

250‑30................... Third exclusion—certain short term or low value arrangements              255

250‑35................... Exceptions to section 250‑30.......................................... 256

250‑40................... Fourth exclusion—sum of present values of financial benefits less than amount otherwise assessable   258

250‑45................... Fifth exclusion—Commissioner determination............... 260

Tax preferred use of asset                                                                                    260

250‑50................... End user of an asset........................................................ 260

250‑55................... Tax preferred end user................................................... 261

250‑60................... Tax preferred use of an asset.......................................... 261

250‑65................... Arrangement period for tax preferred use...................... 263

250‑70................... New tax preferred use at end of arrangement period if tax preferred use continues 264

250‑75................... What constitutes a separate asset for the purposes of this Division          264

250‑80................... Treatment of particular arrangements in the same way as leases              265

Financial benefits in relation to tax preferred use                                        266

250‑85................... Financial benefits in relation to tax preferred use of an asset 266

250‑90................... Financial benefit provided directly or indirectly.............. 268

250‑95................... Expected financial benefits in relation to an asset put to tax preferred use                269

250‑100................. Present value of financial benefit that has already been provided             269

Discount rate to be used in working out present values                                269

250‑105................. Discount rate to be used in working out present values.. 269

Predominant economic interest                                                                          270

250‑110................. Predominant economic interest....................................... 270

250‑115................. Limited recourse debt test............................................... 270

250‑120................. Right to acquire asset test................................................ 272

250‑125................. Effectively non‑cancellable, long term arrangement test.. 273

250‑130................. Meaning of effectively non‑cancellable arrangement....... 273

250‑135................. Level of expected financial benefits test.......................... 274

250‑140................. When to retest predominant economic interest under section 250‑135     275

Subdivision 250‑C—Denial of, or reduction in, capital allowance deductions               277

250‑145................. Denial of capital allowance deductions........................... 277

250‑150................. Apportionment rule......................................................... 277

Subdivision 250‑D—Deemed loan treatment of financial benefits provided for tax preferred use          279

250‑155................. Arrangement treated as loan............................................ 279

250‑160................. Financial benefits that are subject to deemed loan treatment 282

250‑180................. End value of asset........................................................... 284

250‑185................. Financial benefits subject to deemed loan treatment not assessed             286

Subdivision 250‑E—Taxation of deemed loan                                               286

Guide to Subdivision 250‑E                                                                                 287

250‑190................. What this Subdivision is about....................................... 287

Application and objects of Subdivision                                                             288

250‑195................. Application of Subdivision............................................. 288

250‑200................. Objects of this Subdivision............................................. 288

Tax treatment of gains and losses from financial arrangements              288

250‑205................. Gains are assessable and losses deductible..................... 288

250‑210................. Gain or loss to be taken into account only once under this Act                289

Method to be applied to take account of gain or loss                                    290

250‑215................. Methods for taking gain or loss into account.................. 290

General rules                                                                                                           290

250‑220................. Consistency in working out gains or losses (integrity measure)              290

250‑225................. Rights and obligations include contingent rights and obligations             291

The accruals method                                                                                             291

250‑230................. Application of accruals method....................................... 291

250‑235................. Overview of the accruals method.................................... 291

250‑240................. Applying accruals method to work out period over which gain or loss is to be spread            292

250‑245................. How gain or loss is spread............................................. 292

250‑250................. Allocating gain or loss to income years.......................... 293

250‑255................. When to re‑estimate........................................................ 294

250‑260................. Re‑estimation if balancing adjustment on partial disposal 296

Balancing adjustment                                                                                            298

250‑265................. When balancing adjustment made................................... 298

250‑270................. Exception for subsidiary member leaving consolidated group 299

250‑275................. Balancing adjustment...................................................... 299

Other provisions                                                                                                     303

250‑280................. Financial arrangement received or provided as consideration.. 303

Subdivision 250‑F—Treatment of asset when Division ceases to apply to the asset      305

250‑285................. Treatment of asset after Division ceases to apply to the asset.. 305

250‑290................. Balancing adjustment under Subdivision 40‑D in some circumstances    308

Subdivision 250‑G—Objections against determinations and decisions by the Commissioner   309

250‑295................. Objections against determinations and decisions by the Commissioner   309

Division 253—Financial claims scheme for account‑holders with insolvent ADIs           310

Subdivision 253‑A—Tax treatment of entitlements under financial claims scheme     310

Guide to Subdivision 253‑A                                                                                 310

253‑1..................... What this Subdivision is about....................................... 310

Operative provisions                                                                                             311

253‑5..................... Payment of entitlement under financial claims scheme treated as payment from ADI              311

253‑10................... Disposal of rights against ADI to APRA and meeting of financial claims scheme entitlement have no CGT effects............................................................................. 311

253‑15................... Cost base of financial claims scheme entitlement and any remaining part of account that gave rise to entitlement........................................................................................ 312

Part 3‑25—Particular kinds of trusts                                                                     313

Division 275—Australian managed investment trusts: general         313

Guide to Division 275                                                                                            313

275‑1..................... What this Division is about............................................. 313

Subdivision 275‑A—Meaning of managed investment trust                       314

Guide to Subdivision 275‑A                                                                                 314

275‑5..................... What this Subdivision is about....................................... 314

Operative provisions                                                                                             314

275‑10................... Meaning of managed investment trust............................ 314

275‑15................... Trusts with wholesale membership................................. 318

275‑20................... Widely‑held requirements—ordinary case...................... 318

275‑25................... Widely‑held requirements for registered MIT—special case for entities covered by subsection 275‑20(4)........................................................................................ 322

275‑30................... Closely‑held restrictions................................................. 323

275‑35................... Licensing requirements for unregistered MIS................. 324

275‑40................... MIT participation interest................................................ 325

275‑45................... Meaning of managed investment trust—every member of trust is a managed investment trust etc.         325

275‑50................... Extended definition of managed investment trust—no fund payment made in relation to the income year........................................................................................ 326

275‑55................... Extended definition of managed investment trust—temporary circumstances outside the control of the trustee........................................................................................ 327

Subdivision 275‑B—Choice for capital treatment of managed investment trust gains and losses            327

275‑100................. Consequences of making choice—CGT to be primary code for calculating MIT gains or losses            328

275‑105................. Covered assets................................................................ 331

275‑110................. MIT not to be trading trust.............................................. 331

275‑115................. MIT CGT choices........................................................... 332

275‑120................. Consequences of not making choice—revenue account treatment            333

Subdivision 275‑C—Carried interests in managed investment trusts       334

275‑200................. Gains and losses etc. from carried interests in managed investment trusts reflected in assessable income or deduction........................................................................ 334

Subdivision 275‑L—Modification for non‑arm’s length income               336

Guide to Subdivision 275‑L                                                                                 336

275‑600................. What this Subdivision is about....................................... 336

Operative provisions                                                                                             337

275‑605................. Trustee taxed on amount of non‑arm’s length income of managed investment trust                337

275‑610................. Non‑arm’s length income............................................... 338

275‑615................. Commissioner’s determination in relation to amount of non‑arm’s length income   340

Division 276—Australian managed investment trusts: attribution managed investment trusts               342

Guide to Division 276                                                                                            342

276‑1..................... What this Division is about............................................. 342

Subdivision 276‑A—What is an attribution managed investment trust? 343

Guide to Subdivision 276‑A                                                                                 343

276‑5..................... What this Subdivision is about....................................... 343

Operative provisions                                                                                             344

276‑10................... Meaning of attribution managed investment trust (or AMIT344

276‑15................... Clearly defined interests.................................................. 345

276‑20................... Trust with classes of membership interests—each class treated as separate AMIT  345

Subdivision 276‑B—Member’s vested and indefeasible interest in share of income and capital of AMIT             346

Guide to Subdivision 276‑B                                                                                 346

276‑50................... What this Subdivision is about....................................... 346

Operative provisions                                                                                             347

276‑55................... AMIT taken to be fixed trust and member taken to have vested and indefeasible interest in income and capital........................................................................................ 347

Subdivision 276‑C—Taxation etc. of member components                        347

Guide to Subdivision 276‑C                                                                                 347

276‑75................... What this Subdivision is about....................................... 347

Taxation etc. of member on determined member components                  348

276‑80................... Member’s assessable income or tax offsets for determined member components—general rules            348

276‑85................... Member’s assessable income or tax offsets for determined member components—specific rules           350

276‑90................... Commissioner’s determination as to status of member as qualified person              351

276‑95................... Relationship between section 276‑80 and withholding rules 352

276‑100................. Relationship between section 276‑80 and other charging provisions in this Act      353

Foreign resident members—taxation of trustee and corresponding tax offset for members     354

276‑105................. Trustee taxed on foreign resident’s determined member components      354

276‑110................. Refundable tax offset for foreign resident member—member that is not a trustee   356

Special rule for interposed custodian                                                                356

276‑115................. Custodian interposed between AMIT and member......... 356

Subdivision 276‑D—Member components                                                       357

Guide to Subdivision 276‑D                                                                                 357

276‑200................. What this Subdivision is about....................................... 357

Member‑level concepts                                                                                         358

276‑205................. Meaning of determined member component.................. 358

276‑210................. Meaning of member component..................................... 360

Subdivision 276‑E—Trust components                                                            362

Guide to Subdivision 276‑E                                                                                 362

276‑250................. What this Subdivision is about....................................... 362

Trust‑level concepts                                                                                               362

276‑255................. Meaning of determined trust component........................ 362

276‑260................. Meaning of trust component........................................... 363

276‑265................. Rules for working out trust components—general rules. 364

276‑270................. Rules for working out trust components—allocation of deductions         364

Subdivision 276‑F—Unders and overs                                                              365

Guide to Subdivision 276‑F                                                                                  365

276‑300................. What this Subdivision is about....................................... 365

Adjustment of trust component for unders and overs etc.                            366

276‑305................. Adjustment of trust component for unders and overs..... 366

276‑310................. Rounding adjustment deficit increases trust component.. 367

276‑315................. Rounding adjustment surplus decreases trust component 367

276‑320................. Meaning of trust component deficit................................ 368

276‑325................. Trust component of character relating to assessable income—adjustment for cross‑character allocation amount, carry‑forward trust component deficit and FITO allocation amount         368

276‑330................. Meaning of cross‑character allocation amount and carry‑forward trust component deficit   370

276‑335................. Meaning of FITO allocation amount.............................. 370

276‑340................. Trust component character relating to tax offset—taxation of trust component deficit             371

Unders and overs                                                                                                    372

276‑345................. Meaning of under and over of a character...................... 372

276‑350................. Limited discovery period for unders and overs............... 373

Subdivision 276‑G—Shortfall and excess taxation                                       373

Guide to Subdivision 276‑G                                                                                 373

276‑400................. What this Subdivision is about....................................... 373

Ensuring determined trust components are properly taxed                        374

276‑405................. Trustee taxed on shortfall in determined member component (character relating to assessable income)   374

276‑410................. Trustee taxed on excess in determined member component (character relating to tax offset)   375

276‑415................. Trustee taxed on amounts of determined trust component that are not reflected in determined member components..................................................................... 375

Ensuring unders and overs are properly taxed                                              377

276‑420................. Trustee taxed on amounts of under of character relating to assessable income not properly carried forward........................................................................................ 377

276‑425................. Trustee taxed on amounts of over of character relating to tax offset not properly carried forward           378

Commissioner may remit tax under this Subdivision                                   379

276‑430................. Commissioner may remit tax under this Subdivision...... 379

Subdivision 276‑H—AMMA statements                                                           379

Guide to Subdivision 276‑H                                                                                 379

276‑450................. What this Subdivision is about....................................... 379

Operative provisions                                                                                             380

276‑455................. Obligation to give an AMMA statement......................... 380

276‑460................. AMIT member annual statement (or AMMA statement). 381

Subdivision 276‑J—Debt‑like trust instruments                                             381

Guide to Subdivision 276‑J                                                                                  381

276‑500................. What this Subdivision is about....................................... 381

Operative provisions                                                                                             382

276‑505................. Meaning of debt‑like trust instrument............................. 382

276‑510................. Debt‑like trust instruments treated as debt interests etc... 383

276‑515................. Distribution on debt‑like trust instrument could be deductible in working out trust components             383

Subdivision 276‑K—Ceasing to be an AMIT                                                  384

Guide to Subdivision 276‑K                                                                                 384

276‑800................. What this Subdivision is about....................................... 384

Operative provisions                                                                                             384

276‑805................. Application of Subdivision to former AMIT.................. 384

276‑810................. Continue to work out trust components, unders, overs etc. 385

276‑815................. Effect of increase............................................................ 385

276‑820................. Effect of decrease............................................................ 386

Part 3‑30Superannuation                                                                                         388

Division 280—Guide to the superannuation provisions                         388

280‑1..................... Effect of this Division..................................................... 388

280‑5..................... Overview........................................................................ 389

Contributions phase                                                                                               389

280‑10................... Contributions phase—deductibility................................. 389

280‑15................... Contributions phase—limits on superannuation tax concessions             390

Investment phase                                                                                                    391

280‑20................... Investment phase............................................................ 391

Benefits phase                                                                                                          391

280‑25................... Benefits phase—different types of superannuation benefit 391

280‑30................... Benefits phase—taxation varies with age of recipient and type of benefit                391

280‑35................... Benefits phase—roll‑overs............................................. 392

The regulatory scheme outside this Act                                                            392

280‑40................... Other relevant legislative schemes.................................. 392

Division 285—General concepts relating to superannuation              394

285‑5..................... Transfers of property...................................................... 394

Division 290Contributions to superannuation funds                           395

Guide to Division 290                                                                                            395

290‑1..................... What this Division is about............................................. 395

Subdivision 290‑AGeneral rules                                                                    395

290‑5..................... Non‑application to roll‑over superannuation benefits etc. 395

290‑10................... No deductions other than under this Division................. 396

Subdivision 290‑B—Deduction of employer contributions and other employment‑connected contributions        396

Deducting employer contributions                                                                     397

290‑60................... Employer contributions deductible.................................. 397

290‑65................... Application to employees etc.......................................... 397

Conditions for deducting an employer contribution                                     398

290‑70................... Employment activity conditions...................................... 398

290‑75................... Complying fund conditions............................................ 398

290‑80................... Age related conditions.................................................... 399

Other employment‑connected deductions                                                        401

290‑85................... Contributions for former employees etc.......................... 401

290‑90................... Controlling interest deductions....................................... 404

290‑95................... Amounts offset against superannuation guarantee charge 405

Returned contributions                                                                                         405

290‑100................. Returned contributions assessable.................................. 405

Subdivision 290‑CDeducting personal contributions                                406

290‑150................. Personal contributions deductible................................... 406

Conditions for deducting a personal contribution                                         407

290‑155................. Complying superannuation fund condition..................... 407

290‑160................. Maximum earnings as employee condition..................... 407

290‑165................. Age‑related conditions.................................................... 408

290‑170................. Notice of intent to deduct conditions............................... 408

290‑175................. Deduction limited by amount specified in notice............. 411

290‑180................. Notice may be varied but not revoked or withdrawn...... 411

Subdivision 290‑DTax offsets for spouse contributions                           413

290‑230................. Offset for spouse contribution........................................ 413

290‑235................. Limit on amount of tax offsets........................................ 414

290‑240................. Tax file number............................................................... 415

Division 291—Excess concessional contributions                                     416

Guide to Division 291                                                                                            416

291‑1..................... What this Division is about............................................. 416

Subdivision 291‑A—Object of this Division                                                    416

291‑5..................... Object of this Division.................................................... 417

Subdivision 291‑B—Excess concessional contributions                               417

Guide to Subdivision 291‑B                                                                                 417

291‑10................... What this Subdivision is about....................................... 417

Operative provisions                                                                                             417

291‑15................... Excess concessional contributions—assessable income, 15% tax offset  417

291‑20................... Your excess concessional contributions for a financial year 418

291‑25................... Your concessional contributions for a financial year...... 418

Subdivision 291‑C—Modifications for defined benefit interests               419

Guide to Subdivision 291‑C                                                                                 419

291‑155................. What this Subdivision is about....................................... 419

Operative provisions                                                                                             420

291‑160................. Application..................................................................... 420

291‑165................. Concessional contributions—special rules for defined benefit interests   420

291‑170................. Notional taxed contributions........................................... 421

291‑175................. Defined benefit interest................................................... 421

Subdivision 291‑D—Other provisions                                                              422

Guide to Subdivision 291‑D                                                                                 422

291‑460................. What this Subdivision is about....................................... 422

Operative provisions                                                                                             423

291‑465................. Commissioner’s discretion to disregard contributions etc. in relation to a financial year          423

Division 292—Excess non‑concessional contributions                            426

Guide to Division 292                                                                                            426

292‑1..................... What this Division is about............................................. 426

Subdivision 292‑AObject of this Division                                                    427

292‑5..................... Object of this Division.................................................... 427

Subdivision 292‑B—Assessable income and tax offset                                 427

292‑15................... What this Subdivision is about....................................... 427

292‑20................... Amount in assessable income, and tax offset, relating to your non‑concessional contributions               428

292‑25................... Amount included in assessable income........................... 428

292‑30................... Amount of the tax offset................................................. 428

Subdivision 292‑CExcess non‑concessional contributions tax               429

292‑75................... What this Subdivision is about....................................... 429

Operative provisions                                                                                             429

292‑80................... Liability for excess non‑concessional contributions tax.. 429

292‑85................... Your excess non‑concessional contributions for a financial year             430

292‑90................... Your non‑concessional contributions for a financial year 431

292‑95................... Contributions arising from structured settlements or orders for personal injuries    433

292‑100................. Contribution relating to some CGT small business concessions              435

292‑105................. CGT cap amount............................................................. 438

Subdivision 292‑EExcess non‑concessional contributions tax assessments 439

Guide to Subdivision 292‑E                                                                                 439

292‑225................. What this Subdivision is about....................................... 439

Operative provisions                                                                                             439

292‑230................. Commissioner must make an excess non‑concessional contributions tax assessment             439

292‑240................. Validity of assessment.................................................... 440

292‑245................. Objections....................................................................... 440

Subdivision 292‑FAmending excess non‑concessional contributions tax assessments              440

Guide to Subdivision 292‑F                                                                                  440

292‑300................. What this Subdivision is about....................................... 440

Operative provisions                                                                                             441

292‑305................. Amendments within 4 years of the original assessment.. 441

292‑310................. Amended assessments are treated as excess non‑concessional contributions tax assessments 441

292‑315................. Later amendments—on request....................................... 441

292‑320................. Later amendments—fraud or evasion............................. 442

292‑325................. Further amendment of an amended particular................. 442

292‑330................. Amendment on review etc.............................................. 443

Subdivision 292‑G—Collection and recovery                                                443

Guide to Subdivision 292‑G                                                                                 443

292‑380................. What this Subdivision is about....................................... 443

Operative provisions                                                                                             444

292‑385................. Due date for payment of excess non‑concessional contributions tax        444

292‑390................. General interest charge.................................................... 444

292‑395................. Refunds of amounts overpaid......................................... 444

292‑405................. Release authority............................................................. 445

292‑410................. Giving a release authority to a superannuation provider. 445

292‑415................. Superannuation provider given release authority must pay amount          447

Subdivision 292‑HOther provisions                                                              448

292‑465................. Commissioner’s discretion to disregard contributions etc. in relation to a financial year          448

292‑467................. Direction that the value of superannuation interests is nil 450

Division 293—Sustaining the superannuation contribution concession 452

Guide to Division 293                                                                                            452

293‑1..................... What this Division is about............................................. 452

Subdivision 293‑A—Object of this Division                                                    453

Operative provisions                                                                                             453

293‑5..................... Object of this Division.................................................... 453

Subdivision 293‑B—Sustaining the superannuation contribution concession                453

Guide to Subdivision 293‑B                                                                                 453

293‑10................... What this Subdivision is about....................................... 453

Liability for tax                                                                                                      454

293‑15................... Liability for tax............................................................... 454

293‑20................... Your taxable contributions............................................. 454

Low tax contributions                                                                                           455

293‑25................... Your low tax contributions............................................. 455

293‑30................... Low tax contributed amounts.......................................... 455

Subdivision 293‑C—When tax is payable                                                        456

Guide to Subdivision 293‑C                                                                                 456

293‑60................... What this Subdivision is about....................................... 456

Operative provisions                                                                                             457

293‑65................... When tax is payable—original assessments.................... 457

293‑70................... When tax is payable—amended assessments.................. 457

293‑75................... General interest charge.................................................... 458

Subdivision 293‑D—Modifications for defined benefit interests               458

Guide to Subdivision 293‑D                                                                                 458

293‑100................. What this Subdivision is about....................................... 458

Operative provisions                                                                                             459

293‑105................. Low tax contributions—modification for defined benefit interests           459

293‑115................. Defined benefit contributions.......................................... 459

Subdivision 293‑E—Modifications for constitutionally protected State higher level office holders       461

Guide to Subdivision 293‑E                                                                                 461

293‑140................. What this Subdivision is about....................................... 461

Operative provisions                                                                                             461

293‑145................. Who this Subdivision applies to..................................... 461

293‑150................. Low tax contributionsmodification for CPFs.............. 462

293‑155................. High income threshold—effect of modification.............. 463

293‑160................. Salary packaged contributions........................................ 463

Subdivision 293‑F—Modifications for Commonwealth justices                464

Guide to Subdivision 293‑F                                                                                  464

293‑185................. What this Subdivision is about....................................... 464

Operative provisions                                                                                             464

293‑190................. Who this Subdivision applies to..................................... 464

293‑195................. Defined benefit contributions—modified treatment of contributions under the Judges’ Pensions Act 1968........................................................................................ 465

293‑200................. High income threshold—effect of modification.............. 465

Subdivision 293‑G—Modifications for temporary residents who depart Australia     466

Guide to Subdivision 293‑G                                                                                 466

293‑225................. What this Subdivision is about....................................... 466

Operative provisions                                                                                             466

293‑230................. Who is entitled to a refund.............................................. 466

293‑235................. Amount of the refund..................................................... 467

293‑240................. Entitlement to refund stops all Division 293 tax liabilities 467

Division 295Taxation of superannuation entities                                 468

Guide to Division 295                                                                                            468

295‑1..................... What this Division is about............................................. 468

Subdivision 295‑A—Provisions of general operation                                  469

295‑5..................... Entities to which Division applies................................... 469

295‑10................... How to work out the tax payable by superannuation entities 470

295‑15................... Division does not impose a tax on property of a State.... 471

295‑20................... Exempting laws ineffective............................................. 472

295‑25................... Assessments on basis of anticipated SIS Act notice....... 472

295‑30................... Effect of revocation etc. of SIS Act notices.................... 472

295‑35................... Acronyms used in tables................................................. 472

Subdivision 295‑BModifications of provisions of this Act                      473

295‑85................... CGT to be primary code for calculating gains or losses.. 473

295‑90................... CGT rules for pre‑30 June 1988 assets.......................... 475

295‑95................... Deductions related to contributions................................. 476

295‑100................. Deductions for investing in PSTs and life policies......... 477

295‑105................. Distributions to PST unitholders.................................... 478

Subdivision 295‑CContributions included                                                   478

Guide to Subdivision 295‑C                                                                                 478

295‑155................. What this Subdivision is about....................................... 478

Contributions and payments                                                                                479

295‑160................. Contributions and payments........................................... 479

295‑165................. Exception—spouse contributions................................... 480

295‑170................. Exception—Government co‑contributions and contributions for a child  481

295‑173................. Exception—trustee contributions.................................... 481

295‑175................. Exception—payments by a member spouse.................... 481

295‑180................. Exception—choice to exclude certain contributions........ 482

295‑185................. Exception—temporary residents..................................... 482

Personal contributions and roll‑over amounts                                               482

295‑190................. Personal contributions and roll‑over amounts................. 482

295‑195................. Exclusion of personal contributions—contributions....... 485

295‑197................. Exclusion of personal contributions—successor funds.. 486

Transfers from foreign funds                                                                             487

295‑200................. Transfers from foreign superannuation funds................. 487

Application of tables to RSA providers                                                            488

295‑205................. Application of tables to RSA providers.......................... 488

Former constitutionally protected funds                                                          488

295‑210................. Former constitutionally protected funds.......................... 488

Subdivision 295‑DContributions excluded                                                  489

295‑260................. Transfer of liability to investment vehicle....................... 489

295‑265................. Application of pre‑1 July 88 funding credits.................. 490

295‑270................. Anticipated funding credits............................................. 493

Subdivision 295‑EOther income amounts                                                   494

Amounts included                                                                                                   494

295‑320................. Other amounts included in assessable income................ 494

295‑325................. Previously complying funds........................................... 495

295‑330................. Previously foreign funds................................................ 496

Amounts excluded                                                                                                  496

295‑335................. Amounts excluded from assessable income.................... 496

Subdivision 295‑FExempt income                                                                 497

295‑385................. Income from assets set aside to meet current pension liabilities               497

295‑390................. Income from other assets used to meet current pension liabilities            498

295‑395................. Meaning of segregated non‑current assets.................... 501

295‑400................. Income of a PST attributable to current pension liabilities 501

295‑405................. Other exempt income...................................................... 502

295‑410................. Amount credited to RSA................................................ 503

Subdivision 295‑GDeductions                                                                         503

Death or disability benefits                                                                                  503

295‑460................. Benefits for which deductions are available.................... 503

295‑465................. Complying funds—deductions for insurance premiums. 504

295‑470................. Complying funds—deductions for future liability to pay benefits            507

295‑475................. RSA providers—deductions for insurance premiums.... 508

295‑480................. Meaning of whole of life policy and endowment policy... 509

Increased amount of superannuation lump sum death benefits                 509

295‑485................. Deductions for increased amount of superannuation lump sum death benefit          509

Other deductions                                                                                                     511

295‑490................. Other deductions............................................................. 511

Certain amounts cannot be deducted                                                                 514

295‑495................. Amounts that cannot be deducted................................... 514

Subdivision 295‑HComponents of taxable income                                    514

295‑545................. Components of taxable income—complying superannuation funds, complying ADFs and PSTs           515

295‑550................. Meaning of non‑arm’s length income............................ 515

295‑555................. Components of taxable income—RSA providers........... 517

Subdivision 295‑INo‑TFN contributions                                                      518

295‑605................. Liability for tax on no‑TFN contributions income.......... 518

295‑610................. No‑TFN contributions income........................................ 519

295‑615................. Meaning of quoted (for superannuation purposes)........ 519

295‑620................. No reduction under Subdivision 295‑D.......................... 520

295‑625................. Assessments................................................................... 520

Subdivision 295‑JTax offset for no‑TFN contributions income (TFN quoted within 4 years)               521

295‑675................. Entitlement to a tax offset................................................ 521

295‑680................. Amount of the tax offset................................................. 522

Division 301Superannuation member benefits paid from complying plans etc.           523

Guide to Division 301                                                                                            523

301‑1..................... What this Division is about............................................. 523

Subdivision 301‑A—Application                                                                        523

301‑5..................... Division applies to superannuation member benefits paid from complying plans etc.              523

Subdivision 301‑B—Member benefits: general rules                                   524

Member benefits—recipient aged 60 or above                                               524

301‑10................... All superannuation benefits are tax free.......................... 524

Member benefits—recipient aged over preservation age and under 60  525

301‑15................... Tax free status of tax free component............................. 525

301‑20................... Superannuation lump sum—taxable component taxed at 0% up to low rate cap amount, 15% on remainder........................................................................................ 525

301‑25................... Superannuation income stream—taxable component attracts 15% offset 526

Member benefits—recipient aged under preservation age                         526

301‑30................... Tax free status of tax free component............................. 526

301‑35................... Superannuation lump sum—taxable component taxed at 20% 527

301‑40................... Superannuation income stream—taxable component is assessable income, 15% offset for disability benefit........................................................................................ 527

Subdivision 301‑C—Member benefits: elements untaxed in fund             527

301‑90................... Tax free component and element taxed in fund dealt with under Subdivision 301‑B, but element untaxed in the fund dealt with under this Subdivision........................... 528

Member benefits (element untaxed in fund)—recipient aged 60 or above 529

301‑95................... Superannuation lump sum—element untaxed in fund taxed at 15% up to untaxed plan cap amount, top rate on remainder........................................................................ 529

301‑100................. Superannuation income stream—element untaxed in fund attracts 10% offset         529

Member benefits (element untaxed in fund)—recipient aged over preservation age and under 60          530

301‑105................. Superannuation lump sum—element untaxed in fund taxed at 15% up to low rate cap amount, 30% up to untaxed plan cap amount, top rate on remainder............. 530

301‑110................. Superannuation income stream—element untaxed in fund is assessable income      531

Member benefits (element untaxed in fund)—recipient aged under preservation age 531

301‑115................. Superannuation lump sum—element untaxed in fund taxed at 30% up to untaxed plan cap amount, top rate on remainder........................................................................ 531

301‑120................. Superannuation income stream—element untaxed in fund is assessable income      531

Miscellaneous                                                                                                          532

301‑125................. Unclaimed money payments by the Commissioner........ 532

Subdivision 301‑D—Departing Australia superannuation payments       532

301‑170................. Departing Australia superannuation payments.............. 532

301‑175................. Treatment of departing Australia superannuation benefits 533

Subdivision 301‑E—Superannuation lump sum member benefits less than $200         534

301‑225................. Superannuation lump sum member benefits less than $200 are tax free   534

Division 302Superannuation death benefits paid from complying plans etc. 535

Guide to Division 302                                                                                            535

302‑1..................... What this Division is about............................................. 535

Subdivision 302‑A—Application                                                                        535

302‑5..................... Division applies to superannuation death benefits paid from complying plans etc.  535

302‑10................... Superannuation death benefits paid to trustee of deceased estate              536

Subdivision 302‑B—Death benefits to dependant                                          537

Lump sum death benefits to dependants are tax free                                    537

302‑60................... All of superannuation lump sum is tax free.................... 537

Superannuation income stream—either deceased died aged 60 or above or dependant aged 60 or above            538

302‑65................... Superannuation income stream benefits are tax free........ 538

Superannuation income stream—deceased died aged under 60 and dependant aged under 60 538

302‑70................... Superannuation income stream—tax free status of tax free component    538

302‑75................... Superannuation income stream—taxable component attracts 15% offset 538

Death benefits to dependant—elements untaxed in fund                              539

302‑80................... Treatment of element untaxed in the fund of superannuation income stream death benefit to dependant  539

302‑85................... Deceased died aged 60 or above or dependant aged 60 years or above—superannuation income stream: element untaxed in fund attracts 10% offset.................... 539

302‑90................... Deceased died aged under 60 and dependant aged under 60—superannuation income stream: element untaxed in fund is assessable income........................................... 540

Subdivision 302‑C—Death benefits to non‑dependant                                  540

Superannuation lump sum                                                                                   540

302‑140................. Superannuation lump sum—tax free status of tax free component           540

302‑145................. Superannuation lump sum—element taxed in the fund taxed at 15%, element untaxed in the fund taxed at 30%........................................................................................ 540

Subdivision 302‑D—Definitions relating to dependants                               541

302‑195................. Meaning of death benefits dependant............................. 541

302‑200................. What is an interdependency relationship?....................... 542

Division 303—Superannuation benefits paid in special circumstances  543

303‑5..................... Commutation of income stream if you are under 25 etc.. 543

303‑10................... Superannuation lump sum member benefit paid to member having a terminal medical condition            543

303‑15................... Payments from release authorities—excess concessional contributions   544

303‑17................... Payments from release authorities etc.—released non‑concessional contributions and associated earnings........................................................................................ 544

303‑20................... Payments from release authorities—Division 293 tax.... 545

Division 304Superannuation benefits in breach of legislative requirements etc.         546

Guide to Division 304                                                                                            546

304‑1..................... What this Division is about............................................. 546

Operative provisions                                                                                             546

304‑5..................... Application..................................................................... 546

304‑10................... Superannuation benefits in breach of legislative requirements etc.           546

304‑15................... Excess payments from release authorities....................... 548

304‑20................... Excess payments from release authorities—Division 293 tax  548

Division 305—Superannuation benefits paid from non‑complying superannuation plans           549

Guide to Division 305                                                                                            549

305‑1..................... What this Division is about............................................. 549

Subdivision 305‑A—Superannuation benefits from Australian non‑complying superannuation funds  549

305‑5..................... Tax treatment of superannuation benefits from certain Australian non‑complying superannuation funds........................................................................................ 549

Subdivision 305‑B—Superannuation benefits from foreign superannuation funds     550

Application of Subdivision                                                                                   550

305‑55................... Restriction to lump sums received from certain foreign superannuation funds        550

Lump sums received within 6 months after Australian residency or termination of foreign employment etc.     551

305‑60................... Lump sums tax free—foreign resident period................. 551

305‑65................... Lump sums tax free—Australian resident period............ 552

Lump sums to which sections 305‑60 and 305‑65 do not apply                  553

305‑70................... Lump sums received more than 6 months after Australian residency or termination of foreign employment etc......................................................................................... 553

305‑75................... Lump sums—applicable fund earnings.......................... 554

305‑80................... Lump sums paid into complying superannuation plans—choice              556

Division 306Roll‑overs etc.                                                                               557

Guide to Division 306                                                                                            557

306‑1..................... What this Division is about............................................. 557

Operative provisions                                                                                             557

306‑5..................... Effect of a roll‑over superannuation benefit.................... 557

306‑10................... Roll‑over superannuation benefit.................................... 557

306‑12................... Involuntary roll‑over superannuation benefit................. 558

306‑15................... Tax on excess untaxed roll‑over amounts....................... 559

306‑20................... Effect of payment to government of unclaimed superannuation money   560

306‑25................... Payments connected with financial claims scheme to RSAs 560

Division 307Key concepts relating to superannuation benefits    563

Guide to Division 307                                                                                            563

307‑1..................... What this Division is about............................................. 563

Subdivision 307‑A—Superannuation benefits generally                             564

307‑5..................... What is a superannuation benefit?.................................. 564

307‑10................... Payments that are not superannuation benefits............... 569

307‑15................... Payments for your benefit or at your direction or request 570

Subdivision 307‑B—Superannuation lump sums and superannuation income stream benefits 571

307‑65................... Meaning of superannuation lump sum........................... 571

307‑70................... Meaning of superannuation income stream and superannuation income stream benefit        571

Subdivision 307‑C—Components of a superannuation benefit                  571

307‑120................. Components of superannuation benefit........................... 572

307‑125................. Proportioning rule........................................................... 572

307‑130................. Superannuation guarantee payment consists entirely of taxable component             574

307‑135................. Superannuation co‑contribution benefit payment consists entirely of tax free component        574

307‑140................. Contributions‑splitting superannuation benefit consists entirely of taxable component            575

307‑142................. Components of certain unclaimed money payments....... 575

307‑145................. Modification for disability benefits................................. 579

307‑150................. Modification in respect of superannuation lump sum with element untaxed in fund                580

Subdivision 307‑D—Superannuation interests                                               581

307‑200................. Regulations relating to meaning of superannuation interests 581

307‑205................. Value of superannuation interest..................................... 582

307‑210................. Tax free component of superannuation interest............... 582

307‑215................. Taxable component of superannuation interest............... 583

307‑220................. What is the contributions segment?................................ 583

307‑225................. What is the crystallised segment?................................... 584

Subdivision 307‑E—Elements taxed and untaxed in the fund of the taxable component of superannuation benefit                                                                                                       585

307‑275................. Element taxed in the fund and element untaxed in the fund of superannuation benefits            586

307‑280................. Superannuation benefits from constitutionally protected funds etc.          586

307‑285................. Trustee can choose to convert element taxed in the fund to element untaxed in the fund          587

307‑290................. Taxed and untaxed elements of death benefit superannuation lump sums                587

307‑295................. Superannuation benefits from public sector superannuation schemes may include untaxed element        588

307‑297................. Public sector superannuation schemes—elements set by regulations       590

307‑300................. Certain unclaimed money payments................................ 590

Subdivision 307‑F—Low rate cap and untaxed plan cap amounts            594

307‑345................. Low rate cap amount...................................................... 594

307‑350................. Untaxed plan cap amount............................................... 595

Subdivision 307‑G—Other concepts                                                                  596

307‑400................. Meaning of service period for a superannuation lump sum 596

Division 310—Loss relief for merging superannuation funds            598

Guide to Division 310                                                                                            598

310‑1..................... What this Division is about............................................. 598

Operative provisions                                                                                             599

Subdivision 310‑A—Object of this Division                                                    599

310‑5..................... Object............................................................................. 599

Subdivision 310‑B—Choice to transfer losses                                                599

310‑10................... Original fund’s assets extend beyond life insurance policies and units in pooled superannuation trusts  599

310‑15................... Original fund’s assets include a complying superannuation life insurance policy    601

310‑20................... Original fund’s assets include units in a pooled superannuation trust      603

Subdivision 310‑C—Consequences of choosing to transfer losses             604

310‑25................... Who losses can be transferred to.................................... 605

310‑30................... Losses that can be transferred......................................... 605

310‑35................... Effect of transferring a net capital loss............................ 606

310‑40................... Effect of transferring a tax loss....................................... 607

Subdivision 310‑D—Choice for assets roll‑over                                            608

310‑45................... Choosing the assets roll‑over.......................................... 608

310‑50................... Choosing the form of the assets roll‑over....................... 610

Subdivision 310‑E—Consequences of choosing assets roll‑over                610

310‑55................... CGT assets—if global asset approach chosen................ 611

310‑60................... CGT assets—individual asset approach.......................... 611

310‑65................... Revenue assets—if global asset approach chosen........... 612

310‑70................... Revenue assets—individual asset approach.................... 613

310‑75................... Further consequences for roll‑overs involving life insurance companies 613

Subdivision 310‑F—Choices                                                                                614

310‑85................... Choices........................................................................... 614

Division 311—Loss relief and asset roll‑over for transfer of amounts to a MySuper product                615

Guide to Division 311                                                                                            615

311‑1..................... What this Division is about............................................. 615

Operative provisions                                                                                             616

Subdivision 311‑A—Object of this Division                                                    616

311‑5..................... Object............................................................................. 616

Subdivision 311‑B—Choosing loss transfers and asset roll‑overs             616

311‑10................... Certain entities can choose transfer of losses, asset roll‑overs, or both    616

Subdivision 311‑C—Consequences of choosing to transfer losses             618

311‑15................... Who losses can be transferred to.................................... 618

311‑20................... Losses that can be transferred......................................... 618

311‑25................... Effect of transferring a net capital loss............................ 620

311‑30................... Effect of transferring a tax loss....................................... 620

311‑35................... Realisation of certain assets after completion time.......... 621

Subdivision 311‑D—Consequences of choosing asset roll‑over                 622

311‑40................... Assets roll‑over.............................................................. 622

311‑45................... CGT assets..................................................................... 623

311‑50................... Revenue assets................................................................ 624

311‑55................... Further consequences for roll‑overs involving life insurance companies 624

Subdivision 311‑E—Choices                                                                               625

311‑60................... Choices........................................................................... 625

Division 312—Trans‑Tasman portability of retirement savings       626

Guide to Division 312                                                                                            626

312‑1..................... What this Division is about............................................. 626

Subdivision 312‑A—Preliminary                                                                       626

312‑5..................... Division implements Arrangement with New Zealand... 626

Subdivision 312‑B—Amounts contributed to complying superannuation funds from KiwiSaver schemes            627

312‑10................... Amounts contributed to complying superannuation funds from KiwiSaver schemes              627

Subdivision 312‑C—Superannuation benefits paid to KiwiSaver scheme providers    629

312‑15................... Superannuation benefits paid to KiwiSaver schemes...... 629


Chapter 3Specialist liability rules

Part 3‑10Financial transactions

Division 230Taxation of financial arrangements

Table of Subdivisions

             Guide to Division 230

230‑A   Core rules

230‑B    The accruals/realisation methods

230‑C    Fair value method

230‑D   Foreign exchange retranslation method

230‑E    Hedging financial arrangements method

230‑F    Reliance on financial reports

230‑G   Balancing adjustment on ceasing to have a financial arrangement

230‑H   Exceptions

230‑I     Other provisions

230‑J     Additional operation of Division

Guide to Division 230

230‑1  What this Division is about

This Division is about the tax treatment of gains and losses from your financial arrangements.

You recognise the gains and losses, as appropriate, over the life of a financial arrangement and ignore distinctions between income and capital unless specific rules apply.

If it is sufficiently certain that you will make a gain or loss, you use a compounding accruals method to recognise the gain or loss. Otherwise you use a realisation method. Instead of either, you may be able to choose to use a fair value or hedging method or to rely on your financial reports. You may also be able to choose to recognise foreign exchange gains and losses using a retranslation method.

230‑5  Scope of this Division

             (1)  You have a financial arrangement if you have one or more cash settlable legal or equitable rights and/or obligations to receive or provide a financial benefit.

             (2)  This Division does not apply to all financial arrangements. The main exceptions are if:

                     (a)  you are:

                              (i)  an individual; or

                             (ii)  a superannuation entity or fund, managed investment scheme or an entity substantially similar to a managed investment scheme under foreign law with assets of less than $100 million; or

                            (iii)  an ADI, securitisation vehicle or other financial sector entity with an aggregated turnover of less than $20 million; or

                            (iv)  another entity with an aggregated turnover of less than $100 million, financial assets of less than $100 million and assets of less than $300 million;

                            and either:

                          (iva)  the arrangement is to end not more than 12 months after you start to have it; or

                             (v)  the arrangement is not a qualifying security; or

                     (b)  the arrangement is a financial arrangement under section 230‑50 (equity interests etc.) and neither a fair value election, a hedging financial arrangement election nor an election to rely on financial reports applies to the arrangement.

Note:          Section 230‑455 provides for the exceptions referred to in paragraph (a).

Subdivision 230‑ACore rules

Table of sections

Objects

230‑10      Objects of this Division

Tax treatment of gains and losses from financial arrangements

230‑15      Gains are assessable and losses deductible

230‑20      Gain or loss to be taken into account only once under this Act

230‑25      Associated financial benefits to be taken into account only once under this Act

230‑30      Treatment of gains and losses related to exempt income and non‑assessable non‑exempt income

230‑35      Treatment of gains and losses of private or domestic nature

Method to be applied to take account of gain or loss

230‑40      Methods for taking gain or loss into account

Financial arrangement concept

230‑45      Financial arrangement

230‑50      Financial arrangement (equity interest or right or obligation in relation to equity interest)

230‑55      Rights, obligations and arrangements (grouping and disaggregation rules)

General rules

230‑60      When financial benefit provided or received under financial arrangement

230‑65      Amount of financial benefit relating to more than one financial arrangement etc.

230‑70      Apportionment when financial benefit received or right ceases

230‑75      Apportionment when financial benefit provided or obligation ceases

230‑80      Consistency in working out gains or losses (integrity measure)

230‑85      Rights and obligations include contingent rights and obligations

Objects

230‑10  Objects of this Division

                   The objects of this Division are:

                     (a)  to minimise the extent to which the tax treatment of gains and losses from your *financial arrangements distorts, by providing inappropriate impediments and stimulation, your trading, financing and investment decisions and your risk taking and risk management; and

                     (b)  to do so by aligning more closely the tax and commercial recognition of gains and losses from your financial arrangements in the following ways:

                              (i)  by allocating the gains and losses to income years throughout the life of your financial arrangements on a reasonable basis;

                             (ii)  by generally recognising gains and losses on revenue rather than capital account; and

                     (c)  to appropriately take account of, and minimise, your compliance costs.

Tax treatment of gains and losses from financial arrangements

230‑15  Gains are assessable and losses deductible

Gains

             (1)  Your assessable income includes a gain you make from a *financial arrangement.

Note:          This Division does not apply to gains that are subject to exceptions under Subdivision 230‑H.

Losses

             (2)  You can deduct a loss you make from a *financial arrangement, but only to the extent that:

                     (a)  you make it in gaining or producing your assessable income; or

                     (b)  you necessarily make it in carrying on a *business for the purpose of gaining or producing your assessable income.

Note:          This Division does not apply to losses that are subject to exceptions under Subdivision 230‑H.

             (3)  You can also deduct a loss you make from a *financial arrangement if:

                     (a)  you are an *Australian entity; and

                     (b)  you make the loss in deriving income from a foreign source; and

                     (c)  the income is *non‑assessable non‑exempt income under section 768‑5, or section 23AI or 23AK of the Income Tax Assessment Act 1936; and

                     (d)  the loss is, in whole or in part, a cost in relation to a *debt interest you issue that is covered by paragraph 820‑40(1)(a).

You can deduct the loss only to the extent to which it is a cost in relation to a *debt interest you issue that is covered by paragraph 820‑40(1)(a).

Note:          This Division does not apply to losses that are subject to exceptions under Subdivision 230‑H.

             (4)  If the *financial arrangement is a *debt interest, the loss is not prevented from being deductible for an income year under subsection (2) merely because of either or both of the following:

                     (a)  one or more of the *financial benefits that are taken into account in working out the amount of the loss are *contingent on aspects of the economic performance (whether past, current or future) of:

                              (i)  you or a part of your activities; or

                             (ii)  a *connected entity of yours or a part of the activities of a connected entity of yours;

                     (b)  one or more of the financial benefits that are taken into account in working out the amount of the loss secure a permanent or enduring benefit for you or a connected entity of yours.

          (4A)  A *dividend on a *debt interest is a loss you can deduct to the extent to which it would have been a deductible loss under subsection (2) if:

                     (a)  the payment of the amount of the dividend were the incurring of a liability to pay the same amount as interest; and

                     (b)  that interest were incurred in respect of the finance raised by you and in respect of which the dividend was paid or provided; and

                     (c)  the debt interest retained its character as a debt interest for the purposes of subsection (4).

             (5)  Subject to subsection (6), subsection (4) does not apply to the loss to the extent to which the annually compounded internal rate of return on the *debt interest exceeds the *benchmark rate of return for the debt interest increased by 150 basis points.

             (6)  If:

                     (a)  regulations made for the purposes of subsection 25‑85(6) provide that a specified number of basis points is to apply for the purposes of applying subsection 25‑85(5) in particular circumstances; and

                     (b)  those circumstances exist in relation to the *debt interest;

subsection (5) applies as if the reference in that subsection to 150 basis points were a reference to the number of basis points specified in the regulations.

Division does not affect foreign residence rules

             (7)  Nothing in this Division affects the operation of the provisions of Division 6 that provide for the significance of foreign residence for the assessability of ordinary and statutory income.

Note 1:       Gains that you make under this Division may be ordinary or statutory income for the purposes of Division 6.

Note 2:       For the effect of a change of residence during an income year, see sections 230‑485 and 230‑490.

230‑20  Gain or loss to be taken into account only once under this Act

Application of section

             (1)  This section applies to the following:

                     (a)  a gain that is included in your assessable income for an income year under this Division;

                     (b)  a loss that is allowable as a deduction to you for an income year under this Division;

                     (c)  a gain or a loss that is dealt with in accordance with subsection 230‑310(4) in relation to an income year.

Purpose of this section

             (2)  The purpose of this section is to ensure that your gains and losses, and *financial benefits, to which this section applies are taken into account only once under this Act in working out your taxable income.

Gain or loss to be taken into account only once

             (3)  A gain or loss to which this section applies is not to be (to any extent):

                     (a)  included in your assessable income; or

                     (b)  allowable as a deduction to you; or

                     (c)  dealt with in accordance with subsection 230‑310(4);

again under this Division for the same or any other income year.

             (4)  A gain or loss to which this section applies is not to be (to any extent):

                     (a)  included in your assessable income; or

                     (b)  allowable as a deduction to you;

under any provisions of this Act outside this Division for the same or any other income year.

Section does not give rise to exempt income

             (5)  A gain is not to be treated as *exempt income merely because it is not included in your assessable income under this section.

230‑25  Associated financial benefits to be taken into account only once under this Act

Application of section

             (1)  This section applies to a *financial benefit whose amount or value is taken into account in working out whether you make, or the amount of, a gain or loss to which paragraph 230‑20(1)(a), (b) or (c) applies.

Associated financial benefit to be taken into account only once

             (2)  A *financial benefit to which this section applies is not to be (to any extent):

                     (a)  included in your assessable income; or

                     (b)  allowable as a deduction to you;

under any provision of this Act outside this Division for the same or any other income year.

Exception for certain bad debts

             (3)  If:

                     (a)  a *financial benefit has been included in your assessable income under a provision of this Act outside this Division; and

                     (b)  a bad debt deduction would have been allowed under section 25‑35 in relation to the financial benefit;

subsection (2) does not prevent that bad debt deduction from being allowed under section 25‑35 in relation to the financial benefit as if the debt were still outstanding.

Section does not give rise to exempt income

             (4)  A *financial benefit is not to be treated as *exempt income merely because it is not included in your assessable income under this section.

230‑30  Treatment of gains and losses related to exempt income and non‑assessable non‑exempt income

             (1)  Despite section 230‑15, a gain that you make from a *financial arrangement:

                     (a)  to the extent that it reflects an amount that would be treated, or would reasonably expected to be treated, as *exempt income under a provision of this Act if this Division were disregarded—is exempt income; and

                     (b)  to the extent that it reflects an amount that would be treated or would reasonably expected to be treated, as *non‑assessable non‑exempt income under a provision of this Act if this Division were disregarded—is not assessable income and is not exempt income.

             (2)  Despite section 230‑15, a gain that you make from a *financial arrangement:

                     (a)  to the extent that, if it had been a loss, you would have made it in gaining or producing *exempt income—is exempt income; and

                     (b)  to the extent to which, if it had been a loss, you would have made it in gaining or producing *non‑assessable non‑exempt income—is not assessable income and is not exempt income.

             (3)  A loss you make from a *financial arrangement is not allowable as a deduction to you under any provision of this Act (other than subsection 230‑15(3)) to the extent that you make it in gaining or producing your:

                     (a)  *exempt income; or

                     (b)  *non‑assessable non‑exempt income.

230‑35  Treatment of gains and losses of private or domestic nature

Borrowings etc. used for private or domestic purpose

             (1)  Subsections (2) and (3) apply if:

                     (a)  a *borrowing is made by you, or credit is provided to you, under a *financial arrangement; and

                     (b)  you use some or all of the funds borrowed or the credit provided for a private or domestic purpose.

             (2)  This Division does not apply to a gain you make from the arrangement to the extent that you use the funds raised or the credit provided for a private or domestic purpose.

             (3)  A loss you make from the arrangement is not allowable as a deduction to you under any provision of this Act to the extent that you use the funds raised or the credit provided for a private or domestic purpose.

Derivative financial arrangement held for private or domestic purpose

             (4)  Subsections (5) and (6) apply if:

                     (a)  you are an individual; and

                     (b)  you make a gain or loss from a *derivative financial arrangement; and

                     (c)  the arrangement is held, wholly or in part, for a private or domestic purpose.

             (5)  This Division does not apply to a gain you make from the arrangement to the extent that the arrangement is held or used for a private or domestic purpose.

             (6)  A loss you make from the arrangement is not allowable as a deduction to you under any provision of this Act to the extent that the arrangement is held or used for a private or domestic purpose.

Method to be applied to take account of gain or loss

230‑40  Methods for taking gain or loss into account

Methods available

             (1)  The methods that can be applied to take account of a gain or loss you make from a *financial arrangement are:

                     (a)  the accruals and realisation methods provided for in Subdivision 230‑B; or

                     (b)  the fair value method provided for in Subdivision 230‑C; or

                     (c)  the foreign exchange retranslation method provided for in Subdivision 230‑D; or

                     (d)  the hedging financial arrangement method provided for in Subdivision 230‑E; or

                     (e)  the method of relying on your financial reports provided for in Subdivision 230‑F; or

                      (f)  a balancing adjustment provided for in Subdivision 230‑G.

Note:          The methods referred to in paragraphs (b) to (e) only apply if you make an election under the relevant Subdivision and you must meet certain requirements before you can make such an election.

             (2)  A gain or loss is not taken into account under any of the methods referred to in paragraphs (1)(a), (b), (c) and (e) to the extent to which it is taken into account under the method referred to in paragraph (1)(f) (balancing adjustment).

             (3)  A gain or loss is not taken into account under the method referred to in paragraph (1)(f) (balancing adjustment) to the extent to which it is taken into account under the method referred to in paragraph (1)(d) (hedging financial arrangement method).

Note:          The hedging financial arrangement method may take some account of the gain or loss by reference to the balancing adjustment method (see subsection 230‑300(5)).

Elections override accruals and realisation methods

             (4)  Subdivision 230‑B (accruals and realisation method) does not apply to a gain or loss you make from a *financial arrangement:

                     (a)  to the extent that Subdivision 230‑C (fair value method) applies to the gain or loss; or

Note:       See subsection (5) of this section and subsection 230‑230(4).

                     (b)  to the extent that Subdivision 230‑D (foreign exchange retranslation method) applies to the gain or loss; or

                     (c)  to the extent that Subdivision 230‑E (hedging financial arrangements method) applies to the arrangement; or

                     (d)  if Subdivision 230‑F (method of relying on financial reports) applies to the arrangement; or

                     (e)  if the arrangement is a financial arrangement under section 230‑50 (equity interests etc.).

Priorities among election methods

             (5)  Subdivision 230‑C (fair value method) does not apply to a gain or loss you make from a *financial arrangement:

                     (a)  to the extent that Subdivision 230‑E (hedging financial arrangements method) applies to the arrangement; or

                     (b)  if Subdivision 230‑F (method of relying on financial reports) applies to the arrangement.

             (6)  Subdivision 230‑D (foreign exchange retranslation method) does not apply to a gain or loss you make from a *financial arrangement:

                     (a)  if Subdivision 230‑C (fair value method) applies to the arrangement; or

                     (b)  to the extent that Subdivision 230‑E (hedging financial arrangements method) applies to the arrangement; or

                     (c)  if Subdivision 230‑F (method of relying on financial reports) applies to the arrangement.

             (7)  Subdivision 230‑F (method of relying on financial reports) does not apply to a gain or loss you make from a *financial arrangement to the extent that Subdivision 230‑E (hedging financial arrangements method) applies to the arrangement.

Financial arrangement concept

230‑45  Financial arrangement

             (1)  You have a financial arrangement if you have, under an *arrangement:

                     (a)  a *cash settlable legal or equitable right to receive a *financial benefit; or

                     (b)  a cash settlable legal or equitable obligation to provide a financial benefit; or

                     (c)  a combination of one or more such rights and/or one or more such obligations;

unless:

                     (d)  you also have under the arrangement one or more legal or equitable rights to receive something and/or one or more legal or equitable obligations to provide something; and

                     (e)  for one or more of the rights and/or obligations covered by paragraph (d):

                              (i)  the thing that you have the right to receive, or the obligation to provide, is not a financial benefit; or

                             (ii)  the right or obligation is not cash settlable; and

                      (f)  the one or more rights and/or obligations covered by paragraph (e) are not insignificant in comparison with the right, obligation or combination covered by paragraph (a), (b) or (c).

The right, obligation or combination covered by paragraph (a), (b) or (c) constitutes the financial arrangement.

Note 1:       Whether your rights and/or obligations under an arrangement constitute a financial arrangement can change over time depending on changes either to the terms of the arrangement or external circumstances (such as particular rights or obligations under the arrangement being satisfied by the parties). For example, a contract may provide for the transfer of a boat in 6 months time and payment of the contract price at the end of 2 years. Until the boat is delivered, there is no financial arrangement because of the operation of paragraphs (d), (e) and (f) above. Once the boat is delivered, there is a financial arrangement because those paragraphs are no longer applicable.

Note 2:       The operative provisions of this Division do not apply to all financial arrangements, and only apply partially to some: see the exceptions in Subdivision 230‑H.

Note 3:       There are some rules in this Division that tell you what happens if an arrangement ceases to be a financial arrangement (see Subdivision 230‑G and section 230‑505).

             (2)  A right you have to receive, or an obligation you have to provide, a *financial benefit is cash settlable if, and only if:

                     (a)  the benefit is money or a *money equivalent; or

                     (b)  in the case of a right—you intend to satisfy or settle it by receiving money or a money equivalent or by starting to have, or ceasing to have, another *financial arrangement; or

                     (c)  in the case of an obligation—you intend to satisfy or settle it by providing money or a money equivalent or by starting to have, or ceasing to have, another financial arrangement; or

                     (d)  you have a practice of satisfying or settling similar rights or obligations as mentioned in paragraph (b) or (c) (whether or not you intend to satisfy or settle the right or obligation in that way); or

                     (e)  you deal with the right or obligation, or with similar rights or obligations, in order to generate a profit from short‑term fluctuations in price, from a dealer’s margin, or from both; or

                      (f)  none of paragraphs (a) to (e) applies but you satisfy subsection (3); or

                     (g)  you are able to settle the right or obligation as mentioned in paragraph (b) or (c) (whether or not you intend to satisfy or settle the right or obligation in that way) and you do not have, as your sole or dominant purpose for entering into the arrangement under which you are to receive or provide the financial benefit, the purpose of receiving or delivering the financial benefit as part of your expected purchase, sale or usage requirements.

A reference in paragraph (b) or (c) to a financial arrangement does not include a reference to something that is a financial arrangement under section 230‑50.

Note:          Examples of dealing of the kind covered by paragraph (e) are:

(a)    dealing with the right or obligation, or similar rights or obligations, on a frequent basis, a short‑term basis or on a frequent and short‑term basis; and

(b)    acquiring the right or obligation, or similar rights or obligations, and managing the resulting risk by entering into offsetting arrangements that provide a profit margin.

             (3)  You satisfy this subsection if:

                     (a)  the *financial benefit is readily convertible into money or a *money equivalent; and

                     (b)  there is a market for the financial benefit that has a high degree of liquidity; and

                     (c)  subsection (4) or (5) is satisfied.

             (4)  This subsection is satisfied if, for the recipient of the *financial benefit, the amount of the money or *money equivalent referred to in paragraph (3)(a) is not subject to a substantial risk of substantial decrease in value.

             (5)  This subsection is satisfied if your purpose, or one of your purposes, for entering into the arrangement under which you are to receive or provide the *financial benefit, is to receive or deliver the financial benefit:

                     (a)  to raise or provide finance; or

                     (b)  if paragraph (a) does not apply—so that it may be converted or liquidated into money or a money equivalent (other than as part of your expected purchase, sale or usage requirements).

230‑50  Financial arrangement (equity interest or right or obligation in relation to equity interest)

             (1)  You also have a financial arrangement if you have an *equity interest. The equity interest constitutes the financial arrangement.

             (2)  You also have a financial arrangement if:

                     (a)  you have, under an *arrangement:

                              (i)  a legal or equitable right to receive something that is a financial arrangement under this section; or

                             (ii)  a legal or equitable obligation to provide something that is a financial arrangement under this section; or

                            (iii)  a combination of one or more such rights and/or obligations; and

                     (b)  the right, obligation or combination does not constitute, or form part of, a financial arrangement under subsection 230‑45(1).

The right, obligation or combination referred to in paragraph (a) constitutes the financial arrangement.

Note 1:       Paragraph 230‑40(4)(e) prevents the accruals method or the realisation method being applied to something that is a financial arrangement under this section.

Note 2:       Subsection 230‑270(1) prevents the retranslation method being applied to something that is a financial arrangement under this section.

Note 3:       Subsection 230‑330(1) prevents the hedging method being applied to something that is a financial arrangement under this section.

230‑55  Rights, obligations and arrangements (grouping and disaggregation rules)

Single right or obligation or multiple rights or obligations?

             (1)  If you have a right to receive 2 or more *financial benefits, you are taken, for the purposes of this Division, to have a separate right to receive each of those financial benefits.

             (2)  If you have an obligation to provide 2 or more *financial benefits, you are taken, for the purposes of this Division, to have a separate obligation to provide each of those financial benefits.

             (3)  Subsections (1) and (2) apply for the avoidance of doubt.

Matters relevant to determining what rights and/or obligations constitute particular arrangements

             (4)  For the purposes of this Division, whether a number of rights and/or obligations are themselves an *arrangement or are 2 or more separate arrangements is a question of fact and degree that you determine having regard to the following:

                     (a)  the nature of the rights and/or obligations;

                     (b)  their terms and conditions (including those relating to any payment or other consideration for them);

                     (c)  the circumstances surrounding their creation and their proposed exercise or performance (including what can reasonably be seen as the purposes of one or more of the entities involved);

                     (d)  whether they can be dealt with separately or must be dealt with together;

                     (e)  normal commercial understandings and practices in relation to them (including whether they are regarded commercially as separate things or as a group or series that forms a whole);

                      (f)  the objects of this Division.

In applying this subsection, have regard to the matters referred to in paragraphs (a) to (f) both in relation to the rights and/or obligations separately and in relation to the rights and/or obligations in combination with each other.

Example 1: Your rights and obligations under a typical convertible note, including the right to convert the note into a share or shares, would constitute one arrangement.

Example 2: Your rights and obligations under a typical price‑linked or index‑linked bond would constitute one arrangement.

Note 1:       If you raised funds by means of a contract that you would not have entered into without entering into another contract, and neither contract could be assigned to a third party without the other also being assigned, this would tend to indicate that your rights and obligations under the 2 contracts together constitute one arrangement.

Note 2:       If the commercial effect of your individual rights and/or obligations in a group or series cannot be understood without reference to the group or series as a whole, this would tend to indicate that all of your rights and/or obligations in the group or series together constitute one arrangement.

General rules

230‑60  When financial benefit provided or received under financial arrangement

Financial benefit provided under financial arrangement

             (1)  You are taken, for the purposes of this Division, to have (or to have had) an obligation to provide a *financial benefit under a *financial arrangement if:

                     (a)  you have (or had) an obligation to provide the financial benefit in relation to the arrangement; and

                     (b)  the financial benefit would not otherwise be treated as one that you have (or had) an obligation to provide under the arrangement; and

                     (c)  the financial benefit plays an integral role in determining:

                              (i)  whether you make a gain or loss from the arrangement; or

                             (ii)  the amount of such a gain or loss.

Paragraph (a) applies even if the entity to which you provide the financial benefit is not a party to the arrangement.

Note:          This means that the financial benefits you provide to acquire the financial arrangement (whether to the issuer, a previous holder or a third party) are taken to be financial benefits you provide under the arrangement. The financial benefits you provide may include, for example, fees paid or the forgoing of rights to receive a financial benefit.

Financial benefit received under financial arrangement

             (2)  You are taken, for the purposes of this Division, to have (or to have had) a right to receive a *financial benefit under a *financial arrangement if:

                     (a)  you have (or had) a right to receive the financial benefit in relation to the arrangement; and

                     (b)  the financial benefit would not otherwise be treated as one that you have (or had) a right to receive under the arrangement; and

                     (c)  the financial benefit plays an integral role in determining:

                              (i)  whether you make a gain or loss from the arrangement; or

                             (ii)  the amount of such a gain or loss.

Paragraph (a) applies even if the entity that provides the financial benefit is not a party to the arrangement.

Note:          The financial benefits you receive may include, for example, the waiving of an obligation you have to provide a financial benefit.

230‑65  Amount of financial benefit relating to more than one financial arrangement etc.

             (1)  This section applies if:

                     (a)  a *financial benefit plays the integral role mentioned in paragraph 230‑60(1)(c) or (2)(c) in relation to a *financial arrangement; and

                     (b)  either or both of the following apply:

                              (i)  the financial benefit plays that role in relation to one or more other financial arrangements;

                             (ii)  the financial benefit is provided or received for one or more other things that are not financial arrangements.

             (2)  For the purposes of this Division, determine the amount of the *financial benefit that plays that role in relation to a particular *financial arrangement by apportioning the actual amount of the financial benefit, on a reasonable basis, between:

                     (a)  that financial arrangement; and

                     (b)  each other financial arrangement (if any) in relation to which the benefit plays that role; and

                     (c)  each other thing (if any) mentioned in subparagraph (1)(b)(ii).

230‑70  Apportionment when financial benefit received or right ceases

             (1)  Apply subsection (2) in working out whether you make, or will make, a gain or loss (and the amount of the gain or loss) at a time when:

                     (a)  you receive a particular *financial benefit under a *financial arrangement; or

                     (b)  one of your rights under a financial arrangement ceases.

The gain or loss is to be calculated in nominal (and not *present value) terms.

             (2)  You must have regard to the extent to which the *financial benefits that you have provided, or are to provide or might provide, under the *financial arrangement are reasonably attributable, at the time mentioned in subsection (1), to the benefit or right referred to in paragraph (1)(a) or (b).

             (3)  Any attribution made under subsection (2) must reflect appropriate and commercially accepted valuation principles that properly take into account:

                     (a)  the nature of the rights and obligations under the *financial arrangement; and

                     (b)  the risks associated with each *financial benefit, right and obligation under the arrangement; and

                     (c)  the time value of money.

Note:          Generally, no financial benefit you have provided, or are to provide or might provide, under a financial arrangement is reasonably attributable to an amount you receive that is in the nature of interest.

230‑75  Apportionment when financial benefit provided or obligation ceases

             (1)  Apply subsection (2) in working out whether you make, or will make, a gain or loss (and the amount of the gain or loss) at a time when:

                     (a)  you provide a particular *financial benefit under the *financial arrangement; or

                     (b)  one of your obligations under a financial arrangement ceases.

The gain or loss is to be calculated in nominal (and not *present value) terms.

             (2)  You must have regard to the extent to which the *financial benefits that you have received, or are to receive or might receive, under the *financial arrangement are reasonably attributable, at the time mentioned in subsection (1), to the benefit or obligation referred to in paragraph (1)(a) or (b).

             (3)  Any attribution made under subsection (2) must reflect appropriate and commercially accepted valuation principles that properly take into account:

                     (a)  the nature of the rights and obligations under the *financial arrangement; and

                     (b)  the risks associated with each *financial benefit, right and obligation under the arrangement; and

                     (c)  the time value of money.

Note:          Generally, no financial benefit you have received, or are to receive or might receive, under a financial arrangement is reasonably attributable to an amount you provide that is in the nature of interest.

230‑80  Consistency in working out gains or losses (integrity measure)

Object of section

             (1)  The object of this section is to stop you obtaining an inappropriate tax benefit from not working out your gains and losses in a consistent manner.

Consistent treatment for particular financial arrangement

             (2)  If:

                     (a)  this Division provides that a particular method applies to gains or losses you have from a *financial arrangement; and

                     (b)  that method allows you to choose the particular manner in which you apply that method;

you must use that manner consistently for the arrangement for all income years.

Consistent treatment for financial arrangements of essentially the same nature

             (3)  If:

                     (a)  this Division provides that a particular method applies to gains or losses you have from 2 or more *financial arrangements; and

                     (b)  that method allows you to choose the particular manner in which you apply that method;

you must use that same manner consistently for all of those financial arrangements that are essentially of the same nature.

             (4)  Subsection (3) does not require you to use that same manner consistently for:

                     (a)  a *financial arrangement that you start to have on or after the time a *Commonwealth law that amends the method is made; and

                     (b)  a financial arrangement that you start to have before that time;

if:

                     (c)  the Commonwealth law allows you to choose to apply the method in a particular manner (being a manner in which you are not, apart from the Commonwealth law, allowed to apply the method); and

                     (d)  the inconsistency is entirely due to you choosing to apply the method in that manner to the financial arrangement mentioned in paragraph (a).

230‑85  Rights and obligations include contingent rights and obligations

                   To avoid doubt:

                     (a)  a right is treated as a right for the purposes of this Division even if it is subject to a contingency; and

                     (b)  an obligation is treated as an obligation for the purposes of this Division even if it is subject to a contingency.

Subdivision 230‑BThe accruals/realisation methods

Table of sections

              Guide to Subdivision 230‑B

230‑90      What this Subdivision is about

Objects of Subdivision

230‑95      Objects of this Subdivision

When accruals method or realisation method applies

230‑100    When accruals method or realisation method applies

230‑105    Sufficiently certain overall gain or loss

230‑110    Sufficiently certain gain or loss from particular event

230‑115    Sufficiently certain financial benefits

230‑120    Financial arrangements with notional principal

The accruals method

230‑125    Overview of the accruals method

230‑130    Applying accruals method to work out period over which gain or loss is to be spread

230‑135    How gain or loss is spread

230‑140    Method of spreading gain or loss—effective interest method

230‑145    Application of effective interest method where differing income and accounting years

230‑150    Election for portfolio treatment of fees

230‑155    Election for portfolio treatment of fees where differing income and accounting years

230‑160    Portfolio treatment of fees

230‑165    Portfolio treatment of premiums and discounts for acquiring portfolio

230‑170    Allocating gain or loss to income years

230‑172    Applying accruals method to loss resulting from impairment

230‑175    Running balancing adjustments

Realisation method

230‑180    Realisation method

Reassessment and re‑estimation

230‑185    Reassessment

230‑190    Re‑estimation

230‑192    Re‑estimation—impairments and reversals

230‑195    Balancing adjustment if rate of return maintained on re‑estimation

230‑200    Re‑estimation if balancing adjustment on partial disposal

Guide to Subdivision 230‑B

230‑90  What this Subdivision is about

This Subdivision applies the accruals method to determine the amount and timing of gains and losses from a financial arrangement if they are sufficiently certain for such accrual to be done.

This Subdivision applies the realisation method to determine the amount and timing of gains and losses if they are not sufficiently certain to be dealt with under the accruals method.

If the accruals method is applied to a gain or loss on the basis of an estimate of a financial benefit and the benefit when received or provided is more or less than the estimate, a balancing adjustment is made to correct for the underestimate or overestimate.

If the accruals method is being applied to gains and losses from the arrangement and there is a material change to the arrangement, or the circumstances in which it operates, a reassessment is made of whether the accruals method or the realisation method should apply to gains and losses from the arrangement.

A change in circumstances may also cause a re‑estimation of gains and losses that the accruals method is being applied to.

Objects of Subdivision

230‑95  Objects of this Subdivision

                   The objects of this Subdivision are:

                     (a)  to properly recognise gains and losses from *financial arrangements by allocating them to appropriate periods of time; and

                     (b)  to reduce compliance costs by reflecting commercial accounting concepts where appropriate; and

                     (c)  to minimise tax deferral.

When accruals method or realisation method applies

230‑100  When accruals method or realisation method applies

When accruals method applies and when realisation method applies

             (1)  This section tells you when to apply the accruals method and when to apply the realisation method if this Subdivision applies to gains and losses from a *financial arrangement.

Accruals method—sufficiently certain overall gain or loss at start time

             (2)  The accruals method provided for in this Subdivision applies to a gain or loss you have from a *financial arrangement if:

                     (a)  the gain or loss is an overall gain or loss from the arrangement; and

                     (b)  the gain or loss is sufficiently certain at the time when you start to have the arrangement; and

                     (c)  you choose to apply the accruals method to the gain or loss, or subsection (4) applies to the gain or loss.

Note:          Subsection 230‑105(1) tells you when you have a sufficiently certain overall gain or loss.

Accruals method—sufficiently certain particular gain or loss

             (3)  The accruals method provided for in this Subdivision also applies to a gain or loss you have from a *financial arrangement if:

                     (a)  the gain or loss arises from a *financial benefit that you are to receive or are to provide under the arrangement; and

                     (b)  the gain or loss:

                              (i)  is sufficiently certain before or at the time when you start to have the arrangement and before you are to receive or provide the benefit; or

                             (ii)  becomes sufficiently certain after the time when you start to have the arrangement and before you are to receive or provide the benefit; and

                     (c)  the benefit has not already been taken into account in applying:

                              (i)  the accruals method provided for in this Subdivision; or

                             (ii)  the realisation method provided for in this Subdivision;

                            to another gain or loss from the arrangement.

This subsection has effect subject to subsection (4).

Note:          Subsection 230‑110(1) tells you when you have a sufficiently certain gain or loss at a particular time.

Accruals method—particular gain or loss becomes sufficiently certain

          (3A)  The accruals method provided for in this Subdivision also applies to a gain or loss you have from a *financial arrangement if:

                     (a)  the gain or loss arises from a *financial benefit that you are to receive or are to provide under the arrangement; and

                     (b)  the gain or loss becomes sufficiently certain at the time you receive or provide the benefit; and

                     (c)  at least part of the period over which the gain or loss would be spread under that method (assuming that method applied) occurs after the time you receive or provide the benefit.

This subsection has effect subject to subsection (4).

Note 1:    Subsection 230‑110(1) tells you when you have a sufficiently certain gain or loss at a particular time.

Note 2:    For the period over which the gain or loss would be spread, see subsections 230‑130(3) to (5).

Accruals method—particular gain or loss from qualifying security

             (4)  Subsection (3) or (3A) does not apply to a gain or loss that you have from a *financial arrangement if:

                     (a)  you are:

                              (i)  an individual; or

                             (ii)  an entity (other than an individual) that satisfies subsection 230‑455(2), (3) or (4) for the income year in which you start to have the arrangement; and

                     (b)  the arrangement is a *qualifying security; and

                     (c)  you have not made an election under subsection 230‑455(7).

Realisation method—gain or loss not sufficiently certain

             (5)  The realisation method provided for in this Subdivision applies to a gain or loss that you have from a *financial arrangement if the accruals method provided for in this Subdivision does not apply to that gain or loss.

Note:          Section 230‑180 tells you how to apply the realisation method to the gain or loss.

230‑105  Sufficiently certain overall gain or loss

             (1)  You have a sufficiently certain overall gain or loss from a *financial arrangement at the time when you start to have the arrangement only if it is sufficiently certain at that time that you will make an overall gain or loss from the arrangement of:

                     (a)  a particular amount; or

                     (b)  at least a particular amount.

The amount of the gain or loss is the amount referred to in paragraph (a) or (b).

Note:          Sections 230‑70 and 230‑75 (about apportionment of financial benefits) only apply in working out whether you make, or will make, a gain or loss (and the amount of the gain or loss) when particular events happen. They do not apply in working out, at the time when you start to have a financial arrangement, whether it is sufficiently certain that you will make an overall gain or loss from the arrangement.

             (2)  In applying subsection (1), you must:

                     (a)  assume that you will continue to have the *financial arrangement for the rest of its life; and

                     (b)  have regard to the extent of the risk that a *financial benefit that you are not sufficiently certain to provide or receive under the arrangement may reduce the amount of the gain or loss.

230‑110  Sufficiently certain gain or loss from particular event

             (1)  You have a sufficiently certain gain or loss from a *financial arrangement at a particular time if it is sufficiently certain at that time that you make, or will make, a gain or loss from the arrangement of:

                     (a)  a particular amount; or

                     (b)  at least a particular amount;

when one of the following occurs:

                     (c)  you receive a particular *financial benefit under the arrangement or one of your rights under the arrangement ceases;

                     (d)  you provide a particular financial benefit under the arrangement or one of your obligations under the arrangement ceases.

The amount of the gain or loss is the amount referred to in paragraph (a) or (b).

             (2)  In applying subsection (1) to work out whether you have a sufficiently certain gain or loss at a particular time:

                     (a)  have regard to the extent of the risk that a *financial benefit that you are not sufficiently certain to provide or receive under the arrangement may reduce the amount of the gain or loss, and the extent to which such a financial benefit is, for the purposes of subsection 230‑70(2) or 230‑75(2), reasonably attributable to the benefit, right or obligation mentioned in paragraph (1)(c) or (d) of this section at the time mentioned in subsection (1); and

                     (b)  disregard any financial benefit that has already been taken into account, under subsection 230‑105(1), in working out, at the time when you started to have the arrangement, the amount of a sufficiently certain overall gain or loss from the *financial arrangement to which the accruals method applies; and

                     (c)  disregard any financial benefit (or that part of any financial benefit) that has already been taken into account in working out the amount of a sufficiently certain gain or loss from the *financial arrangement under subsection (1).

Note:          Sections 230‑70 and 230‑75 allow you to apportion financial benefits provided and financial benefits received in working out the amount of a gain or loss.

230‑115  Sufficiently certain financial benefits

             (1)  In deciding for the purposes of this Subdivision whether it is sufficiently certain at a particular time that you make, or will make, a gain or loss from a *financial arrangement:

                     (a)  have regard only to:

                              (i)  *financial benefits that you are sufficiently certain to receive; and

                             (ii)  financial benefits that you are sufficiently certain to provide; and

                     (b)  have regard to those financial benefits only to the extent that the amount or value of the benefits is, at that time, fixed or determinable with reasonable accuracy.

Note:          The particular time may be the time at which you start to have the arrangement.

             (2)  A *financial benefit that you are to receive or provide is to be treated as one that you are sufficiently certain to receive or to provide only if:

                     (a)  it is reasonably expected that you will receive or provide the financial benefit (assuming that you will continue to have the *financial arrangement for the rest of its life); and

                     (b)  at least some of the amount or value of the benefit is, at that time, fixed or determinable with reasonable accuracy.

             (3)  In applying subsection (2) to the *financial benefit:

                     (a)  you must have regard to:

                              (i)  the terms and conditions of the *financial arrangement; and

                             (ii)  accepted pricing and valuation techniques; and

                            (iii)  the economic or commercial substance and effect of the arrangement; and

                            (iv)  the contingencies that attach to the other financial benefits that are to be provided or received under the arrangement; and

                     (b)  you must treat the financial benefit as if it were not contingent if it is appropriate to do so having regard to the contingencies that attach to the other financial benefits that are to be received or provided under the arrangement.

             (4)  In applying paragraph (2)(b) at a particular time (the reference time) to a *financial benefit that depends on a variable that is based on:

                     (a)  an interest rate; or

                     (b)  a rate that solely or primarily reflects the time value of money; or

                     (c)  a rate that solely or primarily reflects a consumer price index; or

                     (d)  a rate that solely or primarily reflects an index prescribed by the regulations for the purposes of this paragraph;

you must assume that that variable will continue to have the value it has at the reference time.

             (5)  Despite subsection (4), in applying paragraph (2)(b) at a particular time to a *financial benefit that depends on a rate of change to a variable that is based on:

                     (a)  a rate that solely or primarily reflects a consumer price index; or

                     (b)  a rate that solely or primarily reflects an index prescribed by the regulations for the purposes of this paragraph;

you must assume that the rate of change to that variable will continue to be the rate of change that is current at that time.

             (6)  If subsection (4) or (5) applies to a gain or loss and you are determining the amount of the gain or loss at a particular time, you must also assume that that variable will continue to have the value that it has at that time.

             (7)  Subsections (4) and (5) do not limit paragraph (2)(b).

             (8)  If all of the *financial benefits provided and received under the *financial arrangement are denominated in a particular *foreign currency, those financial benefits are not to be translated into:

                     (a)  your *applicable functional currency; or

                     (b)  if you do not have an applicable functional currency—Australian currency;

for the purposes of applying subsection (2) to the arrangement.

             (9)  To avoid doubt:

                     (a)  a *financial benefit that you have already provided at a particular time is taken to be one that it is, at that time, a financial benefit that you are sufficiently certain to provide; and

                     (b)  a financial benefit that you have already received at a particular time is taken to be one that it is, at that time, a financial benefit that you are sufficiently certain to receive.

230‑120  Financial arrangements with notional principal

             (1)  This section applies to a *financial arrangement that you have if, in substance or effect, and having regard to the pricing, terms and conditions of the arrangement:

                     (a)  the arrangement consists of these things:

                              (i)  a leg, the *financial benefits to be provided or received in respect of which are calculated by reference to, or are reasonably related to, a notional principal;

                             (ii)  another leg, the financial benefits to be provided or received in respect of which also are calculated by reference to, or are reasonably related to, a notional principal;

                            (iii)  if the arrangement includes one or more other things—those things; and

                     (b)  when you start to have the arrangement, the value of the notional principal in relation to one leg is equal to the value of the notional principal in relation to the other leg; and

                     (c)  all or part of the notional principal in relation to each leg is provided or received at a time, regardless of whether that time is different in relation to each leg.

Example:    A swap contract.

             (2)  To avoid doubt, the *financial benefits mentioned in subparagraphs (1)(a)(i) and (ii), and the notional principal in relation to each leg, need not actually be provided or received.

             (3)  In applying this Subdivision to the *financial arrangement:

                     (a)  work out the *financial benefits from the arrangement as follows:

                              (i)  work out the financial benefits from each thing of which the arrangement consists separately from the financial benefits from each other thing of which the arrangement consists;

                             (ii)  ensure that results under subparagraph (i) are consistent with the timing and amount of financial benefits to be actually provided or received under the arrangement; and

                     (b)  work out your gains and losses from the arrangement as follows:

                              (i)  work out the gains and losses from each thing of which the arrangement consists separately from the gains and losses from each other thing of which the arrangement consists;

                             (ii)  treat the gains and losses mentioned in subparagraph (i) for all of those things as your gains and losses from the arrangement; and

                     (c)  in working out a gain or loss from a thing for the purposes of subparagraph (b)(i), and, if the accruals method applies to the gain or loss, how it is to be spread and allocated:

                              (i)  if the thing is a leg—take into account the amount of the notional principal at a time and in a manner that properly reflects the way in which the financial benefits in respect of that leg are calculated; and

                             (ii)  if the thing is not a leg—take into account an amount relevant to the thing at a time and in a manner that properly reflects the way in which the financial benefits in respect of that thing are calculated.

The accruals method

230‑125  Overview of the accruals method

                   If the accruals method applies to a gain or loss you have from a *financial arrangement:

                     (a)  you use section 230‑130 to work out the period over which the gain or loss is to be spread; and

                     (b)  you use section 230‑135 to work out how to allocate the gain or loss to particular intervals within the period over which the gain or loss is to be spread; and

                     (c)  if an interval to which part of the gain or loss is allocated straddles 2 income years, you use section 230‑170 to work out how to allocate that part of the gain or loss allocated between those 2 income years.

230‑130  Applying accruals method to work out period over which gain or loss is to be spread

Period over which overall gain or loss is to be spread

             (1)  If you have a sufficiently certain overall gain or loss from a *financial arrangement under subsection 230‑105(1), the period over which the gain or loss is to be spread is the period that:

                     (a)  starts when you start to have the arrangement; and

                     (b)  ends when you will cease to have the arrangement.

In applying paragraph (b), you must assume that you will continue to have the arrangement for the rest of its life.

Period over which particular gain or loss is to be spread

             (3)  If you have a sufficiently certain gain or loss from a *financial arrangement under subsection 230‑110(1), the period over which the gain or loss is to be spread is the period to which the gain or loss relates. Have regard to the pricing, terms and conditions of the arrangement in working out the period to which the gain or loss relates. This subsection has effect subject to subsections (4) and (5).

             (4)  The start of the period over which a gain or loss to which subsection (3) applies is to be spread must:

                     (a)  not start earlier than the time when you start to have the *financial arrangement; and

                     (b)  other than in the case of a gain or loss to which subsection 230‑100(3A) or subsection (4A) of this section applies—not start earlier than the start of the income year during which it becomes sufficiently certain that you will make the gain or loss.

          (4A)  This subsection applies to a gain or loss to which subsection (3) applies, if:

                     (a)  there is an impairment (within the meaning of the *accounting principles) of:

                              (i)  the *financial arrangement; or

                             (ii)  a financial asset or financial liability that forms part of the arrangement; and

                     (b)  because of the impairment, you make a reassessment under section 230‑185 in relation to the arrangement; and

                     (c)  you determine on the reassessment that the gain or loss is not sufficiently certain (whether or not the gain or loss was sufficiently certain before the reassessment); and

                     (d)  there is a reversal of the impairment loss (within the meaning of the accounting principles) that resulted from the impairment; and

                     (e)  because of the reversal, you make a reassessment under section 230‑185 in relation to the arrangement; and

                      (f)  you determine on the reassessment that the gain or loss has become sufficiently certain.

Note:          For the income years to which the gain or loss is allocated, see section 230‑170.

             (5)  The end of the period over which a gain or loss to which subsection (3) applies is to be spread must not end later than the time when you will cease to have the *financial arrangement.

230‑135  How gain or loss is spread

How to spread gain or loss

             (1)  This section tells you how to spread a gain or loss to which the accruals method applies.

Compounding accruals or approximation

             (2)  The gain or loss is to be spread using:

                     (a)  compounding accruals; or

                     (b)  a method whose results approximate those obtained using the method referred to in paragraph (a) (having regard to the length of the period over which the gain or loss is to be spread).

             (3)  The following subsections of this section clarify the way in which the gain or loss is to be spread in accordance with paragraph (2)(a).

Intervals to which parts of gain or loss allocated

             (4)  The intervals to which parts of the gain or loss are allocated must:

                     (a)  not exceed 12 months; and

                     (b)  all be of the same length.

Paragraph (b) does not apply to the first and last intervals. These may be shorter than the other intervals.

Fixing of amount and rate for interval

             (5)  For each interval:

                     (a)  determine a rate of return; and

                     (b)  determine an amount to which you apply the rate of return.

             (6)  For the purposes of paragraph (5)(b), in determining the amount to which you apply the rate of return for an interval, have regard to:

                     (a)  the amount or value; and

                     (b)  the timing;

of *financial benefits that are to be taken into account in working out the amount of the gain or loss, and were provided or received by you during the interval.

          (6A)  However, if there is only one *financial benefit that is to be taken into account in working out the amount of the gain or loss, then, for the purposes of paragraph (5)(b), in determining the amount to which you apply the rate of return, have regard to a notional principal:

                     (a)  by reference to which the financial benefit is calculated; or

                     (b)  which is reasonably related to the financial benefit.

Assumption of continuing to hold arrangement for rest of its life

             (7)  The gain or loss is to be spread assuming that you will continue to have the *financial arrangement for the rest of its life.

Regard to be had to financial benefits provided or received in interval

             (8)  In allocating the gain or loss to intervals, have regard to the *financial benefits to be provided or received in each of those intervals.

230‑140  Method of spreading gain or loss—effective interest method

             (1)  This section clarifies that the method mentioned in subsection (2) of spreading gains and losses is a method covered by paragraph 230‑135(2)(b) (methods approximating compounding accruals).

             (2)  The method is the effective interest method mentioned in *accounting standard AASB 139 (or another accounting standard prescribed by the regulations for the purposes of this subsection).

             (3)  However, this section applies to a particular *financial arrangement you have only if:

                     (a)  in a case where there is a discount or premium under the arrangement—when you start to have the arrangement, the annually compounded rate of return applicable to the discount or premium does not exceed 1%; and

                     (b)  when you start to have the arrangement, neither the maximum life of the arrangement (as determined under the terms and conditions of the arrangement) nor the expected life of the arrangement exceeds:

                              (i)  unless subparagraph (ii) applies—30 years; or

                             (ii)  if the regulations prescribe a different period for the purposes of this subparagraph—that period; and

                     (c)  each *financial benefit that you have an obligation to provide or a right to receive under the arrangement, and that gives rise to a gain or loss from the arrangement (other than a gain or loss that is attributable to any discount or premium):

                              (i)  relates to a period not exceeding 12 months; and

                             (ii)  is to be provided or received in the period to which it relates; and

Note:       Different financial benefits may relate to different periods.

                     (d)  you prepare a financial report for the year in which you start to have the arrangement; and

                     (e)  that financial report is:

                              (i)  prepared in accordance with paragraph 230‑210(2)(a); and

                             (ii)  audited in accordance with paragraph 230‑210(2)(b); and

                      (f)  all gains and losses from the arrangement to which the accrual method applies are spread in a way that is consistent with that financial report.

             (4)  For the purposes of paragraph (3)(a), assume that you will continue to have the arrangement for the rest of its expected life.

230‑145  Application of effective interest method where differing income and accounting years

             (1)  This section applies if:

                     (a)  you prepare a financial report for a year (the first year); and

                     (b)  you prepare a financial report for the subsequent year (the second year); and

                     (c)  your income year starts in the first year and ends in the second year; and

                     (d)  both the financial report for the first year and the financial report for the second year are:

                              (i)  prepared in accordance with paragraph 230‑210(2)(a); and

                             (ii)  audited in accordance with paragraph 230‑210(2)(b); and

                     (e)  the auditor’s reports are unqualified for both the financial report for the first year and the financial report for the second year.

             (2)  For the purposes of paragraph 230‑140(3)(d), treat yourself as having prepared a financial report for the income year in which you start to have the arrangement.

             (3)  Work out the gain or loss you make from the arrangement for the income year as follows:

                     (a)  firstly, work out the gain or loss you make from the arrangement for the first year in accordance with paragraph 230‑140(3)(f) (treating the first year as an income year);

                     (b)  next, work out how much of the gain or loss mentioned in paragraph (a) is attributable to the income year in accordance with subsection (4);

                     (c)  next, work out the gain or loss you make from the arrangement for the second year in accordance with paragraph 230‑140(3)(f) (treating the second year as an income year);

                     (d)  next, work out how much of the gain or loss mentioned in paragraph (c) is attributable to the income year in accordance with subsection (4);

                     (e)  next:

                              (i)  if the amounts worked out under paragraphs (b) and (d) are both gains—add them together to work out the gain from the arrangement for the income year; or

                             (ii)  if the amounts worked out under paragraphs (b) and (d) are both losses—add them together to work out the loss from the arrangement for the income year; or

                            (iii)  if one of the amounts worked out under paragraphs (b) and (d) is a loss and the other is a gain—subtract the loss from the gain. If the result is positive, this is the gain from the arrangement for the income year. If the result is negative, this is the loss from the arrangement for the income year.

             (4)  For the purposes of paragraphs (3)(b) and (d), work out how much of the gain or loss is attributable to the income year by:

                     (a)  using a methodology that is reasonable; and

                     (b)  using the same methodology for the first and second years.

230‑150  Election for portfolio treatment of fees

             (1)  You may make an election for an income year under this section if:

                     (a)  you prepare a financial report for the income year in accordance with:

                              (i)  the *accounting principles; or

                             (ii)  if the accounting principles do not apply to the preparation of the financial report—comparable standards for accounting made under a *foreign law that apply to the preparation of the financial report under a foreign law; and

                     (b)  the financial report is audited in accordance with:

                              (i)  the *auditing principles; or

                             (ii)  if the auditing principles do not apply to the auditing of the financial report—comparable standards for auditing made under a foreign law.

             (2)  An election under this section is irrevocable.

230‑155  Election for portfolio treatment of fees where differing income and accounting years

             (1)  This section applies if:

                     (a)  you prepare a financial report for a year (the first year); and

                     (b)  you prepare a financial report for the subsequent year (the second year); and

                     (c)  your income year starts in the first year and ends in the second year; and

                     (d)  both the financial report for the first year and the financial report for the second year are:

                              (i)  prepared in accordance with paragraph 230‑150(1)(a); and

                             (ii)  audited in accordance with paragraph 230‑150(1)(b); and

                     (e)  the auditor’s reports are unqualified for both the financial report for the first year and the financial report for the second year.

             (2)  Treat yourself as eligible to make an election for the income year under subsection 230‑150(1).

             (3)  Work out the gain or loss you make from the arrangement for the income year as follows:

                     (a)  firstly, work out the gain or loss you make from the arrangement for the first year in accordance with subsections 230‑160(3) and (4) or 230‑165(3) and (4) (treating the first year as an income year);

                     (b)  next, work out how much of the gain or loss mentioned in paragraph (a) is attributable to the income year in accordance with subsection (4);

                     (c)  next, work out the gain or loss you make from the arrangement for the second year in accordance with subsections 230‑160(3) and (4) or 230‑165(3) and (4) (treating the second year as an income year);

                     (d)  next, work out how much of the gain or loss mentioned in paragraph (c) is attributable to the income year in accordance with subsection (4);

                     (e)  next:

                              (i)  if the amounts worked out under paragraphs (b) and (d) are both gains—add them together to work out the gain from the arrangement for the income year; or

                             (ii)  if the amounts worked out under paragraphs (b) and (d) are both losses—add them together to work out the loss from the arrangement for the income year; or

                            (iii)  if one of the amounts worked out under paragraphs (b) and (d) is a loss and the other is a gain—subtract the loss from the gain. If the result is positive, this is the gain from the arrangement for the income year. If the result is negative, this is the loss from the arrangement for the income year.

             (4)  For the purposes of paragraphs (3)(b) and (d), work out how much of the gain or loss is attributable to the income year by:

                     (a)  using a methodology that is reasonable; and

                     (b)  using the same methodology for the first and second years.

230‑160  Portfolio treatment of fees

             (1)  This section applies in relation to a *financial arrangement if:

                     (a)  you have made an election under section 230‑150 in an income year; and

                     (b)  you start to have the financial arrangement in that income year or a later income year; and

                     (c)  the financial arrangement is part of a portfolio of similar financial arrangements; and

                     (d)  a gain or loss to which subsection 230‑130(3) applies arises in part from fees in respect of the *financial arrangement; and

                     (e)  the fees play an integral role in determining the amount of the gain or loss; and

                      (f)  the net amount of the fees is not expected to be significant relative to an overall gain or loss from the arrangement.

             (2)  For the purposes of this Division, split the gain or loss mentioned in paragraph (1)(d) as follows:

                     (a)  to the extent that it arises from the fees, treat it as a gain or loss from the *financial arrangement (the fees gain or loss) to which subsection 230‑130(3) applies;

                     (b)  to the extent that it does not arise from the fees, treat it as a separate gain or loss from the financial arrangement to which subsection 230‑130(3) applies.

Note:          The separate gain or loss mentioned in paragraph (b) may itself be split under subsection 230‑165(2) (premium/discount gain or loss).

Determination of period for fees gain or loss

             (3)  The period over which the fees gain or loss is to be spread is the period that you determine to be the expected life of the portfolio, if:

                     (a)  the basis on which you determine the period accords with the spreading of the fees gain or loss for the purposes of the profit or loss statement of the financial report mentioned in paragraph 230‑150(1)(a); and

                     (b)  the basis on which you determine the period is set and recorded before any fees in respect of the *financial arrangement fall due; and

                     (c)  the period can be justified objectively; and

                     (d)  the period is reasonable in the circumstances.

Spreading the fees gain or loss

             (4)  The method by which the fees gain or loss is to be spread is the method that you determine, if:

                     (a)  the basis on which you determine the method accords with the spreading of the fees gain or loss for the purposes of the profit or loss statement of the financial report mentioned in paragraph 230‑150(1)(a); and

                     (b)  the method is determined before any fees in respect of the *financial arrangement fall due; and

                     (c)  the method can be justified objectively; and

                     (d)  the method is reasonable in the circumstances.

             (5)  To avoid doubt, subsections (3) and (4) apply despite sections 230‑130 and 230‑135.

230‑165  Portfolio treatment of premiums and discounts for acquiring portfolio

             (1)  This section applies in relation to a *financial arrangement if:

                     (a)  you have made an election under section 230‑150 in an income year; and

                     (b)  you start to have the financial arrangement in that income year or a later income year; and

                     (c)  the financial arrangement is part of a portfolio of similar financial arrangements; and

                     (d)  a gain or loss to which subsection 230‑130(3) applies arises in part from a premium or discount in starting to have the portfolio; and

                     (e)  the gain or loss is not expected to be significant relative to the amount of the gain or loss on the portfolio.

             (2)  For the purposes of this Division, split the gain or loss mentioned in paragraph (1)(d) as follows:

                     (a)  to the extent that it arises from the premium or discount, treat it as a gain or loss from the *financial arrangement (the premium/discount gain or loss) to which subsection 230‑130(3) applies;

                     (b)  to the extent that it does not arise from the premium or discount, treat it as a separate gain or loss from the financial arrangement to which subsection 230‑130(3) applies.

Note:          The separate gain or loss mentioned in paragraph (b) may itself be split under subsection 230‑160(2) (portfolio fees gain or loss).

Determination of period for premium/discount gain or loss

             (3)  The period over which the premium/discount gain or loss is to be spread is the period that you determine to be the expected life of the portfolio, if:

                     (a)  the basis on which you determine the period accords with the spreading of the premium/discount gain or loss for the purposes of the profit or loss statement of the financial report mentioned in paragraph 230‑150(1)(a); and

                     (b)  the basis on which you determine the period is set and recorded before you start to have the *financial arrangement; and

                     (c)  the period can be justified objectively; and

                     (d)  the period is reasonable in the circumstances.

Spreading the premium/discount gain or loss

             (4)  The method by which the premium/discount gain or loss is to be spread is the method that you determine, if:

                     (a)  the basis on which you determine the method accords with the spreading of the premium/discount gain or loss for the purposes of the profit or loss statement of the financial report mentioned in paragraph 230‑150(1)(a); and

                     (b)  the method is determined before you start to have the *financial arrangement; and

                     (c)  the method can be justified objectively; and

                     (d)  the method is reasonable in the circumstances.

             (5)  To avoid doubt, subsections (3) and (4) apply despite sections 230‑130 and 230‑135.

230‑170  Allocating gain or loss to income years

             (1)  You are taken, for the purposes of section 230‑15, to make, for an income year, a gain or loss equal to a part of a gain or loss if:

                     (a)  that part of the gain or loss is allocated to an interval under section 230‑135; and

                     (b)  that interval falls wholly within that income year.

             (2)  If:

                     (a)  a part of a gain or loss is allocated to an interval under section 230‑135; and

                     (b)  that interval straddles 2 income years;

you are taken, for purposes of section 230‑15, to make a gain or loss equal to so much of that part of the gain or loss as is allocated between those income years on a reasonable basis.

          (2A)  Subsections (1) and (2) do not apply to a part of a gain or loss if:

                     (a)  subsection 230‑100(3A) or 230‑130(4A) applies to the gain or loss; and

                     (b)  that part of the gain or loss is allocated to an interval under section 230‑135; and

                     (c)  that interval ends before or during the income year during which the gain or loss becomes sufficiently certain (as mentioned in paragraph 230‑100(3A)(b) or 230‑130(4A)(f), whichever is applicable).

Instead, you are taken, for the purposes of section 230‑15, to make, for that income year, a gain or loss equal to that part of that gain or loss.

             (3)  If:

                     (a)  a *head company of a *consolidated group or *MEC group has a *financial arrangement; and

                     (b)  a subsidiary member of the group ceases to be a member of the group at a particular time (the leaving time); and

                     (c)  immediately after the leaving time, the head company no longer has the arrangement because the subsidiary member ceased to be a member of the group;

an income year of the group is taken, for the purposes of applying this section to the group and the arrangement, to end at the leaving time.

230‑172  Applying accruals method to loss resulting from impairment

             (1)  This section applies if:

                     (a)  there is an impairment (within the meaning of the *accounting principles) of:

                              (i)  a *financial arrangement; or

                             (ii)  a financial asset or financial liability that forms part of a financial arrangement; and

                     (b)  you make a loss from the financial arrangement as a result of the impairment; and

                     (c)  the accruals method applies to the loss.

             (2)  You cannot deduct a loss you make for an income year under section 230‑15, to the extent that the loss results from the impairment (including as affected by any later reversal of the impairment loss (within the meaning of the *accounting principles) that resulted from the impairment).

             (3)  Disregard subsection (2) for the purposes of paragraph (c) of step 1 of the method statement in subsection 230‑445(1).

230‑175  Running balancing adjustments

Overestimate of financial benefit to be received

             (1)  You are taken for the purposes of this Division to make a loss from a *financial arrangement if:

                     (a)  a provision of this Subdivision has applied on the basis that you were sufficiently certain, at a particular time, to receive a *financial benefit of, or of at least, a particular amount under the arrangement; and

                     (b)  when you receive the benefit (or the time comes for you to receive the benefit), the amount you receive (or are to receive) is nil or is less than the amount estimated.

The amount of the loss is equal to the difference between the amount estimated and the amount you receive (or are to receive). You are taken to have made the loss for the income year in which you receive the benefit (or in which the time comes for you to receive the benefit).

          (1A)  Subsection (1) does not apply to the extent that the difference results from:

                     (a)  an impairment (within the meaning of the *accounting principles) of:

                              (i)  the *financial arrangement; or

                             (ii)  a financial asset or financial liability that forms part of the arrangement; or

                     (b)  you writing off, as a bad debt, a right to a *financial benefit (or a part of a financial benefit).

Underestimate of financial benefit to be received

             (2)  You are taken for the purposes of this Division to make a gain from a *financial arrangement if:

                     (a)  a provision of this Subdivision has applied on the basis that you were sufficiently certain at a particular time to receive a *financial benefit of, or of at least, a particular amount under the arrangement; and

                     (b)  when you receive the benefit, or the time comes for you to receive the benefit, the amount you receive, or are to receive, is more than the amount estimated.

The amount of the gain is equal to the difference between the amount estimated and the amount you receive or are to receive. You are taken to have made that gain in the income year in which you receive the benefit or in which the time comes for you to receive the benefit.

          (2A)  Subsection (2) does not apply to the extent that the difference results from the reversal of an impairment loss (within the meaning of the *accounting principles) that resulted from an impairment (within the meaning of the accounting principles) of:

                     (a)  the *financial arrangement; or

                     (b)  a financial asset or financial liability that forms part of the arrangement.

Overestimate of financial benefit to be provided

             (3)  You are taken for the purposes of this Division to make a gain from a *financial arrangement if:

                     (a)  a provision of this Subdivision has applied on the basis that you were sufficiently certain at a particular time to provide a *financial benefit of, or of at least, a particular amount under the arrangement; and

                     (b)  when you provide the benefit, or the time comes for you to provide the benefit, the amount you provide, or are to provide, is nil or is less than the amount estimated.

The amount of the gain is equal to the difference between the amount estimated and the amount you provide or are to provide. You are taken to have made that gain in the income year in which you provide the benefit or in which the time comes for you to provide the benefit.

Underestimate of financial benefit to be provided

             (4)  You are taken for the purposes of this Division to make a loss from a *financial arrangement if:

                     (a)  a provision of this Subdivision has applied on the basis that you were sufficiently certain at a particular time to provide a *financial benefit of, or of at least, a particular amount under the arrangement; and

                     (b)  when you provide the benefit, or the time comes for you to provide the benefit, the amount you are to provide is more than the estimated amount referred to in paragraph (a).

The amount of the loss is equal to the difference between the amount estimated and the amount you are to provide. You are taken to have made that loss in the income year in which you provide the benefit or in which the time comes for you to provide the benefit.

Realisation method

230‑180  Realisation method

             (1)  If a gain or loss is to be taken into account using the realisation method, you are taken, for the purposes of section 230‑15, to make the gain or loss for the income year in which the gain or loss occurs.

Note:          Sections 230‑70 and 230‑75 allow you to apportion financial benefits provided and financial benefits received in working out the amount of the gain or loss.

             (2)  For the purposes of subsection (1), a gain or loss from a *financial arrangement is taken to occur at:

                     (a)  if the last of the *financial benefits, rights and obligations taken into account in determining the amount of the gain or loss is a financial benefit—the time the financial benefit:

                              (i)  is provided; or

                             (ii)  if the financial benefit is not provided at the time when it is due to be provided under the arrangement and it is reasonable to expect that the financial benefit will be provided—is due to be provided; or

                     (b)  if the last of the financial benefits, rights and obligations taken into account in determining the amount of the gain or loss is a right to receive a financial benefit or an obligation to provide a financial benefit—the time:

                              (i)  if the right or obligation ceases before the financial benefit is provided—the right or obligation ceases; or

                             (ii)  otherwise—the financial benefit is provided.

This subsection has effect subject to subsection (3).

             (3)  For the purposes of subsection (1), you make a loss from a *financial arrangement from writing off, as a bad debt, a right to a *financial benefit (or a part of a financial benefit) if:

                     (a)  the financial benefit was taken into account in working out the amount of a gain from the arrangement and the gain has been included in your assessable income under this Division; or

                     (b)  the right is one in respect of money that you lent in the ordinary course of your *business of lending money; or

                     (c)  the right is one that you bought in the ordinary course of your business of lending money.

             (4)  The loss referred to in subsection (3) occurs when you write off the right to the *financial benefit (or the part of the financial benefit) as a bad debt.

             (5)  The amount of the loss referred to in subsection (3) is:

                     (a)  if paragraph (3)(a) applies—so much of the gain referred to in that paragraph as is reasonably attributable to the *financial benefit (or the part of the financial benefit); or

                     (b)  if paragraph (3)(b) applies—the amount of the financial benefit (or the part of the financial benefit); or

                     (c)  if paragraph (3)(c) applies—the amount of the financial benefit (or the part of the financial benefit) but only up to the value of the financial benefit you provided to acquire the right to the financial benefit (or the part of the financial benefit).

             (6)  For the purposes of this Act, a deduction for the loss referred to in subsection (3) is to be treated as a deduction of a bad debt.

Note:          Various provisions in this Act and the Income Tax Assessment Act 1936 restrict the availability of deductions for bad debts and make provision in relation to the recoupment of amounts in relation to bad debts that have been written off. These provisions are set out in subsection 25‑35(5).

Reassessment and re‑estimation

230‑185  Reassessment

             (1)  You must make a fresh assessment of which gains and losses from a *financial arrangement the accruals method should apply to, and which gains and losses from that arrangement the realisation method should apply to, if:

                     (a)  the accruals method, or the realisation method, provided for in this Subdivision applies to gains and losses from the arrangement; and

                     (b)  there is a material change to:

                              (i)  the terms and conditions of the arrangement; or

                             (ii)  circumstances that affect the arrangement.

             (2)  Without limiting subsection (1), the following changes are material changes to the terms and conditions of, or circumstances that affect, the *financial arrangement:

                     (a)  a change to the terms or conditions of the arrangement in a way that alters the essential nature of the arrangement (for example, by altering it from a *debt interest to an *equity interest or from an equity interest to a debt interest);

                     (b)  a change to the terms or conditions of the arrangement in a way that materially affects the contingencies on which significant obligations and rights under the arrangement are dependent (for example, by introducing such a contingency or removing such a contingency);

                     (c)  a change in circumstances that makes something that:

                              (i)  materially affects significant obligations and rights under the arrangement; and

                             (ii)  was previously dependent on a contingency;

                            no longer dependent on a contingency (because, for example, only one of a number of previously possible contingencies is realised);

                     (d)  a change to:

                              (i)  the terms on which credit is to be provided to an entity that is not a party to the arrangement; or

                             (ii)  the credit rating of an entity that is not a party to the arrangement;

                            if a significant obligation or right under the arrangement is dependent on that credit being provided or that rating being maintained;

                     (e)  if the arrangement is, or includes, a financial asset or financial liability and you prepare your financial reports in accordance with:

                              (i)  the *accounting principles; or

                             (ii)  if the accounting principles do not apply to the preparation of the financial report—comparable standards for accounting made under a *foreign law that apply to the preparation of the financial report under a foreign law;

                            a change to the terms or conditions of, or circumstances that affect, the arrangement that are sufficient for the financial asset or financial liability to be treated as impaired for the purposes of those principles or standards.

             (3)  You do not need to make a reassessment under this section merely because of a change in the fair value of the *financial arrangement.

230‑190  Re‑estimation

When re‑estimation necessary

             (1)  You re‑estimate a gain or loss from a *financial arrangement under subsection (5) if:

                     (a)  the accruals method applies to the gain or loss; and

                     (b)  circumstances arise that materially affect:

                              (i)  the amount or value; or

                             (ii)  the timing;

                            of *financial benefits that were taken into account in working out the amount of the gain or loss; and

                     (c)  the circumstances do not give rise to a re‑estimation under section 230‑200.

             (2)  You must re‑estimate the gain or loss as soon as reasonably practicable after you become aware of the circumstances referred to in paragraph (1)(b), if subsection (1) applies.

             (3)  Without limiting subsection (1), the following are circumstances of the kind referred to in paragraph (1)(b):

                     (a)  a material change in market conditions that are relevant to the amount or value of the *financial benefits to be received or provided under the *financial arrangement;

                     (b)  cash flows that were previously estimated becoming known and the difference between the cash flows that become known and the cash flows that were previously estimates is not insignificant;

                     (c)  a right to, or a part of a right to, a financial benefit under the arrangement is written off as a bad debt;

                     (d)  you have made a reassessment under section 230‑185 in relation to gains or losses under the arrangement and you have determined on the reassessment under that section that the accruals method should continue to apply to those gains or losses.

          (3A)  You also re‑estimate a gain or loss from a *financial arrangement under subsection (5) if:

                     (a)  the gain or loss is spread using the method referred to in paragraph 230‑135(2)(b) in accordance with section 230‑140 (effective interest method); and

                     (b)  you recalculate the effective interest rate in accordance with that method; and

                     (c)  the terms and conditions of the arrangement provide for reset dates to occur no more than 12 months apart; and

                     (d)  the maximum life of the arrangement (as determined under the terms and conditions of the arrangement) is more than 12 months.

          (3B)  You must re‑estimate the gain or loss at the relevant reset date if subsection (3A) applies.

             (4)  You do not re‑estimate the gain or loss from a *financial arrangement under subsection (5) merely because of a change in the credit rating, or the creditworthiness, of a party or parties to the arrangement.

Nature of re‑estimation

             (5)  Making a re‑estimation in relation to a gain or loss under this subsection involves:

                     (a)  a fresh determination of the amount of the gain or loss; and

                     (b)  a reapplication of the accruals method to the redetermined gain or loss to make a fresh allocation of the part of the redetermined gain or loss that has not already been allocated to intervals ending before the re‑estimation is made to intervals ending after the re‑estimation is made.

Basis for re‑estimation

             (6)  You may make the fresh allocation of the gain or loss under subsection (5) on these bases:

                     (a)  if you satisfy subsection (7) in relation to the *financial arrangement—by maintaining the rate of return being used and adjusting the amount to which you apply the rate of return to the present value of the estimated future cash flows discounted at the maintained rate of return;

                     (b)  in any case—by adjusting the rate of return and maintaining the amount to which the adjusted rate of return is to be applied.

The object to be achieved by both bases is to allow you to bring the remainder of the gain or loss based on the new estimates properly to account over the remainder of the period over which you spread the gain or loss.

Note:          The amount referred to in paragraph (b) is the amount to which the previous rate of return was being applied immediately before the re‑estimation.

             (7)  You satisfy this subsection in relation to a *financial arrangement if every re‑estimation you make under subsection (5) in relation to a gain or loss from the arrangement is made in accordance with:

                     (a)  financial reports of the kind referred to in paragraph 230‑395(2)(a) that are audited as referred to in paragraph 230‑395(2)(b) (regardless of whether Subdivision 230‑F (reliance on financial reports method) is to apply to a particular financial arrangement); and

                     (b)  *accounting standard AASB 139 (or another accounting standard prescribed by the regulations for the purposes of this paragraph).

230‑192  Re‑estimation—impairments and reversals

             (1)  This section applies if the re‑estimation mentioned in section 230‑190 arises because of:

                     (a)  an impairment (within the meaning of the *accounting principles) of:

                              (i)  the *financial arrangement; or

                             (ii)  a financial asset or financial liability that forms part of the arrangement; or

                     (b)  a reversal of an impairment loss (within the meaning of the accounting principles) that resulted from such an impairment.

             (2)  Despite paragraph 230‑190(6)(a), you must make the fresh allocation in accordance with paragraph 230‑190(6)(b).

Losses non‑deductible

             (3)  You cannot deduct a loss you make for an income year under section 230‑15, to the extent that the loss results from:

                     (a)  the impairment (including as affected by any later reversal of the impairment loss that resulted from the impairment); or

                     (b)  the operation of subsection (7).

             (4)  Disregard subsection (3) for the purposes of paragraph (c) of step 1 of the method statement in subsection 230‑445(1).

Reversals

             (5)  Subsections (7) and (8) apply to the part of the gain or loss that is to be reallocated in accordance with paragraph 230‑190(6)(b), if:

                     (a)  the fresh determination under paragraph 230‑190(5)(a) that arose because of the reversal resulted in that part being a gain; and

                     (b)  there are losses that:

                              (i)  resulted from the impairment; and

                             (ii)  you could have deducted apart from subsection 230‑172(2) or subsection (3) of this section.

             (6)  Paragraph (5)(b) does not apply to a loss to the extent that:

                     (a)  the loss reflects the amount of a loss you make under paragraph 230‑195(1)(b) or (c); and

                     (b)  the loss you make under paragraph 230‑195(1)(b) or (c) relates to you writing off, as a bad debt, a right to receive a *financial benefit (or a part of a financial benefit).

             (7)  Treat the fresh determination as having resulted in that part being a loss, if the total of the losses mentioned in paragraph (5)(b) of this section exceeds the amount of the gain mentioned in paragraph (5)(a). The amount of the loss is equal to the amount of the excess.

             (8)  Otherwise, reduce the amount of that gain by the total of those losses.

230‑195  Balancing adjustment if rate of return maintained on re‑estimation

             (1)  If you make a fresh allocation of the gain or loss on the basis referred to in paragraph 230‑190(6)(a), you must make the following balancing adjustment:

                     (a)  if you re‑estimate a gain and the amount to which you apply the rate of return increases—you make a gain from the *financial arrangement, for the income year in which you make the re‑estimation, equal to the amount of the increase;

                     (b)  if you re‑estimate a gain and the amount to which you apply the rate of return decreases—you make a loss from the arrangement, for the income year in which you make the re‑estimation, equal to the amount of the decrease;

                     (c)  if you re‑estimate a loss and the amount to which you apply the rate of return increases—you make a loss from the arrangement, for the income year in which you make the re‑estimation, equal to the amount of the increase;

                     (d)  if you re‑estimate a loss and the amount to which you apply the rate of return decreases—you make a gain from the arrangement, for the income year in which you make the re‑estimation, equal to the amount of the decrease.

             (2)  Subsection (3) applies if:

                     (a)  the re‑estimation is made wholly or partly on the basis that you have written off, as a bad debt, a right to receive a *financial benefit (or a part of a financial benefit); and

                     (b)  the right:

                              (i)  is not one in respect of money that you lent in the ordinary course of your *business of lending money; and

                             (ii)  is not one that you bought in the ordinary course of your business of lending money.

             (3)  The balancing adjustment to be made under paragraph (1)(b), to the extent that it relates to the writing off of the bad debt, must not exceed so much of the gain in relation to the *financial arrangement as:

                     (a)  has been assessed under this Division; and

                     (b)  is reasonably attributable to the *financial benefit (or the part of the financial benefit).

             (4)  Subsection (5) applies if:

                     (a)  the re‑estimation is made wholly or partly on the basis that you have written off, as a bad debt, a right to receive a *financial benefit; and

                     (b)  the right is one that you bought in the ordinary course of your *business of lending money.

             (5)  The balancing adjustment to be made under paragraph (1)(b), to the extent that it relates to the writing off of the bad debt, must not exceed the value of the *financial benefit you provided to acquire the right to the financial benefit (or the part of the financial benefit).

             (6)  For the purposes of this Act, a deduction for the balancing adjustment referred to in subsection (3) is to be treated as a deduction of a bad debt.

Note:          Various provisions in this Act and the Income Tax Assessment Act 1936 restrict the availability of deductions for bad debts and make provision in relation to the recoupment of amounts in relation to bad debts that have been written off. These provisions are set out in subsection 25‑35(5).

230‑200  Re‑estimation if balancing adjustment on partial disposal

Re‑estimation if balancing adjustment on partial disposal

             (1)  You also re‑estimate a gain or loss from a *financial arrangement under subsection (2) if:

                     (a)  the accruals method applies to the gain or loss; and

                     (b)  a balancing adjustment is made in relation to the arrangement under Subdivision 230‑G because you transfer to another entity:

                              (i)  a proportionate share of all of your rights and/or obligations under the arrangement; or

                             (ii)  a right or obligation that you have under the arrangement to a specifically identified *financial benefit; or

                            (iii)  a proportionate share of a right or obligation that you have under the arrangement to a specifically identified financial benefit.

You must re‑estimate the gain or loss as soon as reasonably practicable after the transfer occurs.

Nature of re‑estimation

             (2)  Making a re‑estimation in relation to a gain or loss under this subsection involves:

                     (a)  a fresh determination of the amount of the gain or loss disregarding:

                              (i)  *financial benefits; and

                             (ii)  amounts of the gain or loss that have already been allocated to intervals ending before the re‑estimation is made;

                            to the extent to which they are reasonably attributable to the proportionate share, or the right or obligation, referred to in paragraph (1)(b); and

                     (b)  a reapplication of the accruals method to the redetermined gain or loss to make a fresh allocation of the part of that gain or loss that has not already been allocated to intervals ending before the re‑estimation is made to intervals ending after the re‑estimation is made.

Basis for re‑estimation

             (3)  You make the fresh allocation of the gain or loss under subsection (2) by maintaining the rate of return being used and adjusting the amount to which you apply the rate of return to the present value of the estimated future cash flows discounted at the maintained rate of return. The object to be achieved by the fresh allocation is to allow you to bring the redetermined gain or loss properly to account over the remainder of the period over which you spread the gain or loss.

Subdivision 230‑CFair value method

Table of sections

230‑205    Objects of this Subdivision

230‑210    Fair value election

230‑215    Fair value election where differing income and accounting years

230‑220    Financial arrangements to which fair value election applies

230‑225    Financial arrangements to which election does not apply

230‑230    Applying fair value method to gains and losses

230‑235    Splitting financial arrangements into 2 financial arrangements

230‑240    When election ceases to apply

230‑245    Balancing adjustment if election ceases to apply

230‑205  Objects of this Subdivision

                   The objects of this Subdivision are:

                     (a)  to allow you to align the tax treatment of gains and losses from *financial arrangements with the accounting treatment that applies where assets and liabilities are classified or designated as at fair value through profit or loss; and

                     (b)  to facilitate efficient price‑making; and

                     (c)  to achieve the above objects without allowing you to obtain an inappropriate tax benefit.

230‑210  Fair value election

Election

             (1)  You may make a fair value election under this section if you are eligible under subsection (2) to make the election for the income year in which you make the election.

Eligibility to make fair value election for an income year

             (2)  You are eligible to make a fair value election for an income year if:

                     (a)  you prepare a financial report for that income year in accordance with:

                              (i)  the *accounting principles; or

                             (ii)  if the accounting principles do not apply to the preparation of the financial report—comparable standards for accounting made under a *foreign law that apply to the preparation of the financial report under a foreign law; and

                     (b)  the financial report is audited in accordance with:

                              (i)  the *auditing principles; or

                             (ii)  if the auditing principles do not apply to the auditing of the financial report—comparable standards for auditing made under a foreign law.

Note:          Section 230‑500 allows regulations to be made specifying particular foreign accounting and auditing standards as ones that are to be treated as comparable with Australian accounting and auditing principles for the purposes of this Division.

Election irrevocable

             (3)  A *fair value election is irrevocable.

Note:          The election may cease to have effect, or cease to apply to a particular financial arrangement, under section 230‑240.

230‑215  Fair value election where differing income and accounting years

             (1)  This section applies if:

                     (a)  you prepare a financial report for a year (the first year); and

                     (b)  you prepare a financial report for the subsequent year (the second year); and

                     (c)  your income year starts in the first year and ends in the second year; and

                     (d)  both the financial report for the first year and the financial report for the second year are:

                              (i)  prepared in accordance with paragraph 230‑210(2)(a); and

                             (ii)  audited in accordance with paragraph 230‑210(2)(b); and

                     (e)  the auditor’s reports are unqualified for both the financial report for the first year and the financial report for the second year.

             (2)  Treat yourself as eligible to make an election for the income year under subsection 230‑210(2).

             (3)  Work out the gain or loss you make from the *financial arrangement for the income year as follows:

                     (a)  firstly, work out the gain or loss you make from the arrangement for the first year in accordance with section 230‑230 (treating the first year as an income year);

                     (b)  next, work out how much of the gain or loss mentioned in paragraph (a) is attributable to the income year in accordance with subsection (4);

                     (c)  next, work out the gain or loss you make from the arrangement for the second year in accordance with section 230‑230 (treating the second year as an income year);

                     (d)  next, work out how much of the gain or loss mentioned in paragraph (c) is attributable to the income year in accordance with subsection (4);

                     (e)  next:

                              (i)  if the amounts worked out under paragraphs (b) and (d) are both gains—add them together to work out the gain from the arrangement for the income year; or

                             (ii)  if the amounts worked out under paragraphs (b) and (d) are both losses—add them together to work out the loss from the arrangement for the income year; or

                            (iii)  if one of the amounts worked out under paragraphs (b) and (d) is a loss and the other is a gain—subtract the loss from the gain. If the result is positive, this is the gain from the arrangement for the income year. If the result is negative, this is the loss from the arrangement for the income year.

             (4)  For the purposes of paragraphs (3)(b) and (d), work out how much of the gain or loss is attributable to the income year by:

                     (a)  using a methodology that is reasonable; and

                     (b)  using the same methodology for the first and second years.

             (5)  For the purposes of paragraph (4)(a), treat a methodology that attributes the gain or loss on a pro‑rata basis as not being reasonable.

230‑220  Financial arrangements to which fair value election applies

             (1)  A *fair value election applies in relation to *financial arrangements that:

                     (a)  are *Division 230 financial arrangements; and

                     (b)  are recognised in financial reports of the kind referred to in paragraph 230‑210(2)(a) that are audited, or required to be audited, as referred to in paragraph 230‑210(2)(b); and

                     (c)  are assets or liabilities that you are required (whether or not as a result of a choice you make) by:

                              (i)  the *accounting principles; or

                             (ii)  if the accounting principles do not apply to the preparation of the financial report—comparable standards for accounting that apply to the preparation of the financial report under a *foreign law;

                            to classify, designate or (in whole or in part) otherwise treat, in the financial reports, as at fair value through profit or loss; and

                     (d)  you start to have in the income year in which you make the election or in a later income year.

This subsection has effect subject to section 230‑225.

             (2)  If, but for this subsection, paragraphs (1)(b) and (c) would not be satisfied in relation to a *financial arrangement because the arrangement is an intra‑group transaction for the purposes of:

                     (a)  *accounting standard AASB 127 (or another accounting standard prescribed by the regulations for the purposes of this paragraph); or

                     (b)  if that standard does not apply to the preparation of the financial report—a comparable accounting standard that applies to the preparation of the financial report under a *foreign law;

paragraphs (1)(b) and (c) are taken to be satisfied in relation to the arrangement.

Note:          Financial arrangements between members of a consolidated group or MEC group are not covered by this subsection because the single entity rule in subsection 701‑1(1) operates to treat them as not being financial arrangements for the purposes of this Division.

             (3)  If:

                     (a)  the *financial arrangement would not be a financial arrangement if the following provisions were disregarded:

                              (i)  Division 9A of Part III of the Income Tax Assessment Act 1936 (which deals with offshore banking units);

                             (ii)  Part IIIB of that Act (which deals with Australian branches of foreign banks etc.); and

                     (b)  paragraphs (1)(b) and (c) would be satisfied in relation to the financial arrangement if the arrangement had been between 2 separate entities; and

                     (c)  the *fair value election is made by:

                              (i)  if section 121EB of the Income Tax Assessment Act 1936 applies—the OBU mentioned in that section (disregarding the operation of that section); or

                             (ii)  if section 160ZZW of that Act applies—the bank mentioned in that section (disregarding the operation of that section);

paragraphs (1)(b) and (c) are taken to be satisfied in relation to the arrangement.

230‑225  Financial arrangements to which election does not apply

             (1)  A *fair value election does not apply to a *financial arrangement if:

                     (a)  the arrangement is an *equity interest; and

                     (b)  you are the issuer of the equity interest.

             (2)  A *fair value election does not apply to a *financial arrangement if:

                     (a)  you are:

                              (i)  an individual; or

                             (ii)  an entity (other than an individual) that satisfies subsection 230‑455(2), (3) or (4) for the income year in which you start to have the arrangement; and

                     (b)  the arrangement is a *qualifying security; and

                     (c)  you have not made an election under subsection 230‑455(7).

             (3)  A *fair value election does not apply to a *financial arrangement if:

                     (a)  the election is made by the *head company of a *consolidated group or *MEC group; and

                     (b)  the election specifies that the election is not to apply to financial arrangements in relation to *life insurance business carried on by a member of the consolidated group or MEC group; and

                     (c)  the arrangement is one that relates to the life insurance business carried on by a member of the consolidated group or MEC group.

             (4)  A *fair value election does not apply to a *financial arrangement if the arrangement is associated with a business of a kind specified in regulations made for the purposes of this subsection.

230‑230  Applying fair value method to gains and losses

             (1)  You make a gain or loss for an income year from a *financial arrangement to which a *fair value election applies if:

                     (a)  the principles or standards mentioned in paragraph 230‑210(2)(a) require you to recognise a gain or loss in profit or loss for the income year from the asset or liability mentioned in paragraph 230‑220(1)(c); or

                     (b)  in the case of an arrangement to which subsection 230‑220(2) applies—the principles or standards referred to in paragraph 230‑220(1)(c) would have required you to recognise a gain or loss in profit or loss for the year from the asset or liability mentioned in paragraph 230‑220(1)(c) if the arrangement had not been an intra‑group transaction for the purposes of the standard referred to in paragraph 230‑220(2)(b); or

                     (c)  in the case of an arrangement to which subsection 230‑220(3) applies—the principles or standards referred to in paragraph 230‑220(1)(c) would have required you to recognise a gain or loss in profit or loss for the year from the asset or liability mentioned in paragraph 230‑220(1)(c) if the arrangement had been between 2 separate entities.

Note:          Subsection 230‑40(7) provides that an election under Subdivision 230‑E (hedging financial arrangements method) or Subdivision 230‑F (method of relying on financial reports) may override a fair value election.

          (1A)  The gain or loss you make is the gain or loss the principles or standards require, or would have required, you to recognise in profit or loss as mentioned in subsection (1).

             (2)  Subsection (3) applies if:

                     (a)  a *head company of a *consolidated group or *MEC group has a *financial arrangement; and

                     (b)  a *fair value election applies to the arrangement; and

                     (c)  a subsidiary member of the group ceases to be a member of the group at a particular time (the leaving time); and

                     (d)  immediately after the leaving time, the head company no longer has the arrangement because the subsidiary member ceased to be a member of the group.

             (3)  The gain or loss the group makes from the arrangement for the income year in which the leaving time occurs is taken to be the gain or loss that the principles or standards referred to in paragraph 230‑210(2)(a) would require the group to recognise as at fair value through profit or loss for the income year from the asset or liability mentioned in paragraph 230‑220(1)(c) if:

                     (a)  the circumstances that existed in relation to the arrangement (including its value) immediately before the leaving time had continued to exist until the end of the income year; and

                     (b)  any circumstances that arise in relation to the financial arrangement after the leaving time were disregarded.

Subdivision does not apply to extent gains or losses not recognised as at fair value

             (4)  This Subdivision does not apply to a gain or loss you make from the *financial arrangement, to the extent:

                     (a)  you are required, as mentioned in paragraph 230‑220(1)(c), to otherwise treat as at fair value through profit and loss the assets or liabilities that the financial arrangement is; and

                     (b)  the principles or standards referred to in paragraph 230‑210(2)(a) do not require you to recognise the gain or loss as at fair value through profit or loss.

Note:          See also subsection 230‑40(5).

230‑235  Splitting financial arrangements into 2 financial arrangements

             (1)  If:

                     (a)  a *financial arrangement is constituted only in part by an asset or liability mentioned in paragraph 230‑220(1)(c); and

                     (b)  a *fair value election would apply to the arrangement if it were constituted solely by that asset or liability;

the provisions of this Division (other than this section) apply to the arrangement as if it were instead 2 separate financial arrangements.

             (2)  The 2 separate *financial arrangements are:

                     (a)  one consisting of the part referred to in paragraph (1)(a); and

                     (b)  one consisting of the remaining part.

230‑240  When election ceases to apply

             (1)  A *fair value election ceases to have effect from the start of an income year if you cease to be eligible under subsection 230‑210(2) to make the fair value election for that income year.

             (2)  Subsection (1) does not prevent you from making a new *fair value election at a later time if you become, at that later time, eligible under subsection 230‑210(2) to make a fair value election for an income year.

Note:          The new election will only apply to financial arrangements you start to have after the start of the income year in which the new election is made.

             (3)  A *fair value election ceases to apply to a particular *financial arrangement from the start of an income year if the arrangement ceases to satisfy a requirement of paragraph 230‑220(1)(b) or (c) during that income year.

             (4)  If the election ceases to apply to a particular *financial arrangement under subsection (3), the election cannot subsequently reapply to that arrangement (even if the requirements of paragraphs 230‑220(1)(b) and (c) are satisfied once more in relation to the arrangement).

230‑245  Balancing adjustment if election ceases to apply

             (1)  You must make balancing adjustments under subsection (2) if a *fair value election ceases to have effect under subsection 230‑240(1).

             (2)  The balancing adjustments under this subsection are the balancing adjustments you would make under Subdivision 230‑G for each of the *financial arrangements to which the election applied if you disposed of the arrangement for its fair value when the election ceases to have effect.

             (3)  You must make a balancing adjustment under subsection (4) if a *fair value election ceases to apply to a particular *financial arrangement under subsection 230‑240(3).

             (4)  The balancing adjustment under this subsection is the balancing adjustment you would make under Subdivision 230‑G if you disposed of the *financial arrangement for its fair value when the election ceases to apply to the arrangement.

             (5)  If a balancing adjustment is made under subsection (2) or (4) in relation to a *financial arrangement, you are taken, for the purposes of this Division, to have reacquired the arrangement at its fair value immediately after the election ceased to have effect or ceased to apply to the arrangement.

             (6)  In determining, for the purposes of the balancing adjustment under subsection (2) or (4) or for the purposes of subsection (5), the fair value of the *financial arrangement at a time, disregard any changes in the fair value to the extent that:

                     (a)  you are required, as mentioned in paragraph 230‑220(1)(c), to otherwise treat the financial arrangement as at fair value through profit and loss; and

                     (b)  the principles or standards referred to in paragraph 230‑210(2)(a) do not require you to recognise the changes as at fair value through profit or loss.

Subdivision 230‑DForeign exchange retranslation method

Table of sections

230‑250    Objects of this Subdivision

230‑255    Foreign exchange retranslation election

230‑260    Foreign exchange retranslation election where differing income and accounting years

230‑265    Financial arrangements to which general election applies

230‑270    Financial arrangements to which general election does not apply

230‑275    Balancing adjustment for election in relation to qualifying forex accounts

230‑280    Applying foreign exchange retranslation method to gains and losses

230‑285    When election ceases to apply

230‑290    Balancing adjustment if election ceases to apply

230‑250  Objects of this Subdivision

                   The objects of this Subdivision are:

                     (a)  to allow you to align the tax treatment of gains and losses from foreign exchange rate changes with the accounting treatment of profits and losses from such changes; and

                     (b)  to achieve this without allowing you to obtain an inappropriate tax benefit.

230‑255  Foreign exchange retranslation election

General election

             (1)  You may make a foreign exchange retranslation election under this subsection if you are eligible under subsection (2) to make the election for the income year in which you make the election.