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Income Tax Assessment Act 1936

Authoritative Version
  • - C2017C00242
  • In force - Superseded Version
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Act No. 27 of 1936 as amended, taking into account amendments up to Veterans' Affairs Legislation Amendment (Budget Measures) Act 2017
An Act to consolidate and amend the law relating to the imposition assessment and collection of a tax upon incomes
Administered by: Treasury
Registered 19 Jul 2017
Start Date 01 Jul 2017
End Date 20 Feb 2018
Table of contents.

Income Tax Assessment Act 1936

No. 27, 1936

Compilation No. 150

Compilation date:                              1 July 2017

Includes amendments up to:            Act No. 59, 2017

Registered:                                         19 July 2017

This compilation is in 7 volumes

Volume 1:       sections 1–78A

Volume 2:       sections 79A–121L

Volume 3:       sections 124ZM–202G

Volume 4:       sections 251R–468

Volume 5:       Schedules

Volume 6:       Endnotes 1–4

Volume 7:       Endnote 5

Each volume has its own contents

 

This compilation includes commenced amendments made by Act No. 143, 2015 and Act No. 27, 2017

 

About this compilation

This compilation

This is a compilation of the Income Tax Assessment Act 1936 that shows the text of the law as amended and in force on 1 July 2017 (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

Part III—Liability to taxation                                                                                         1

Division 10E—PDFs (pooled development funds)                                         1

Subdivision A—Shares in PDFs                                                                              1

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

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

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

124ZQ................... Effect of company becoming a PDF................................... 5

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

Subdivision B—The taxable income of PDFs                                                     6

124ZS.................... Definitions.......................................................................... 6

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

124ZT.................... SME assessable income...................................................... 7

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

124ZV................... Unregulated investment component.................................... 8

Subdivision C—Adjustments of the tax treatment of capital gains and capital losses of PDFs  9

124ZW.................. Definitions.......................................................................... 9

124ZX................... Companies to which this Subdivision applies................... 10

124ZY................... Classes of assessable income............................................ 11

124ZZ.................... Treatment of capital gains................................................. 11

124ZZA................. Allocation of gain amounts and loss amounts to classes of assessable income        11

124ZZB................. Assessable income etc. in relation to capital gains............ 12

124ZZD................. No net capital loss............................................................. 13

Division 11—Interest paid by companies on bearer debentures         14

126........................ Interest paid by a company on bearer debentures.............. 14

127........................ Credit for tax paid by company......................................... 15

128........................ Assessments of tax........................................................... 15

Division 11A—Dividends, interest and royalties paid to non‑residents and to certain other persons  16

Subdivision A—General                                                                                         16

128AAA............... Application of Division to non‑share dividends............... 16

128A..................... Interpretation..................................................................... 16

128AA.................. Deemed interest in respect of transfers of certain securities 21

128AB................... Certificates relating to issue price of certain securities...... 22

128AC................... Deemed interest in respect of hire‑purchase and certain other agreements               23

128AD.................. Indemnification etc. agreements in relation to bills of exchange and promissory notes            27

128AE................... Interpretation provisions relating to offshore banking units 28

128AF................... Payments through interposed entities................................ 34

128B...................... Liability to withholding tax............................................... 35

128C...................... Payment of withholding tax.............................................. 46

128D..................... Certain income not assessable........................................... 48

128F...................... Division does not apply to interest on certain publicly offered company debentures or debt interests     48

128FA................... Division does not apply to interest on certain publicly offered unit trust debentures or debt interests      58

128GB................... Division not to apply to interest payments on offshore borrowings by offshore banking units               63

128NA.................. Special tax payable in respect of certain securities and agreements          64

128NB................... Special tax payable in respect of certain dealings by current and former offshore banking units             65

128NBA................ Credits in respect of amounts assessed in relation to certain financial arrangements                67

128P...................... Objections......................................................................... 69

128R...................... Informal arrangements...................................................... 70

Division 11B—Equity investments in small‑medium enterprises         71

128TG................... Summary of this Division................................................. 71

128TH................... When Division applies...................................................... 71

128TI..................... Consequences of Division applying................................. 72

128TJ.................... Acquiring a threshold interest in an SME......................... 73

128TK................... SME or small‑medium enterprise..................................... 73

128TL.................... Subsidiary and direct ownership group............................ 74

Division 11C—Payments in respect of mining operations on Indigenous land  76

128U..................... Interpretation..................................................................... 76

128V..................... Liability to mining withholding tax................................... 79

128W..................... Payment of mining withholding tax.................................. 79

Division 12—Oversea ships                                                                                     81

129........................ Taxable income of ship‑owner or charterer....................... 81

130........................ Master or agent to make return......................................... 81

131........................ Determination by Commissioner...................................... 81

132........................ Assessment of tax............................................................. 81

133........................ Master liable to pay........................................................... 81

134........................ Notice of assessment........................................................ 82

135........................ Clearance of ship.............................................................. 82

135A..................... Freights payable under certain agreements........................ 82

Division 15—Insurance with non‑residents                                                    83

141........................ Interpretation..................................................................... 83

142........................ Income derived by non‑resident insurer............................ 83

143........................ Taxable income of non‑resident insurer............................ 84

144........................ Liability of agents of insurer............................................. 84

145........................ Deduction of premiums.................................................... 84

146........................ Exporter to furnish information........................................ 85

147........................ Rate of tax in special circumstances.................................. 85

148........................ Reinsurance with non‑residents........................................ 85

Division 16—Averaging of incomes                                                                    89

149........................ Average income................................................................ 89

149A..................... Capital gains, abnormal income and certain death benefits to be disregarded           89

150........................ First average year.............................................................. 90

151........................ First application of Division in relation to a taxpayer........ 90

152........................ Taxpayer not in receipt of assessable income.................... 90

153........................ Taxpayer with no taxable income...................................... 91

154........................ Excess of allowable deductions........................................ 91

155........................ Permanent reduction of income......................................... 91

156........................ Rebate of tax for, or complementary tax payable by, certain primary producers      92

157........................ Application of Division to primary producers.................. 99

158........................ Application of Division.................................................. 100

158A..................... Election that Division not apply...................................... 100

Division 16D—Certain arrangements relating to the use of property   101

159GE................... Interpretation................................................................... 101

159GEA................ Division applies to certain State/Territory bodies............ 108

159GF................... Residual amounts............................................................ 109

159GG.................. Qualifying arrangements................................................. 113

159GH.................. Application of Division in relation to property............... 117

159GJ.................... Effect of application of Division on certain deductions etc. 118

159GK................... Effect of application of Division on assessability of arrangement payments            127

159GL................... Special provision relating to Division 10C or 10D property 131

159GM.................. Special provision where cost of plant etc. is also eligible capital expenditure           132

159GN.................. Effect of use of property under qualifying arrangement for producing assessable income       132

159GO.................. Special provisions relating to partnerships...................... 136

Division 16E—Accruals assessability etc. in respect of certain security payments        140

159GP................... Interpretation................................................................... 140

159GQ.................. Tax treatment of holder of qualifying security................ 145

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

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

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

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

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

159GS................... Balancing adjustments on transfer of qualifying security 153

159GT................... Tax treatment of issuer of a qualifying security.............. 155

159GU.................. Effect of Division on certain transfer profits and losses. 156

159GV.................. Consequence of variation of terms of security................ 157

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

159GX.................. Effect of Division where certain payments not assessable 160

159GY.................. Effect of Division where qualifying security is trading stock.. 160

159GZ................... Stripped securities........................................................... 160

Division 16J—Effect of cancellation of subsidiary’s shares in holding company             163

159GZZZC............ Interpretation—general................................................... 163

159GZZZD........... Meaning of eligible entity, eligible interest and eligible proportion          164

159GZZZE............ Share cancellations to which this Division applies.......... 164

159GZZZF............ Effect on subsidiary of share cancellations to which this Division applies               164

159GZZZG........... Pre‑cancellation disposals of eligible interests................ 165

159GZZZH........... Post‑cancellation disposals of eligible interests etc......... 166

159GZZZI............. Additional application of sections 159GZZZG and 159GZZZH to associates         167

Division 16K—Effect of buy‑backs of shares                                              169

Subdivision AA—Application of Division to non‑share equity interests  169

159GZZZIA.......... Application of Division to non‑share dividends............. 169

Subdivision A—Interpretation                                                                            169

159GZZZJ............. Interpretation................................................................... 169

159GZZZK............ Explanation of terms....................................................... 170

159GZZZL............ Special buy‑backs not made in ordinary course of trading on a stock exchange      170

159GZZZM........... Purchase price in respect of buy‑back............................. 170

Subdivision B—Company buying‑back shares                                               171

159GZZZN........... Buy‑back and cancellation disregarded for certain purposes 171

Subdivision C—Off‑market purchases                                                             171

159GZZZP............ Part of off‑market purchase price is a dividend............... 171

159GZZZQ........... Consideration in respect of off‑market purchase............. 172

Subdivision D—On‑market purchases                                                              175

159GZZZR............ No part of on‑market purchase price is a dividend.......... 175

159GZZZS............ Consideration in respect of on‑market purchase............. 176

Division 16L—Tax‑exempt infrastructure borrowings                         177

159GZZZZD......... Interpretation................................................................... 177

159GZZZZE.......... Infrastructure borrowings to be non‑assessable and non‑deductible        178

159GZZZZF.......... Tax exemption to be disregarded for certain purposes.... 180

159GZZZZG......... Rebate election................................................................ 180

159GZZZZH......... Tax payable where infrastructure borrowing certificate cancelled            184

Division 17—Rebates                                                                                                186

Subdivision A—Concessional rebates                                                               186

159H..................... Application..................................................................... 186

159HA.................. Indexation for the purposes of this Subdivision............. 186

159N..................... Rebate for certain low‑income taxpayers........................ 188

159P...................... Rebate for medical expenses........................................... 189

159Q..................... Rebate for medical expenses—phase‑in limits................ 194

Subdivision AB—Lump sum payments in arrears                                        197

159ZR................... Interpretation................................................................... 197

159ZRA................ Eligibility for rebate........................................................ 199

159ZRB................. Calculation of rebate....................................................... 200

159ZRC................. Notional tax amount for recent accrual years.................. 200

159ZRD................ Notional tax amount for distant accrual years................. 201

Subdivision B—Miscellaneous                                                                            202

160AAAA............ Tax rebate for low income aged persons and pensioners 202

160AAAB............. Tax rebate for low income aged persons and pensioners—trustees assessed under section 98                204

160AAA............... Rebate in respect of certain benefits etc........................... 206

160AAB................ Rebate in respect of amounts assessable under section 26AH 208

160AD.................. Maximum amount of rebates.......................................... 210

160ADA............... Most tax offsets under the 1997 Assessment Act are treated as rebates   211

Part IIIB—Australian branches of foreign banks                                         212

Division 1—Preliminary                                                                                          212

160ZZVA.............. Object............................................................................. 212

160ZZVB.............. Application..................................................................... 212

160ZZV................. Definitions...................................................................... 213

160ZZW................ Certain provisions to apply as if Australian branch of foreign bank were a separate legal entity             214

Division 2—Provisions relating to income tax                                            216

160ZZX................. Income of branch to have Australian source................... 216

160ZZZ................. Notional borrowing by branch from bank...................... 216

160ZZZA.............. Notional payment of interest by branch to bank.............. 216

160ZZZC............... Offshore banking units................................................... 218

160ZZZE............... Notional derivative transactions between branch and bank 218

160ZZZF............... Notional foreign exchange transactions between branch and bank           219

160ZZZG.............. Losses............................................................................. 219

160ZZZH.............. Net capital losses............................................................ 219

160ZZZI................ Certain transactions to be disregarded............................. 220

Division 3—Provisions relating to withholding tax                                  221

160ZZZJ................ Withholding tax on interest paid by branch to bank........ 221

Division 4—Extension of Part to Australian branches of foreign financial entities        222

160ZZZK............... Treatment like Australian branches of foreign banks...... 222

Part IV—Returns and assessments                                                                         223

161........................ Annual returns................................................................ 223

161A..................... Form and content of returns............................................ 223

161AA.................. Contents of returns of full self‑assessment taxpayers..... 224

161G..................... Tax agent to give taxpayer copy of notice of assessment 224

162........................ Further returns and information...................................... 225

163........................ Special returns................................................................ 225

163A..................... Late lodgement penalty—relevant entities, instalment taxpayers and full self‑assessment taxpayers        225

163AA.................. General interest charge on unpaid penalty....................... 227

163B...................... Late lodgment of returns by persons other than relevant entities, instalment taxpayers and full self‑assessment taxpayers......................................................................... 228

166........................ Assessment..................................................................... 231

166A..................... Deemed assessment........................................................ 231

167........................ Default assessment......................................................... 233

168........................ Special assessment.......................................................... 233

169........................ Assessments on all persons liable to tax......................... 234

169AA.................. Consolidated assessments............................................... 234

169A..................... Reliance by Commissioner on returns and statements.... 234

170........................ Amendment of assessments............................................ 235

170A..................... Amendment of assessments—interaction with other Acts 247

170B...................... Protection for anticipation of certain discontinued announcements          249

170C...................... Power of Commissioner to reduce amount of tax payable in certain cases               255

171........................ Where no notice of assessment served............................ 255

171A..................... Limited period to make assessments for nil liability returns for the 2003‑04 year of income or earlier    256

172........................ Refunds of amounts overpaid......................................... 259

172A..................... Consequences of amendment of assessments of tax offset refunds         259

173........................ Amended assessment to be an assessment...................... 260

174........................ Notice of assessment...................................................... 261

175........................ Validity of assessment.................................................... 261

175A..................... Objections against assessments...................................... 261

Part IVA—Schemes to reduce income tax                                                          262

177A..................... Interpretation................................................................... 262

177B...................... Operation of Part............................................................ 264

177C...................... Tax benefits.................................................................... 265

177CB................... The bases for identifying tax benefits............................. 272

177D..................... Schemes to which this Part applies................................. 273

177DA.................. Schemes that limit a taxable presence in Australia.......... 275

177E...................... Stripping of company profits.......................................... 277

177EA................... Creation of franking debit or cancellation of franking credits.. 279

177EB................... Cancellation of franking credits—consolidated groups... 287

177F...................... Cancellation of tax benefits etc........................................ 289

177G..................... Amendment of assessments............................................ 296

177H..................... Diverted profits tax—objects.......................................... 296

177J....................... Diverted profits tax—application.................................... 296

177K...................... Diverted profits tax—$25 million income test................ 300

177L...................... Diverted profits tax—sufficient foreign tax test.............. 300

177M..................... Diverted profits tax—sufficient economic substance test 302

177N..................... Diverted profits tax—consequences............................... 302

177P...................... Diverted profits tax—liability......................................... 303

177Q..................... Diverted profits tax—general interest charge on unpaid diverted profits tax or shortfall interest charge  304

177R...................... Diverted profits tax—when shortfall interest charge is payable               304

Part VA—Tax file numbers                                                                                        305

Division 1—Preliminary                                                                                          305

202........................ Objects of this Part......................................................... 305

202A..................... Interpretation................................................................... 308

202AA.................. Definition of eligible PAYG payment.............................. 311

Division 2—Issuing of tax file numbers                                                          313

202B...................... Application for tax file number....................................... 313

202BA................... Issuing of tax file numbers............................................. 313

202BB................... Current tax file number................................................... 314

202BC................... Deemed refusal by Commissioner.................................. 314

202BD................... Interim notices................................................................ 314

202BE................... Cancellation of tax file numbers...................................... 315

202BF................... Alteration of tax file numbers......................................... 315

Division 3—Quotation of tax file numbers by recipients of eligible PAYG payments   316

202C...................... TFN declarations by recipients of eligible PAYG payments 316

202CA................... Operation of TFN declaration......................................... 316

202CB................... Quotation of tax file number in TFN declaration............ 317

202CC................... Making a replacement TFN declaration in place of an ineffective declaration          319

202CD................... Sending of TFN declaration to Commissioner................ 319

202CE................... Effect of incorrect quotation of tax file number............... 320

202CEA................ Validation notices........................................................... 322

202CF................... Payer must notify Commissioner if no TFN declaration by recipient       323

202CG................... Disclosing recipients’ tax file numbers to payers............ 324

Division 4—Quotation of tax file numbers in connection with certain investments        325

202D..................... Explanation of terms: investment, investor, investment body.. 325

202DB................... Quotation of tax file numbers in connection with investments 328

202DC................... Method of quoting tax file number................................. 329

202DD.................. Investor excused from quoting tax file number in certain circumstances  329

202DDB................ Quotation of tax file number in connection with indirectly held investment             330

202DE................... Securities dealer to inform the investment body of tax file number          332

202DF................... Effect of incorrect quotation of tax file number............... 332

202DG.................. Investments held jointly.................................................. 333

202DH.................. Tax file number quoted for superannuation or surcharge purposes taken to be quoted for purposes of the taxation of eligible termination payments........................ 335

202DHA............... Tax file number quoted for Division 3 purposes taken to have been quoted for superannuation purposes........................................................................................ 335

202DI.................... Tax file number quoted for RSA purposes taken to be quoted for purposes of the taxation of superannuation benefits........................................................................... 336

202DJ.................... Tax file number quoted for purposes of taxation of superannuation benefits taken to be quoted for surcharge purposes......................................................................... 336

Division 4A—Quotation of tax file numbers in connection with farm management deposits    338

202DL................... Quotation of tax file number........................................... 338

202DM.................. Effect of incorrect quotation of tax file number............... 338

Division 4B—Quotation of tax file numbers in connection with certain closely held trusts       340

202DN.................. Application of Division.................................................. 340

202DO.................. Quotation of tax file numbers......................................... 340

202DP................... Trustee must report quoted tax file numbers................... 340

202DR................... Effect of incorrect quotation of tax file number............... 341

Division 5—Exemptions                                                                                          343

202EA................... Persons receiving certain pensions etc.—employment.... 343

202EB................... Persons receiving certain pensions etc.—investments.... 344

202EC................... Entities not required to lodge income tax returns............ 345

202EE.................... Non‑residents................................................................. 347

202EG................... Manner of completing declarations................................. 348

202EH................... Declarations under this Division to be retained in certain circumstances  348

Division 6—Review of decisions                                                                         350

202F...................... Review of decisions........................................................ 350

202FA................... Statements to accompany notification of decisions......... 351

Division 7—Manner of providing information                                           352

202G..................... Transmission of information in accordance with specifications               352


Part IIILiability to taxation

Division 10EPDFs (pooled development funds)

Subdivision AShares in PDFs

124ZM  Treatment distributions to shareholders in PDF

Unfranked part of distribution exempt from income tax

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

Rest of section deals with franked part

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

Usual case

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

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

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

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

would (apart from subsection (4)) include:

                     (e)  the franked part of the distribution; or

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

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

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

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

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

Taxpayers who qualify for venture capital franking tax offset

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

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

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

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

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

                           

                            where:

                            complying superannuation class of taxable income is the life assurance company’s complying superannuation class of taxable income, within the meaning of the Income Tax Assessment Act 1997, for the year of income in which the distribution is made.

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

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

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

No exemption if return prepared on basis that amount assessable

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

Where partner entitled to deduction for amount flowing indirectly

             (8)  If:

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

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

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

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

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

Where trustee assessed on amount flowing indirectly

           (10)  If:

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

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

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

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

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

Interpretation

           (13)  In this section:

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

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

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

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

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

124ZO  Shares in a PDF are not trading stock

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

124ZQ  Effect of company becoming a PDF

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

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

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

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

124ZR  Effect of company ceasing to be a PDF

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

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

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

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

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

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

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

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

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

Subdivision BThe taxable income of PDFs

124ZS  Definitions

                   In this Subdivision:

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

SME investment means an investment other than an unregulated investment.

Note:          SME stands for small and medium enterprises.

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

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

             (1)  This section applies if:

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

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

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

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

124ZT  SME assessable income

SME assessable income

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

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

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

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

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

Note:          Section 124ZZB deals with capital gains etc.

When assessable income derived

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

124ZU  SME income component

Full‑year PDFs

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

Part‑year PDFs

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

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

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

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

124ZV  Unregulated investment component

Full‑year PDFs

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

Part‑year PDFs

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

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

124ZW  Definitions

                   In this Subdivision:

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

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

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

exceeds:

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

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

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

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

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

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

overall capital gain for a class of assessable income means:

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

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

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

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

SME assessable income has the meaning given by Subdivision B.

SME investment means an investment other than an unregulated investment.

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

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

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

124ZX  Companies to which this Subdivision applies

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

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

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

124ZY  Classes of assessable income

Classes

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

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

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

Other assessable income

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

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

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

124ZZ  Treatment of capital gains

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

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

Disposals of SME investments

             (1)  If:

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

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

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

Disposals of assets other than SME investments

             (2)  If:

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

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

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

124ZZB  Assessable income etc. in relation to capital gains

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

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

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

                     (a)  SME assessable income;

                     (b)  other assessable income.

124ZZD  No net capital loss

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

Division 11Interest paid by companies on bearer debentures

126  Interest paid by a company on bearer debentures

             (1)  If:

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

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

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

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

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

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

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

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

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

127  Credit for tax paid by company

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

128  Assessments of tax

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

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

Subdivision AGeneral

128AAA  Application of Division to non‑share dividends

             (1)  This Division:

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

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

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

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

                     (a)  section 128AE; and

                     (b)  section 128F; and

                   (ba)  section 128FA.

128A  Interpretation

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

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

dividend:

                     (a)  includes part of a dividend; and

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

enterprise means a business or other industrial or commercial undertaking.

entity means:

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

                     (b)  a natural person;

                     (c)  a company;

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

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

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

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

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

non‑ADI financial institution means a corporation that:

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

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

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

nostro account means an account that:

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

                     (b)  operates on the basis that:

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

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

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

income includes a royalty and a dividend.

       (1AB)  For the purposes of this Division:

interest includes an amount:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

             (5)  For the purposes of this Division:

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

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

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

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

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

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

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

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

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

                     (b)  by way of the making of loans.

             (9)  For the purposes of this Division:

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

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

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

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

                            shall be deemed to represent those loan moneys.

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

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

128AA  Deemed interest in respect of transfers of certain securities

             (1)  Where:

                     (a)  a person transfers a qualifying security; and

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

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

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

128AB  Certificates relating to issue price of certain securities

             (1)  Where:

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

                     (b)  at the time of transfer either:

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

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

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

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

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

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

                     (b)  identifies the security to which it relates;

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

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

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

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

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

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

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

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

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

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

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

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

             (1)  In this section:

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

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

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

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

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

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

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

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

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

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

                     (a)  a hire‑purchase agreement; or

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

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

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

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

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

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

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

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

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

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

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

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

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

             (6)  Where:

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

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

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

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

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

             (1)  Where:

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

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

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

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

             (2)  Where:

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

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

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

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

128AE  Interpretation provisions relating to offshore banking units

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

borrow includes raise finance by the issue of a security.

lend includes provide finance by the purchase of a security.

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

offshore banking unit has the meaning given by this section.

offshore borrowing means:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

       (2AB)  The determination must:

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

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

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

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

                     (a)  specified criteria; or

                     (b)  recommendations of particular bodies; or

                     (c)  any other factors.

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

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

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

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

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

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

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

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

             (4)  Where:

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

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

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

             (5)  Where:

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

                     (b)  the loan is repaid;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

           (13)  If an offshore banking unit consists of:

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

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

then this section and section 128NB apply as if:

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

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

128AF  Payments through interposed entities

             (1)  This section applies if:

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

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

          (1A)  However, this section does not apply if one or more of the interposed entities is an AMIT for the year of income in which the payment is received.

Note:          See Division 12A in Schedule 1 to the Taxation Administration Act 1953 for provisions about withholding tax that apply specifically to AMITs.

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

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

128B  Liability to withholding tax

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

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

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

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

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

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

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

                     (b)  consists of interest that:

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

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

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

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

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

                     (b)  consists of interest that:

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

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

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

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

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

                     (a)  is derived by a non‑resident:

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

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

                     (b)  consists of a royalty that:

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

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

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

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

                     (b)  consists of a royalty that:

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

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

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

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

             (3)  This section does not apply to:

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

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

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

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

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

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

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

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

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

                    (ga)  income that consists of:

                              (i)  the franked part of a dividend; or

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

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

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

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

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

                     (h)  income that consists of:

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

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

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

                    (jb)  income that:

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

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

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

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

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

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

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

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

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

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

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

                     (a)  was attributable to the dividend; and

                     (b)  was paid or applied:

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

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

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

          (3B)  In subsection (3A):

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

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

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

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

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

                     (c)  any other relevant matters.

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

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

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

                     (b)  is attributable to the permanent establishment; and

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

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

           (3F)  In subsection (3E):

permanent establishment of a person:

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

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

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

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

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

             (6)  Where:

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

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

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

             (7)  Where:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

          (9C)  If:

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

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

then:

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

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

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

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

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

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

128C  Payment of withholding tax

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

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

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

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

                              (i)  the withholding tax;

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

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

       (4AA)  If:

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

                     (b)  the Commissioner is satisfied that:

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

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

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

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

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

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

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

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

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

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

128D  Certain income not assessable

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

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

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

Interest to which this section applies

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

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

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

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

                              (i)  is a non‑equity share; or

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

                            (iii)  is a syndicated loan; or

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

                     (d)  either:

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

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

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

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

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

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

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

                              (i)  is a non‑equity share; or

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

                            (iii)  is a syndicated loan; or

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

                     (e)  either:

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

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

          (1B)  If:

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

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

                              (i)  is a non‑equity share; or

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

                            (iii)  is a syndicated loan; or

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

                     (c)  either:

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

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

this section applies to the interest.

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

Tax not payable

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

Public offer test

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Global bonds

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

Issues and invitations that always fail the public offer test

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

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

                     (b)  either:

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

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

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

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

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

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

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

                     (b)  either:

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

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

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

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

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

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

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

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

                     (b)  either:

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

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

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

Australian public bodies are treated as Australian resident companies

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

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

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

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

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

             (8)  If:

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

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

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

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

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

Definitions

             (9)  In this section:

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

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

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

                     (a)  the trust is not a charity; and

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

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

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

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

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

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

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

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

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

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

Global bond

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

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

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

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

                              (i)  confer rights in relation to the debenture or debt interest on other persons; and

                             (ii)  record the existence of the rights; and

                     (d)  before the issue:

                              (i)  the company; or

                             (ii)  a dealer, manager or underwriter, in relation to the placement of debentures or debt interests, on behalf of the company;

                            announces that, as a result of the issue, such rights will be able to be created; and

                     (e)  the announcement is made in a way or ways covered by any of paragraphs (3)(a) to (e) (reading a reference in those paragraphs to “debentures or debt interests” as if it were a reference to such a right, and a reference to the “company” as if it included a reference to the dealer, manager or underwriter); and

                      (f)  under the terms of the debenture or debt interest, interests in the debenture or debt interest are able to be surrendered, whether or not in particular circumstances, in exchange for other debentures or debt interests issued by the company that are not themselves global bonds.

           (11)  A written agreement is a syndicated loan facility if:

                     (a)  the agreement describes itself as a syndicated loan facility or syndicated facility agreement; and

                     (b)  the agreement is between one or more borrowers and at least 2 lenders; and

                     (c)  under the agreement each lender severally, but not jointly, agrees to lend money to, or otherwise provide financial accommodation to, the borrower or borrowers; and

                     (d)  the amount to which the borrower or borrowers will have access at the time the first loan or other form of financial accommodation is to be provided under the agreement is at least $100,000,000 (or a prescribed amount).

           (12)  A written agreement is also a syndicated loan facility if:

                     (a)  the agreement describes itself as a syndicated loan facility or syndicated facility agreement; and

                     (b)  the agreement is between one or more borrowers and one lender where the agreement provides for the addition of other lenders; and

                     (c)  the agreement provides that, when other lenders are added, each lender severally, but not jointly, agrees to lend money to, or otherwise provide financial accommodation to, the borrower or borrowers; and

                     (d)  the amount to which the borrower or borrowers will have access at the time the first loan or other form of financial accommodation is to be provided under the agreement is at least $100,000,000 (or a prescribed amount).

           (13)  However, an agreement under which there are 2 or more borrowers is a syndicated loan facility only if all of them are:

                     (a)  members of the same wholly‑owned group (within the meaning of the Income Tax Assessment Act 1997); or

                     (b)  parties to the same joint venture; or

                     (c)  associates of each other.

           (14)  For the purposes of this section, a change (including by novation) to the lenders under a syndicated loan facility does not result in a different agreement.

           (15)  For a debt interest that consists of 2 or more related schemes (within the meaning of the Income Tax Assessment Act 1997) where one or more of them is a non‑equity share, this section applies only to interest paid in respect of the non‑equity share.

Note:          Subsection 128A(1AB) defines interest for the purposes of this Division. Under that subsection, dividends paid in respect of a non‑equity share are treated as being interest.

           (16)  The rule in subsection (15) does not apply to the extent that interest in respect of the other related scheme or schemes would be interest to which this section applies in respect of a debenture or debt interest.

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

Interest to which this section applies

             (1)  This section applies to interest paid by the trustee of an eligible unit trust in respect of a debenture or debt interest issued by the trustee if:

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

                              (i)  is a syndicated loan; or

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

                     (b)  either:

                              (i)  the issue of the debenture or debt interest satisfies the public offer test set (see subsection (6)); or

                             (ii)  for a syndicated loan—the invitation to become a lender under the relevant syndicated loan facility satisfies the public offer test (see subsection (6A)).

             (2)  If:

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

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

                              (i)  is a syndicated loan; or

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

                     (c)  either:

                              (i)  the issue of the debenture or debt interest satisfies the public offer test set (see subsection (6)); or

                             (ii)  for a syndicated loan—the invitation to become a lender under the relevant syndicated loan facility satisfies the public offer test (see subsection (6A));

this section applies to the interest.

Note:          Subsection (4) does not apply to the interest because that subsection deals only with interest paid on a debenture or debt interest by the issuing eligible unit trust.

Tax not payable

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

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

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

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

                     (b)  either:

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

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

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

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

             (5)  If:

                     (a)  the trustee of an eligible unit trust holds all of the issued equity interests in the capital of a company that is not a resident of Australia; and

                     (b)  the company’s only business is raising finance for the purposes of the eligible unit trust; and

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

                     (d)  when the debenture or debt interest is issued, the company is treated as a resident of that country for the purposes of the tax law (see subsection (8)) of the country;

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

Public offer test

             (6)  For the purposes of working out under this section whether the issue of a debenture or debt interest by the trustee of an eligible unit trust satisfies the public offer test, subsections 128F(3) to (5) apply to the trustee of the eligible unit trust in a corresponding way to the way in which those subsections apply to a company, subject to subsection (7) of this section.

          (6A)  For the purposes of working out under this section whether an invitation to become a lender under a syndicated loan facility satisfies the public offer test, subsections 128F(3A) and (5AA) apply to the trustee of the eligible unit trust in a corresponding way to the way in which those subsections apply to a company, subject to subsection (7) of this section.

             (7)  For the purposes of applying subsection 128F(3), (3A), (4), (5) or (5AA) as mentioned in subsection (6) or (6A) of this section:

                     (a)  a reference in any of those subsections to a company knowing, suspecting or having reasonable grounds to suspect something, or it being reasonable for a company to have regarded something, is taken to be a reference to the trustee of the eligible unit trust knowing, suspecting or having reasonable grounds to suspect that thing, or it being reasonable for the trustee of the eligible unit trust to have regarded that thing; and

                     (b)  a reference in any of those subsections to an associate is taken to be a reference to an associate within the meaning of this section; and

                     (c)  a reference in any of those subsections to a global bond is taken to be a reference to a global bond within the meaning of subsection 128F(10).

          (7A)  For the purposes of this section, a change (including by novation) to the lenders under a syndicated loan facility does not result in a different agreement.

Definitions

             (8)  In this section:

associate has the meaning given by section 318, except that:

                     (a)  paragraphs (1)(b), (2)(a) and (4)(a) of that section must be disregarded; and

                     (b)  subsection (5) of that section applies to a unit trust mentioned in paragraph (b) of the definition of eligible unit trust in this subsection in the same way as that subsection applies in relation to a public unit trust.

clearing house has the same meaning as in section 128F.

company has the same meaning as in section 128F.

debenture:

                     (a)  in relation to the trustee of an eligible unit trust, includes debenture stock, bonds, promissory and other notes, bills of exchange and any other securities issued by the trustee, whether constituting a charge on the assets of the eligible unit trust or not; and

                     (b)  in relation to a company, has the same meaning as in section 128F.

eligible unit holder means:

                     (a)  the trustee of a public unit trust; or

                     (b)  the trustee (within the meaning of the Income Tax Assessment Act 1997) of a complying superannuation fund that has 50 or more members; or

                     (c)  the trustee of a pooled superannuation trust within the meaning of the Income Tax Assessment Act 1997; or

                     (d)  the trustee (within the meaning of the Income Tax Assessment Act 1997) of a complying approved deposit fund; or

                     (e)  a life insurance company within the meaning of the Income Tax Assessment Act 1997; or

                      (f)  a public company within the meaning of section 103A; or

                     (g)  the trustee of a unit trust in which all of the issued units are held by 2 or more entities that are eligible unit holders because of:

                              (i)  the application of another paragraph of this definition (whether or not the same paragraph); or

                             (ii)  a previous application of this paragraph; or

                            (iii)  any combination of subparagraphs (i) and (ii).

eligible unit trust means:

                     (a)  a public unit trust; or

                     (b)  a unit trust in which all of the issued units are held by 2 or more eligible unit holders.

public unit trust has the same meaning as in section 102P (disregarding subsection (2) of that section).

registered scheme has the same meaning as in section 128F.

responsible entity has the same meaning as in section 128F.

syndicated loan has the same meaning as in section 128F.

syndicated loan facility has the same meaning as in section 128F.

tax law has the same meaning as in section 128F.

             (9)  For the purposes of this section, a trust or fund of a kind mentioned in any of paragraphs (a) to (d) of the definition of eligible unit holder in subsection (8) in relation to a year of income is taken to be a trust or fund of that kind at all times during the year of income.

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

             (1)  This section applies to:

                     (a)  interest paid by a person in respect of an offshore borrowing of the person; or

                     (b)  interest consisting of gold paid by a person in respect of an offshore gold borrowing of the person;

if, when the borrowing took place, the person was an offshore banking unit (whether or not the person is still an offshore banking unit when the interest is paid).

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

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

             (1)  Where, but for subsection 128AA(2):

                     (a)  the transferor of a qualifying security who is not liable to pay withholding tax in relation to the transfer of the qualifying security would be liable to pay withholding tax in relation to the transfer; or

                     (b)  the transferor of a qualifying security who is liable to pay withholding tax in relation to the transfer of the qualifying security would be liable to pay additional withholding tax in relation to the transfer;

then, for the purposes of this section, there shall be taken to be an avoided withholding tax amount in relation to the person who is the transferee of the qualifying security of an amount equal to the withholding tax or the additional withholding tax, as the case may be, that the person would be so liable to pay.

             (2)  Where:

                     (a)  an attributable agreement payment or attributable agreement payments were made by a person under a relevant agreement before the commencement of section 128AC; and

                     (b)  the Commissioner is of the opinion that the payment or payments were made before the commencement of that section, or that the payment or payments were of a greater amount than they would otherwise have been, for the sole or dominant purpose of securing the result that the total amount (in this subsection referred to as the actual withholding tax) of withholding tax payable under that section in relation to all attributable agreement payments made under the relevant agreement after the commencement of that section would be less than the amount (in this subsection referred to as the notional withholding tax) that would otherwise have been payable;

then, for the purposes of this section, there shall be taken to be an avoided withholding tax amount in relation to the person of an amount equal to the amount by which the notional withholding tax exceeds the actual withholding tax.

             (3)  For the purposes of subsection (2), expressions used in that subsection that are also used in section 128AC have the same respective meanings in that subsection as in that section.

             (4)  Where there is an avoided withholding tax amount in relation to a person under this section, the person is liable to pay income tax, as imposed by the Income Tax (Securities and Agreements) (Withholding Tax Recoupment) Act 1986, in respect of the avoided withholding tax amount.

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

             (1)  Where a person who is or has been an offshore banking unit transfers to another person an amount of tax exempt loan money or tax exempt gold, other than by way of:

                     (a)  payment in carrying on an OB activity or what would be an OB activity if the person were an OBU; or

                     (b)  repayment of an offshore borrowing or offshore gold borrowing;

the person is liable to pay income tax, as imposed by the Income Tax (Offshore Banking Units) (Withholding Tax Recoupment) Act 1988, on the lost withholding tax amount in respect of the transfer.

             (2)  For the purposes of subsection (1), the lost withholding tax amount in respect of the transfer is an amount ascertained in accordance with the formula:

                  

where:

IWT rate is the rate declared by the Parliament in respect of income to which subsection 128B(5) applies.

PB rate is the prevailing borrowing rate in relation to the person at the time of the transfer.

PB term is the number of years in the prevailing borrowing term in relation to the person at the time of the transfer; and

TA is the amount of tax exempt loan money or tax exempt gold transferred.

             (3)  Tax under this section is due and payable by the person liable to pay the tax at the end of:

                     (a)  21 days after the end of the month in which the transfer to which it relates takes place; or

                     (b)  such further period as the Commissioner, in special circumstances, allows.

Application

          (3A)  The Commissioner must not exercise his or her power under paragraph (3)(b) on or after 1 July 2000.

Note:          For provisions about collection and recovery of tax on or after 1 July 2000, see Part 4‑15 in Schedule 1 to the Taxation Administration Act 1953.

             (4)  Section 128C (other than subsections (1) and (4AA)) applies, in addition to its application apart from this subsection, as if references in that section to withholding tax were references to tax payable under this section.

             (5)  The Commissioner may remit the whole or part of an amount of tax payable under this section in relation to the transfer of an amount of tax exempt loan money or tax exempt gold to another person if:

                     (a)  the Commissioner is satisfied that:

                              (i)  the liability to pay the amount of tax arose because the person mistakenly believed, on reasonable grounds, that the other person was a non‑resident or an offshore banking unit, that interest payable to the person in respect of the amount transferred would be an outgoing of a particular kind or that the amount transferred was not tax exempt loan money or tax exempt gold; and

                             (ii)  the person had taken reasonable steps to ascertain the matter to which the mistaken belief related; or

                     (b)  the Commissioner is satisfied that there are special circumstances justifying the remission of the whole or part of the amount of tax.

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

When section applies

             (1)  This section applies if:

                     (a)  the amount of any withholding tax that has become payable by a taxpayer on a payment of interest under, or in relation to the transfer of, a qualifying security or a Division 230 financial arrangement has been paid; and

                     (b)  there is a net financial arrangement amount (see subsection (5)) in relation to the taxpayer in relation to:

                              (i)  if the payment of interest is a payment in relation to the transfer of the qualifying security—the security; or

                             (ii)  if the payment of interest is such a payment by virtue of the application of section 128AC in relation to an attributable agreement payment within the meaning of that section—the attributable agreement payment; or

                            (iii)  in any other case—the payment of interest; and

                     (c)  the amount of the withholding tax payable on the interest exceeds the amount that would have been payable on the interest if the interest were reduced by the net financial arrangement amount.

Entitlement to apply for credit

             (2)  The taxpayer may apply to the Commissioner for a credit of an amount equal to the excess.

Requirements for application

             (3)  The application must be in the approved form.

Entitlement to credit

             (4)  If the Commissioner is satisfied as to the matters mentioned in paragraphs (1)(a), (b) and (c), the applicant is entitled to a credit of an amount equal to the excess.

Net financial arrangement amount

             (5)  For the purposes of this section, if:

                     (a)  in the case of a qualifying security—the sum of all amounts (if any) included in the assessable income of the taxpayer of any years of income in relation to the qualifying security, attributable agreement payment or payment of interest under section 159GQ; or

                     (b)  in the case of a Division 230 financial arrangement—the sum of all amounts (if any) included in the assessable income of the taxpayer of any years of income in relation to the arrangement under Division 230 of the Income Tax Assessment Act 1997;

exceeds:

                     (c)  in the case of a qualifying security—the sum of all amounts (if any) allowable as deductions from the assessable income of the taxpayer of any years of income in relation to the security or the payment, as the case may be, under that section; or

                     (d)  in the case of a Division 230 financial arrangement—the sum of:

                              (i)  all amounts (if any) allowable as deductions from the assessable income of the taxpayer of any years of income in relation to the arrangement under Division 230 of the Income Tax Assessment Act 1997; and

                             (ii)  all amounts (if any) of interest paid under the arrangement before the interest mentioned in paragraph (1)(a) is paid;

there is a net financial arrangement amount equal to the excess.

             (6)  For the purposes of paragraph (5)(b) and subparagraph (5)(d)(i), disregard any year of income in which the taxpayer was not an Australian resident.

             (7)  For the purposes of subsection (6):

                     (a)  if section 230‑485 of the Income Tax Assessment Act 1997 applies in relation to a year of income:

                              (i)  treat the foreign residency period mentioned in that section as a year of income in which the taxpayer was not an Australian resident; and

                             (ii)  treat the Australian residency period mentioned in that section as a year of income in which the taxpayer was an Australian resident; and

                     (b)  if section 230‑490 of that Act applies in relation to a year of income:

                              (i)  treat the period during that year in which the taxpayer was not an Australian resident as a year of income in which the taxpayer was not an Australian resident; and

                             (ii)  treat the period during that year in which the taxpayer was an Australian resident as a year of income in which the taxpayer was an Australian resident.

128P  Objections

                   If an applicant for a certificate under this Division is dissatisfied with a decision of the Commissioner:

                     (a)  in any case—to refuse to issue the certificate; or

                     (b)  in the case of a certificate under section 128AB—to specify a particular amount in the certificate;

the applicant may object against the decision in the manner set out in Part IVC of the Taxation Administration Act 1953.

128R  Informal arrangements

                   For the purposes of this Division, the Commissioner may have regard to arrangements, understandings and practices not having legal force in the same manner as if they had legal force.

Division 11BEquity investments in small‑medium enterprises

128TG  Summary of this Division

             (1)  The following is a summary of this Division.

             (2)  If, in connection with a money‑lending business, a taxpayer is issued shares in a small‑medium enterprise, any profit or loss the taxpayer makes when it disposes of certain shares that would be dealt with under section 6‑5 or 8‑1 of the Income Tax Assessment Act 1997 is, to the extent that it relates to the period after the issue, instead dealt with under Parts 3‑1 and 3‑3 (about CGT) of the Income Tax Assessment Act 1997.

             (3)  For this to apply, the taxpayer must, after the issue, hold shares representing at least 10% of the value of the small‑medium enterprise.

128TH  When Division applies

                   This Division applies if:

                     (a)  a taxpayer acquires a threshold interest in an SME (see section 128TJ); and

                     (b)  afterwards, the taxpayer disposes of ordinary shares, or an interest in ordinary shares, in the SME that were issued to the taxpayer (whether before, at the time of, or after acquiring the threshold interest); and

                   (ba)  the disposal takes place:

                              (i)  in any case—in the course of the taxpayer carrying on a business of lending money or otherwise in connection with such a business of the taxpayer; or

                             (ii)  if the taxpayer is a company that is a subsidiary of another company—while the one or more members of the direct ownership group of the taxpayer (see subsection 128TL(3)) are each carrying on a business of lending money; and

                     (c)  the shares are not trading stock of the taxpayer; and

                     (d)  apart from this section:

                              (i)  any profit on the disposal would be included in the taxpayer’s assessable income of a year of income under section 6‑5 of the Income Tax Assessment Act 1997; and

                             (ii)  any loss on the disposal would be allowable as a deduction from the taxpayer’s assessable income of a year of income under section 8‑1 of that Act.

128TI  Consequences of Division applying

                   If this Division applies:

                     (a)  no profit on the disposal is included in the taxpayer’s assessable income of any year of income under section 6‑5 of the Income Tax Assessment Act 1997; and

                     (b)  no loss on the disposal is allowable as a deduction from the taxpayer’s assessable income of any year of income under section 8‑1 of that Act; and

                     (c)  the taxpayer is taken:

                              (i)  to have disposed of the shares, at the time of acquiring the threshold interest in the SME, for a consideration equal to their market value at the time; and

                             (ii)  to have re‑acquired the shares immediately afterwards (for the purposes of this section, as if they had been issued to the taxpayer) for an amount equal to that consideration; and

                     (d)  any profit or loss on the disposal that is taken to have happened by subparagraph (c)(i) is included in the taxpayer’s assessable income under section 6‑5 of that Act, or is an allowable deduction under section 8‑1 of that Act, in the year of income in which the shares are actually (disregarding that subparagraph) disposed of, and not in any other year of income.

Note:          As a result of this section, the tax consequences of the actual disposal will be dealt with under section 6‑5 or 8‑1 of that Act in respect of any period of holding before the acquisition of the threshold interest and under Parts 3‑1 and 3‑3 (about CGT) of the Income Tax Assessment Act 1997 in respect of any period after the acquisition of that interest.

128TJ  Acquiring a threshold interest in an SME

                   A taxpayer acquires a threshold interest in an SME if:

                     (a)  ordinary shares in an SME (see section 128TK) are issued to the taxpayer; and

                     (b)  the shares are issued:

                              (i)  in any case—in the course of the taxpayer carrying on a business of lending money or otherwise in connection with such a business of the taxpayer; or

                             (ii)  if the taxpayer is a company that is a subsidiary of another company—while the one or more members of the direct ownership group of the taxpayer (see subsection 128TL(3)) are each carrying on a business of lending money; and

                     (c)  immediately after the shares, and any other ordinary shares forming part of the same issue, are issued to the taxpayer and any other persons, the percentage of the value of the SME represented by ordinary shares issued to the taxpayer (whether before or as part of the threshold share issue) is at least 10%; and

                     (d)  no previous issue of shares to the taxpayer had resulted in the taxpayer acquiring a threshold interest in the SME.

128TK  SME or small‑medium enterprise

             (1)  An SME or small‑medium enterprise is a company the total value of whose assets, as determined under this section, is no more than $50 million.

             (2)  The total value of the company’s assets is the total value of its assets (both current and non‑current) as shown in the last audited accounts prepared in relation to the company for the purposes of Division 4 of Part 3.6 of the Corporations Act 2001 before the investment is made.

             (3)  If:

                     (a)  no such audited accounts have been prepared within the 12 months ending when the shares are issued; or

                     (b)  the last such audited accounts prepared relate to a period that ended more than 18 months before the shares are issued;

then the company is not an SME unless:

                     (c)  before the shares are issued, the taxpayer gets an audited statement (see subsection (4)) showing the total value of the company’s assets as at a time no more than 12 months before the shares are issued; and

                     (d)  that value is no more than $50 million.

             (4)  In subsection (3), an audited statement is a statement audited by a person or firm:

                     (a)  who is appointed as the company’s auditor in accordance with the Corporations Act 2001; or

                     (b)  who is eligible to consent to being so appointed.

128TL  Subsidiary and direct ownership group

             (1)  A company (the first company) is a subsidiary of another company (the second company) if all the shares in the first company are beneficially owned by:

                     (a)  the second company; or

                     (b)  a company that is, or 2 or more companies each of which is, a subsidiary of the second company; or

                     (c)  the second company and a company that is, or 2 or more companies each of which is, a subsidiary of the second company.

             (2)  For the purposes of subsection (1), if a company is a subsidiary of another company (including a company that is such a subsidiary because of a previous application or applications of this subsection), every company that is a subsidiary of the first‑mentioned company is taken to be a subsidiary of that other company.

             (3)  The one or more companies in whichever of paragraph (1)(a), (b) or (c) applies are the direct ownership group of the first company.

Division 11CPayments in respect of mining operations on Indigenous land

128U  Interpretation

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

Aboriginals Benefit Account means the Aboriginals Benefit Account continued in existence by section 62 of the Aboriginal Land Rights (Northern Territory) Act 1976.

distributing body means:

                     (a)  an Aboriginal Land Council established by or under the Aboriginal Land Rights (Northern Territory) Act 1976;

                     (b)  a corporation registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006; or

                     (d)  any other incorporated body that:

                              (i)  is established by or under provisions of a law of the Commonwealth or of a State or Territory that relate to Indigenous persons; and

                             (ii)  is empowered or required (whether under that law or otherwise) to pay moneys received by the body to Indigenous persons or to apply such moneys for the benefit of Indigenous persons, either directly or indirectly.

mineral royalties means royalties payable in respect of the mining of minerals.

minerals means:

                     (a)  gold, silver, copper, tin and other metals;

                     (b)  coal, shale, petroleum (within the meaning of the Income Tax Assessment Act 1997) and valuable earths and substances;

                     (c)  mineral substances;

                     (d)  gems and precious stones; and

                     (e)  ores and other substances containing minerals;

whether suspended in water or not, and includes water.

miner’s right means a miner’s right or other authority issued or granted under a law of the Commonwealth or of a State or Territory relating to mining of minerals, being a right or authority that empowers the holders to take possession of, mine or occupy land or take any other action in relation to land for any purpose in connection with mining.

mining includes the obtaining of minerals from alluvial or surface deposits.

mining interests, in relation to any land, means any lease or other interest in the land (including a right to prospect or explore for minerals in or on the land) issued or granted under a law of the Commonwealth or of a State or Territory relating to mining of minerals.

mining payment means a payment made to a distributing body or made to, or applied for the benefit of, an Indigenous person or persons, being:

                     (a)  a payment made on or after 1 July 1979 and before the day that the Financial Management Legislation Amendment Act 1999 commenced, out of the Aboriginals Benefit Reserve to the extent that the payment represents money paid into the Aboriginals Benefit Reserve on or after 1 July 1979 in pursuance of subsection 63(2) or (4) of the Aboriginal Land Rights (Northern Territory) Act 1976; and

                    (aa)  a payment made on or after the day that the Financial Management Legislation Amendment Act 1999 commenced by the Commonwealth in respect of a debit from the Aboriginals Benefit Account to the extent that the payment represents an amount credited to the Aboriginals Benefit Account in pursuance of subsection 63(1) or (4) of the Aboriginal Land Rights (Northern Territory) Act 1976; and

                     (b)  any payment made on or after 1 July 1979 that is of the kind referred to in subsection 44 (1) or (2) of the Aboriginal Land Rights (Northern Territory) Act 1976; and

                     (c)  any other payment made on or after 1 July 1979 under provisions of a law of the Commonwealth or of a State or Territory that relate to Indigenous persons or under an agreement made in accordance with such provisions, being a payment made:

                              (i)  in consideration of the issuing, granting or renewal of a miner’s right or mining interest in respect of Indigenous land;

                             (ii)  in consideration of the granting of permission to a person to enter or remain on Indigenous land or to do any act on Indigenous land in relation to prospecting or exploring for, or mining of, minerals; or

                            (iii)  by way of payment of mineral royalties payable in respect of the mining of minerals on Indigenous land or by way of payment of an amount determined by reference to an amount of mineral royalties received by the Commonwealth, a State or the Northern Territory in respect of the mining of minerals on Indigenous land;

but does not include:

                     (d)  a payment made by a distributing body; or

                     (e)  a native title benefit (within the meaning of the Income Tax Assessment Act 1997).

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

             (3)  For the purposes of this Division, a mining payment is taken to include any amount that has been, or purports to have been, withheld from the mining payment for the purposes of section 12‑320 in Schedule 1 to the Taxation Administration Act 1953.

             (4)  For the purposes of the succeeding provisions of this Division, where a mining payment (in this subsection referred to as the relevant mining payment) is made to, or applied for the benefit of, 2 or more persons, there shall be deemed to have been made to, or applied for the benefit of, each of those persons, a mining payment of an amount equal to so much of the relevant mining payment as bears to the relevant mining payment the same proportion as 1 bears to the number of persons to whom the relevant mining payment was made or for whose benefit the relevant mining payment was applied, as the case may be.

128V  Liability to mining withholding tax

             (1)  Where a mining payment is made to, or applied for the benefit of, a person, that person is liable to pay income tax on the amount of the mining payment at the rate declared by the Parliament for the purposes of this section.

             (2)  Income tax payable by a person in accordance with this section is in addition to other income tax payable by that person upon amounts that are not mining payments.

128W  Payment of mining withholding tax

             (1)  Mining withholding tax is due and payable by a person liable to pay the tax at the expiration of 21 days after the end of the month in which the payment of the amount to which the tax relates was made, or of such further period as the Commissioner, in special circumstances, allows.

Note:          For provisions about collection and recovery of mining withholding tax and other amounts, see Part 4‑15 in Schedule 1 to the Taxation Administration Act 1953.

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

             (5)  The Commissioner may serve on a person liable to pay mining withholding tax, by post or otherwise, a notice in which is specified:

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

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

             (6)  The production of a notice served under subsection (5), or of a document under the hand of the Commissioner, a Second Commissioner or a Deputy Commissioner purporting to be a copy of such a notice, is prima facie evidence that the amount of mining withholding tax specified in the notice became due and payable by the person on whom the notice was served on the date specified in the notice as the date on which that tax became due and payable.

Division 12Oversea ships

129  Taxable income of ship‑owner or charterer

                   Where a ship belonging to or chartered by a person whose principal place of business is out of Australia carries passengers, live‑stock, mails or goods shipped in Australia, 5% of the amount paid or payable to him or her in respect of such carriage, whether that amount is payable in or out of Australia, shall be deemed to be taxable income derived by him or her in Australia.

130  Master or agent to make return

                   The master of the ship, or the agent or other representative in Australia of the owner or charterer, shall, when called upon by the Commissioner by notice in the Gazette or by any other notice to him or her, make a return of the amounts so paid or payable.

131  Determination by Commissioner

                   If such return is not made, or if the Commissioner is not satisfied with the return, the Commissioner may determine the amount so paid or payable.

132  Assessment of tax

                   The master, agent or representative, as agent for the owner or charterer, may be assessed upon the taxable income and shall be liable to pay the tax assessed.

133  Master liable to pay

             (1)  Where the assessment is made on the agent or representative, and the tax is not paid forthwith upon receipt of notice of the assessment, the master shall be liable to pay the tax.

             (2)  This section shall not, so long as any tax for which the master becomes liable under this section remains unpaid, relieve any other person to whom the notice of assessment has been given in respect of that tax, from liability to pay the tax remaining unpaid.

134  Notice of assessment

                   Where any person is liable to pay tax under this Division, the Commissioner shall give notice to the person of the assessment, and he or she shall forthwith pay the tax.

135  Clearance of ship

                   A collector or officer of customs for any State or Territory shall not grant a clearance to the ship until he or she is satisfied that any tax which has been or may be assessed under this Division has been paid, or that arrangements for its payment have been made to the satisfaction of the Commissioner.

135A  Freights payable under certain agreements

                   Where goods are shipped in pursuance of an agreement of the kind specified in section 7C of the Australian Industries Preservation Act 1906‑1937, the amount paid or payable to the owner or charterer of the ship in respect of the carriage of those goods shall, for the purposes of this Division, be deemed to be the amount remaining after deducting from the amount which would be payable according to the gross rate of freight specified in the agreement the amount of any rebate allowed in pursuance of the agreement or any payment, whenever made, by the owner or charterer, or out of funds provided by the owner or charterer, to any person or persons being the owner or shipper of the goods or the agent of either of them in respect of the shipment.

Division 15Insurance with non‑residents

141  Interpretation

                   In this Division:

insurance contract means a contract or guarantee whereby liability is undertaken, contingent upon the happening of any specified event, to pay any money or make good any loss or damage, but does not include a contract of life assurance.

insured event means an event upon the happening of which the liability under an insurance contract arises.

insured person means a person with whom any insurance contract is entered into by an insurer.

insured property means the property the subject of an insurance contract made or given by an insurer.

insurer means any non‑resident who undertakes liability under an insurance contract.

142  Income derived by non‑resident insurer

             (1)  Where an insured person, whether a resident or non‑resident, has entered into an insurance contract with an insurer, and the insured property at the time of the making of the contract is situated in Australia, or the insured event is one which can happen only in Australia, the premium paid or payable under the contract shall be included in the assessable income of the insurer, and shall be deemed to be derived by the insurer from sources in Australia, and, unless the contract was made by a principal office or branch established by the insurer in Australia, this Division shall apply to that premium.

             (2)  Where an insured person who is a resident has entered into an insurance contract with an insurer, and an agent or representative in Australia of the insurer was in any way instrumental in inducing the entry of the insured person into that contract, any premium paid or payable under the contract shall, wherever the insured property is situate, or the insured event may happen, be included in the assessable income of the insurer and shall be deemed to be derived by the insurer from sources in Australia, and, unless the contract was made by a principal office or branch established by the insurer in Australia, this Division shall apply to that premium.

143  Taxable income of non‑resident insurer

                   The insurer shall be deemed to have derived in any year, in respect of the premiums paid or payable in that year under such contracts, a taxable income equal to 10% of the total amount of such premiums:

Provided that, where the actual profit or loss derived or made by the insurer in respect of such premiums is established to the satisfaction of the Commissioner, the taxable income of the insurer in respect thereof, or the amount of the loss so made by the insurer shall, subject to this Act, be calculated by reference to receipts and expenditure taken into account in calculating that profit or loss.

144  Liability of agents of insurer

                   The insured person and any person in Australia acting on behalf of the insurer shall be the agents of the insurer, and shall be jointly and severally liable as such for all purposes of this Act. If either of those persons pays or credits to the insurer any amount in respect of the insurance contract before arrangements have been made to the satisfaction of the Commissioner for the payment of any income tax which has been or may be assessed under this Division in respect of that amount, that person shall be personally liable to pay that tax.

145  Deduction of premiums

                   Notwithstanding any other provision of this Act, no such premium shall be an allowable deduction to the insured person unless arrangements have been made to the satisfaction of the Commissioner for the payment of any income tax which has been or may be assessed in respect of that premium.

146  Exporter to furnish information

                   Every person who exports any goods from Australia shall furnish to the Collector of Customs for transmission to the Commissioner a copy of the customs entry for such goods, and shall show thereon such information as is prescribed regarding the insurance of such goods.

147  Rate of tax in special circumstances

                   Where the insurer satisfies the Commissioner that, on account of special circumstances, it is necessary that the rate of tax payable by the insurer under this Division should be ascertained at the time when premiums are paid to the insurer, the Commissioner may direct that the tax so payable in respect of premiums paid during any financial year shall be calculated at the rate which would have been payable if an assessment had been made in respect of those premiums at the date when they were paid.

148  Reinsurance with non‑residents

             (1)  Notwithstanding anything contained in this Act other than section 177F, but subject to this section, where a person carrying on the business of insurance in Australia reinsures out of Australia the whole or part of any risk with a non‑resident:

                     (a)  the premiums paid or credited in respect of the reinsurance shall not be:

                              (i)  an allowable deduction to the person carrying on the business of insurance in Australia; or

                             (ii)  included in the assessable income of the non‑resident; and

                     (b)  the income of the person carrying on the business of insurance in Australia shall not include sums recovered from that non‑resident in respect of a loss on any risk so reinsured.

             (2)  A person carrying on the business of insurance in Australia who reinsures out of Australia the whole or part of any risk with a non‑resident may elect, in accordance with this section, that the provisions of subsection (1) shall not be applied in arriving at that person’s taxable income, and thereupon:

                     (a)  those provisions shall not apply in arriving at that person’s taxable income of a year of income to which the election applies; and

                     (b)  that person shall be liable to furnish returns, and to pay tax, in accordance with the succeeding provisions of this section, as agent for all non‑residents with whom that person so reinsures.

             (3)  Where a person makes an election under subsection (2), he or she shall, subject to subsection (5), be assessed and liable to pay tax as agent, on an amount equal to 10% of the sum of the gross amounts of the premiums paid or credited by him or her in the year of income (being a year of income to which the election applies) to non‑residents in respect of all such reinsurances, as if that amount were the taxable income of a non‑resident company (not being a private company) not carrying on business in Australia by means either of a principal office or a branch.

             (4)  A person who has made an election under this section shall, as agent, furnish to the Commissioner, within the prescribed time, or within such further time as the Commissioner allows, in respect of every year of income to which the election applies:

                     (a)  a return showing the gross amounts of the premiums paid or credited by that person to non‑residents in respect of all such reinsurances; or

                     (b)  2 returns, of which:

                              (i)  one shall show the gross amounts of such premiums paid or credited by that person to non‑residents which are companies; and

                             (ii)  the other shall show the gross amounts of such premiums paid or credited by that person to non‑residents who are not companies.

             (5)  Where returns are furnished by a person in accordance with paragraph (4)(b), there shall be excluded from the amount on which that person shall be assessed and liable to pay tax as agent in pursuance of subsection (3) an amount equal to 10% of the sum of the gross premiums properly shown in the return specified in subparagraph (4)(b)(ii), and that person shall, in addition to any other tax which that person is liable under this section to pay as agent, be assessed and liable to pay tax as agent on the amount so excluded as if it were the taxable income of a non‑resident company (being a private company) not carrying on business in Australia by means either of a principal office or a branch.

             (6)  An election for the purposes of this section shall:

                     (c)  be made on or before the last day for the furnishing of the taxpayer’s return of income of the year of income in respect of which the election is first to apply, or within such further time as the Commissioner allows;

                     (d)  first apply in respect of a year of income which shall be specified in the election; and

                     (e)  apply in respect of all subsequent years of income.

             (7)  An assessment for the purposes of subsection (3) or (5) shall be made and notified separately from any other assessment.

             (8)  Where a person is liable, in pursuance of an assessment for the purposes of this section, to pay tax, in respect of any premiums, as agent for more than one non‑resident, the amount which that person shall be liable to pay as agent for any one of those non‑residents shall be so much of the tax so payable as bears to the whole of that tax the same proportion as the total amount of such of those premiums as were paid to that non‑resident bears to the total amount of those premiums.

             (9)  Where a person is or may become liable under this section to pay tax as agent for a non‑resident in respect of any premium paid or credited by that person to that non‑resident:

                     (a)  that person shall, for the purposes of section 254, be deemed to have received the premium in that person’s representative capacity immediately before it was so paid or credited; and

                     (b)  if that person pays or credits the premium before arrangements have been made to the satisfaction of the Commissioner for the payment of any tax which may be assessed in respect of that premium, that person shall be personally liable to pay that tax.

Application to a life assurance company

           (10)  This section applies to a life assurance company in relation to the whole or a part of a risk if, and only if, the risk or that part of the risk:

                     (a)  is covered by a disability policy as defined in subsection 995‑1(1) of the Income Tax Assessment Act 1997; and

                     (b)  relates to a benefit that is payable in an event mentioned in that definition.

Division 16Averaging of incomes

149  Average income

             (1)  For the purposes of the application of this Division in relation to a taxpayer in relation to a year of income, a reference in this Division to the average income of the taxpayer shall be construed as a reference to the average of the taxable incomes of the taxpayer of the years of income (in this Division referred to as average years) beginning with the first average year and ending with the first‑mentioned year of income.

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

             (1)  For the purposes of this Division (including the purpose of determining whether this Division applies to the income of a taxpayer):

                     (a)  references in this Division to the assessable income of a taxpayer shall be read as references to the amount that would have been the assessable income if the assessable income did not include any net capital gain and did not include any amount under section 82‑65, 82‑70 or 302‑145 of the Income Tax Assessment Act 1997; and

                     (b)  references in this Division to the taxable income of a taxpayer shall be read as references to the amount that would have been the taxable income if:

                              (i)  the assessable income did not include any net capital gain and did not include any amount under section 82‑65, 82‑70 or 302‑145 of the Income Tax Assessment Act 1997; and

                             (ii)  the taxable income were reduced by so much of the taxable income as consists of above‑average special professional income within the meaning of the Income Tax Assessment Act 1997.

             (2)  A reference in subsection (1) to the assessable income or taxable income of a taxpayer of a year of income shall, in relation to a taxpayer in the capacity of trustee of a trust estate, be read as a reference to the assessable income or net income, as the case may be, of the trust estate of the year of income.

150  First average year

                   Subject to this Division, the first average year shall be the fourth year before the year of income. A year the income of which was subject to assessment under the previous Act shall be capable of being a first or subsequent average year.

151  First application of Division in relation to a taxpayer

             (1)  For the purposes of the first application of this Division in determining the tax payable by a taxpayer, the first average year shall be the first year which is otherwise capable of being an average year, and in which the taxable income is not greater than that of the next succeeding year. No year prior to that first average year shall, for the purposes of any application of this Division in determining the tax payable by a taxpayer, be capable of being an average year.

             (2)  Any year in which the taxpayer was not carrying on business and was not in receipt of a taxable income shall not be counted as a first average year for the purposes of the first application of this Division in determining the tax payable by a taxpayer.

             (3)  This section shall not apply to a taxpayer whose income has been or is liable to be assessed at an average rate of tax determined under the provisions of the previous Act.

152  Taxpayer not in receipt of assessable income

                   Any year in which the taxpayer was not carrying on business and was not in receipt of assessable income shall not be counted as an average year, and the provisions of this Division shall apply to the income thereafter derived by the taxpayer as if he or she had never been a taxpayer before that year.

153  Taxpayer with no taxable income

                   Any year in which the taxpayer was carrying on business but had no taxable income shall be capable of being an average year.

154  Excess of allowable deductions

                   Any excess of allowable deductions over the assessable income of the taxpayer in any average year shall not be taken into account in calculating the average income.

155  Permanent reduction of income

             (1)  Where a taxpayer establishes that, owing to his or her retirement from his or her occupation, or from any other cause (but not including a change in the investment of assets from which assessable income was derived into assets from which the taxpayer derives income which is not liable to be assessed under this Act), his or her taxable income has been permanently reduced to an amount which is less than two‑thirds of his or her average taxable income, he or she shall be assessed, and the provisions of this Division shall apply to the income thereafter derived by him or her, as if he or she had never been a taxpayer before that year.

             (2)  For the purposes of the application of subsection (1) in relation to a taxpayer in relation to a year of income, a reference in that subsection to the average taxable income of the taxpayer shall be construed as a reference to the amount that would be the average income of the taxpayer in relation to that year of income ascertained in accordance with section 149 if there were excluded from the assessable income of the taxpayer of the average years any income received by him or her from sources from which he or she does not usually receive income.

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

             (1)  In this section:

actual taxable income from primary production, in relation to a taxpayer in relation to a year of income, means the amount (if any) remaining after deducting from the assessable primary production income of the taxpayer of the year of income so much of the aggregate of the relevant primary production deductions of the taxpayer of the year of income as does not exceed that assessable income.

assessable primary production income, in relation to a taxpayer in relation to a year of income, means so much of the assessable income of the taxpayer of the year of income as was derived from the carrying on of a primary production business by the taxpayer or was included in the assessable income of the taxpayer of the year of income in consequence of the carrying on of a primary production business by the taxpayer.

deemed taxable income from primary production, in relation to a taxpayer in relation to a year of income, means:

                     (a)  if the taxpayer did not have a non‑primary production profit in relation to the year of income—the taxable income of the taxpayer; and

                     (b)  in any other case—the sum of the actual taxable income from primary production of the taxpayer of the year of income and the notional taxable income from primary production of the taxpayer of the year of income.

notional taxable income from primary production, in relation to a taxpayer in relation to a year of income, being a taxpayer who had a non‑primary production profit in relation to the year of income, means:

                     (a)  where the taxpayer did not incur a primary production loss in relation to the year of income:

                              (i)  in a case to which subparagraph (ii) does not apply—the amount ascertained by deducting from the taxable income of the taxpayer of the year of income the actual taxable income from primary production of the taxpayer of the year of income; and

                             (ii)  where the taxable income of the taxpayer of the year of income exceeds the actual taxable income from primary production of the taxpayer of the year of income and that excess is greater than $5,000—$5,000 reduced by $1 for each whole dollar by which the amount of that excess exceeds $5,000; and

                     (b)  where the taxpayer incurred a primary production loss in relation to the year of income:

                              (i)  in a case where the sum of the taxable income of the taxpayer of the year of income and the amount of the primary production loss is less than or equal to $5,000—the taxable income of the taxpayer of the year of income; and

                             (ii)  in a case where the sum of the taxable income of the taxpayer of the year of income and the amount of the primary production loss (which sum is in this subparagraph referred to as the non‑farm income) exceeds $5,000—an amount ascertained by deducting from $5,000 one dollar for each whole dollar by which so much of the non‑farm income as does not exceed $10,000 exceeds $5,000 and deducting from the resultant amount so much (if any) of the amount of the primary production loss as does not exceed that resultant amount.

relevant primary production deductions, in relation to a taxpayer in relation to a year of income, means:

                     (a)  any deductions allowed or allowable in the taxpayer’s assessment in respect of income of the year of income that relate exclusively to assessable primary production income of the taxpayer of a year of income;

                     (b)  so much of any other deductions (other than apportionable deductions) allowed or allowable in the taxpayer’s assessment in respect of income of the year of income as, in the opinion of the Commissioner, may appropriately be related to assessable primary production income of the taxpayer of a year of income; and

                     (c)  the amount that bears to the apportionable deductions allowed or allowable in the taxpayer’s assessment the same proportion as the amount ascertained by deduction from the assessable primary production income of the taxpayer of the year of income any deductions allowable from that assessable income in accordance with paragraphs (a) and (b) bears to the sum of the taxable income of the taxpayer of the year of income and the apportionable deductions.

             (2)  For the purposes of subsection (1), a taxpayer shall be taken to have a non‑primary production profit in relation to a year of income if the assessable income of the taxpayer of the year of income other than assessable primary production income exceeds the aggregate of the deductions (other than relevant primary production deductions) allowable to the taxpayer in respect of the year of income.

             (3)  For the purposes of subsection (1), a taxpayer shall be taken to have incurred a primary production loss in relation to a year of income if the aggregate of the relevant primary production deductions in relation to the year of income exceeds the assessable primary production income of the taxpayer of the year of income, and the amount of that loss shall be taken to be the amount of the excess.

             (5)  Where:

                     (a)  this Division applies to a share of the net income of a trust estate of a year of income in respect of which a trustee is liable to be assessed and to pay tax in pursuance of subsection 98(1) or (2) or to the net income or a part of the net income of a trust estate of a year of income in respect of which a trustee is liable to be assessed and to pay tax in pursuance of section 99 (which share, net income or part, as the case may be, is in this subsection referred to as the eligible net income); and

                     (b)  the amount of tax that would, apart from this section, section 94, Division 6AA and Part VIIB and but for any rebate or credit to which the trustee is entitled, be payable by the trustee in respect of the eligible net income exceeds the amount of tax that would, apart from this section, section 94, Division 6AA and Part VIIB and but for any rebate or credit to which the trustee is entitled, be payable by the trustee in respect of the eligible net income if the notional rates declared by the Parliament for the purposes of this section were the rates of tax payable by the trustee in respect of the eligible net income;

the trustee is entitled, in his or her assessment in respect of the eligible net income, to a rebate of tax of an amount ascertained in accordance with the formula , where:

A  is the number of whole dollars in the amount of the deemed net income from primary production.

B  is the excess referred to in paragraph (b); and

C  is the number of whole dollars in the eligible net income.

          (5A)  Where:

                     (a)  this Division applies to a share of the net income of a trust estate of a year of income in respect of which a trustee is liable to be assessed and to pay tax in pursuance of subsection 98(1) or (2) or to the net income or a part of the net income of a trust estate of a year of income in respect of which a trustee is liable to be assessed and to pay tax in pursuance of section 99 (which share, net income or part, as the case may be, is in this subsection referred to as the eligible net income); and

                     (b)  the amount of tax that would, apart from this section, section 94, Division 6AA and Part VIIB and but for any rebate or credit to which the trustee is entitled, be payable by the trustee in respect of the eligible net income if the notional rates declared by the Parliament for the purposes of this section were the rates of tax payable by the trustee in respect of the eligible net income exceeds the amount of tax that would, apart from this section, section 94, Division 6AA and Part VIIB and but for any rebate or credit to which the trustee is entitled, be payable by the trustee in respect of the eligible net income;

the trustee is liable to pay complementary tax, at the rate declared by the Parliament for the purposes of this subsection, on so much of the net income of the trust estate as is equal to the deemed net income from primary production.

             (6)  For the purposes of the application of this section in relation to a share of the net income of a trust estate of a year of income in respect of which a trustee is liable to be assessed and to pay tax in pursuance of subsection 98(1) or (2) or in relation to the net income or a part of the net income of a trust estate of a year of income in respect of which a trustee is liable to be assessed and to pay tax in pursuance of section 99 (which share, net income or part, as the case may be, is in this subsection referred to as the eligible net income):

actual net income from primary production means so much of the net income from primary production of the trust estate as is included in the eligible net income.

assessable primary production income means so much of the assessable income of the trust estate of the year of income as was derived from the carrying on of a primary production business by the trustee or was included in the assessable income of the trust estate of the year of income in consequence of the carrying on of a primary production business by the trustee.

deemed net income from primary production means:

                     (a)  if the trust estate did not have a non‑primary production profit in relation to the year of income—the eligible net income; and

                     (b)  in any other case—the sum of the actual net income from primary production of the trust estate of the year of income and the notional net income from primary production of the trust estate of the year of income.

eligible part of the primary production loss, in relation to a primary production loss incurred by the trust estate in the year of income, means so much of the primary production loss as is equal to the amount by which the eligible net income would have been increased if the aggregate of the relevant primary production deductions allowable in calculating the amount of the net income of the trust estate of the year of income had been equal to the assessable primary production income of the trust estate of the year of income.

net income from primary production means the amount (if any) remaining after deducting from the assessable primary production income of the trust estate of the year of income so much of the aggregate of the relevant primary production deductions allowable in calculating the net income of the trust estate as does not exceed that assessable primary production income.

notional net income from primary production means:

                     (a)  where the trust estate had a non‑primary production profit in relation to the year of income and did not incur a primary production loss in relation to the year of income:

                              (i)  in a case to which subparagraph (ii) does not apply—the amount ascertained by deducting from the eligible net income the actual net income from primary production (if any); and

                             (ii)  where the eligible net income exceeds the actual net income from primary production in relation to the year of income and that excess is greater than $5,000—$5,000 reduced by $1 for each whole dollar by which the amount of that excess exceeds $5,000; and

                     (b)  where the trust estate had a non‑primary production profit in relation to the year of income and incurred a primary production loss in relation to the year of income:

                              (i)  in a case where the sum of the eligible net income and the eligible part of the primary production loss is less than or equal to $5,000—the eligible net income; and

                             (ii)  in a case where the sum of the eligible net income and the eligible part of the primary production loss (which sum is in this subparagraph referred to as the  non‑farm income) exceeds $5,000—an amount ascertained by deducting from $5,000 one dollar for each whole dollar by which so much of the non‑farm income as does not exceed $10,000 exceeds $5,000 and deducting from the resultant amount so much (if any) of the eligible part of the primary production loss as does not exceed that resultant amount.

relevant primary production deductions means:

                     (a)  any deductions allowed or allowable in calculating the amount of the net income of the trust estate of the year of income that relate exclusively to assessable primary production income of a year of income;

                     (b)  so much of any other deductions (other than apportionable deductions) allowed or allowable in calculating the amount of that net income as, in the opinion of the Commissioner, may appropriately be related to assessable primary production income of the trust estate of a year of income; and

                     (c)  the amount that bears to the apportionable deductions allowed or allowable in calculating the amount of that net income the same proportion as the amount ascertained by deducting from the assessable primary production income of the trust estate of the year of income any deductions allowable from that assessable primary production income in accordance with paragraphs (a) and (b) bears to the sum of the net income of the trust estate and the apportionable deductions.

             (7)  For the purposes of subsection (6), a trust estate shall be taken to have incurred a primary production loss in relation to a year of income if the aggregate of the relevant primary production deductions allowable in calculating the amount of the net income of the trust estate of the year of income exceeds the assessable primary production income of the trust estate of the year of income, and the amount of that loss shall be taken to be the amount of the excess.

             (8)  For the purposes of subsection (6), a trust estate shall be taken to have a non‑primary production profit in relation to a year of income if the assessable income of the trust estate of the year of income other than assessable primary production income exceeds the aggregate of the deductions (other than relevant primary production deductions) allowable in calculating the amount of the net income of the trust estate of the year of income.

157  Application of Division to primary producers

             (1)  In respect of income derived during the year ending on 30 June 1938 and during any subsequent year or during any accounting period adopted in lieu of any such year, the foregoing provisions of this Division shall not apply except in respect of income derived by a primary producer.

             (2)  For the purposes of this section, primary producer means a person who carries on in Australia a primary production business.

             (3)  Subject to subsection (3A), for the purposes only of determining whether a person is carrying on a primary production business, a beneficiary in a trust estate shall, to the extent to which he or she is presently entitled to the income or part of the income of that estate, be deemed to be carrying on the business carried on by the trustees of the estate which produces that income.

          (3A)  Subsection (3) does not operate to deem a beneficiary in a trust estate who is presently entitled to the income or a part of the income of that estate to be carrying on the business carried on by the trustees of the trust estate in a year of income unless:

                     (a)  the share of the income of that trust estate of the year of income to which the beneficiary is presently entitled is not less than $1,040; or

                     (b)  the Commissioner is satisfied that the interest of the beneficiary in the trust estate was not acquired by, or granted to, the beneficiary for the purpose, or primarily for the purpose, of enabling the provisions of this Division to apply in respect of income derived by the beneficiary.

             (4)  If in any year in respect of which this Division applies only to taxpayers who are primary producers, a taxpayer was not carrying on business as a primary producer, that year shall not be counted as an average year and the provisions of this Division shall apply to the income thereafter derived by the taxpayer as if he or she had never been a taxpayer before that year.

158  Application of Division

                   This Division shall not apply in any case where there are not at least 2 average years or where the taxpayer is assessed in accordance with section 99A in respect of the year of income, and shall not apply to the taxable income of a company except income in respect of which it is assessable as a trustee.

158A  Election that Division not apply

             (1)  A taxpayer may elect that this Division shall not apply in relation to income of the taxpayer of a year of income specified in the election and of all subsequent years of income.

             (2)  An election in pursuance of subsection (1) shall be made in writing and lodged with the Commissioner on or before the date of lodgment of the return of income of the taxpayer for the year of income specified in the election or within such further time as the Commissioner allows.

             (3)  Where a taxpayer makes an election under subsection (1), this Division shall not apply in relation to income of the taxpayer of the year of income specified in the election or of any subsequent year of income.

Division 16DCertain arrangements relating to the use of property

159GE  Interpretation

             (1)  In this Division:

arrangement includes:

                     (a)  any agreement, arrangement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable, or intended to be enforceable, by legal proceedings; and

                     (b)  any scheme, plan, proposal, action, course of action or course of conduct whether unilateral or otherwise.

arrangement payment, in relation to an arrangement relating to the use, or the control of the use, of an item of property, means so much of any payment liable to be made under the arrangement as represents consideration for any one or more of the following:

                     (a)  the use of the item;

                     (b)  the control of the use of the item;

                     (c)  the sale or disposal of the item.

arrangement period, in relation to an item of eligible property that is, or is included in, arrangement property in relation to an arrangement at a particular time, means the period that is at that time the total period during which the arrangement is likely to be in force in relation to that item of eligible property (including any period before that time when the arrangement was in force in relation to that item of eligible property).

arrangement property means property that is, or is to be, used, or the use of which is, or is to be, controlled, under an arrangement.

assessable arrangement payment means an arrangement payment that, apart from this Division, would be included in whole or in part in the assessable income of a taxpayer of a year of income.

associate means, in relation to a person other than an exempt public body, any person who is an associate, within the meaning of section 318, in relation to the person or, in relation to an exempt public body:

                     (a)  a partner of the exempt public body or a partnership in which the exempt public body is a partner; or

                     (b)  if a partner of the exempt public body is a natural person otherwise than in the capacity of trustee—the spouse or a child of that partner; or

                     (c)  a trustee of a trust where the exempt public body, or another entity that is an associate of the exempt public body because of paragraph (a), (b) or (d), benefits under the trust; or

                     (d)  a company where:

                              (i)  the company is sufficiently influenced by:

                                        (A)  the exempt public body; or

                                        (B)  another entity that is an associate of the exempt public body because of paragraph (a), (b) or (c); or

                                        (C)  another company that is an associate of the exempt public body because of another application of this paragraph; or

                                        (D)  2 or more entities covered by the preceding sub‑subparagraphs; or

                             (ii)  a majority voting interest in the company is held by:

                                        (A)  the exempt public body; or

                                        (B)  the entities that are associates of the primary entity because of subparagraph (i) of this paragraph and paragraphs (a), (b) and (c); or

                                        (C)  the exempt public body and the entities that are associates of the exempt public body because of subparagraph (i) of this paragraph and because of paragraphs (a), (b) and (c).

Subsections 318(6) and (7) apply for the purposes of paragraphs (a) to (d) in the same way as those subsections apply for the purposes of section 318.

capital expenditure deduction means a deduction:

                     (a)  under the former Division 10, 10AAA, 10AA, 10A, 10C or 10D of this Part; or

                     (b)  under Subdivision 40‑B of the Income Tax Assessment Act 1997 for a depreciating asset that is a forestry road or timber mill building; or

                     (c)  under Division 43 of that Act; or

                     (d)  under section 40‑830 of that Act for an amount that is a project amount under subsection 40‑840(1) (about mining capital expenditure and transport capital expenditure); or

                     (e)  under the former Subdivision 330‑C, 330‑H or 387‑G of that Act.

control means effectively control.

depreciation deduction means a deduction:

                     (a)  in respect of depreciation under Division 3 of this Act or the former Division 42 of the Income Tax Assessment Act 1997; or

                     (b)  for the decline in value of a depreciating asset under Division 40 of the Income Tax Assessment Act 1997.

Division 10, 10AA or 10A property means property in relation to which there has been incurred:

                     (a)  allowable capital expenditure within the meaning of the former Division 10 or 10AA of this Part or the former Subdivision 330‑C of the Income Tax Assessment Act 1997 or mining capital expenditure within the meaning of section 40‑860 of that Act;

                     (b)  expenditure taken into account in ascertaining an amount of residual capital expenditure specified in the former paragraph 122C(1)(a); or

                     (c)  capital expenditure specified in the former subsection 124F(1) or 124JA(1) of this Act or the former section 387‑460 of the Income Tax Assessment Act 1997; or

                     (d)  capital expenditure on a forestry road in connection with a timber operation, or capital expenditure for the construction or acquisition of a timber mill building.

Division 10AAA property means property in relation to which there has been incurred capital expenditure to which the former Division 10AAA of this Part applies or transport capital expenditure within the meaning of the former Subdivision 330‑H, or section 40‑865 of the Income Tax Assessment Act 1997.

Division 10C or 10D property means property in relation to which there has been incurred qualifying expenditure within the meaning of the former Division 10C or 10D or for which there is a pool of construction expenditure within the meaning of Division 43 of the Income Tax Assessment Act 1997.

effective life, in relation to an item of eligible property at a particular time, means the period (if any) that the Commissioner estimates will be, or would be, at that time the effective life of the property after that time assuming that it is or would be maintained in reasonably good order and condition.

eligible amount, in relation to an item of eligible property, means:

                     (a)  where the item is an item of eligible depreciation property—the amount that:

                              (i)  was the cost of the item of property within the meaning of Division 40, or the former Division 42, of the Income Tax Assessment Act 1997 to the taxpayer who holds it; or

                             (ii)  would have been the cost of the item of property to the taxpayer for the purposes of that Division if that Division had applied in relation to the item of property; and

                     (b)  where the item is an item of eligible capital expenditure property—any amount of eligible capital expenditure in relation to the item of property.

eligible capital expenditure, in relation to an item of eligible capital expenditure property, means expenditure by reason of which the item of property is eligible capital expenditure property.

eligible capital expenditure property means Division 10, 10AA or 10A property, Division 10AAA property, Division 10C or 10D property or eligible spectrum licences.

eligible depreciation property means:

                     (a)  plant or articles within the meaning of the former section 54 of this Act; or

                     (b)  plant within the meaning of the former section 42‑18 of the Income Tax Assessment Act 1997 or plant within the meaning of section 45‑40 of that Act; or

                     (c)  a depreciating asset within the meaning of Division 40 of that Act.

eligible property means:

                     (a)  eligible depreciation property;

                     (b)  Division 10, 10AA or 10A property;

                     (c)  Division 10AAA property;

                     (d)  Division 10C or 10D property; or

                     (e)  eligible spectrum licences.

eligible real property, means eligible property that is:

                     (a)  a building or a part of a building; or

                     (b)  a structure that is a fixture or a part of such a structure.

eligible spectrum licence means a spectrum licence within the meaning of the Income Tax Assessment Act 1997.

exempt public body means:

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

                    (aa)  an STB (within the meaning of Division 1AB) the income of which is wholly exempt from tax; or

                     (b)  a municipal corporation or other local governing body, the income of which is wholly exempt from tax; or

                     (c)  a public authority:

                              (i)  that is constituted by or under a law of the Commonwealth, a State or a Territory; and

                             (ii)  the income of which is wholly exempt from tax.

payment portion, in relation to an arrangement payment in relation to an eligible amount in relation to an item of eligible property, means so much of the arrangement payment as the Commissioner considers is attributable to the eligible amount in relation to the item of eligible property.

person includes an exempt public body.

total notional principal, in relation to an eligible amount in relation to an item of eligible property in relation to an application period, means the sum of all notional principal amounts (if any) in relation to payment portions of arrangement payments in relation to the eligible amount in relation to the application period.

Note:          This Division applies to deductions under Division 40 (Capital allowances) and Division 43 (Capital works) of the Income Tax Assessment Act 1997 as if you were the owner of an asset you hold (under that Division) instead of any other person: see section 40‑135 of that Act.

             (2)  For the purposes of the definition of  arrangement period in subsection (1), a reference in that definition to the total period during which an arrangement is, at a particular time, likely to be in force in relation to an item of eligible property that at that time is, or is included in, arrangement property in relation to the arrangement is a reference to:

                     (a)  where at that time the total period during which the arrangement was, or is, to be in force in relation to that item of eligible property (including any period before that time when the arrangement was in force in relation to that item) was or is specified in or ascertainable in accordance with the arrangement—that period; and

                     (b)  in any other case—such period as would have been, or is, at that time the period during which the arrangement would be, or is, likely to be in force in relation to the item of property (including any period before that time when the arrangement was in force in relation to the item), having regard to the provisions of the arrangement and any other relevant circumstances in relation to the arrangement, or in relation to the item of property.

             (3)  Nothing in this Division prevents an item of eligible property from being an item of eligible property by reason of the application of 2 or more paragraphs of the definition of eligible property in subsection (1).

             (4)  For the purposes of the definition of total notional principal in subsection (1), where:

                     (a)  under section 159GK there is an interest amount within the meaning of that section in relation to a payment portion (not being a notional final payment portion within the meaning of that section) in relation to an arrangement payment; and

                     (b)  the interest amount is less than the amount of the payment portion;

there shall be taken to be a notional principal amount in relation to the payment portion of an amount equal to the difference between the interest amount and the amount of the payment portion.

             (5)  Where:

                     (a)  under 2 or more successive arrangements relating to the use by a person, or the control by a person of the use, of property owned by another person, the same property is used by, or the use of the same property is controlled by, the same person or by persons who, in relation to each other, are associates; and

                     (b)  the Commissioner considers that the arrangements should be taken, for the purposes of this Division, to be a single arrangement;

the arrangements shall, for the purposes of this Division, be deemed to be a single arrangement entered into at the same time as the first of the arrangements, coming into force at the same time as the first of the arrangements and continuing in force until the expiration of the second or last, as the case requires, of the arrangements.

             (6)  A reference in subsection (5) to successive arrangements includes a reference to:

                     (a)  where the arrangement periods of 2 or more arrangements overlap—those arrangements; and

                     (b)  where there is a period between the expiration of an arrangement and the commencement of another arrangement and the Commissioner considers that the arrangements should be taken to be successive arrangements for the purposes of that subsection—those arrangements.

             (7)  Where this Division applies in relation to an item of eligible property in relation to a qualifying arrangement, a reference in this Division to the application period in relation to that application of this Division in relation to the item of eligible property is a reference to the period commencing at the time at which this Division in that application commences to apply and ending at the time at which this Division in that application ceases to apply.

             (8)  For the purposes of this Division, where one or more of the partners in a partnership uses, or controls the use of, an item of property, each of the partners in the partnership shall be taken to use, or to control the use of, the item of property and the partnership shall be taken not to use, or to control the use of, the item of property.

           (10)  For the purpose of this Division, disregard an acquisition or disposal of property by way of the transfer of the property for the provision or redemption of a security. Consequently this Division applies as if the person who was the owner of the property before the transfer continues to be the owner after the transfer.

159GEA  Division applies to certain State/Territory bodies

                   In addition to any other operation that this Division has, this Division operates as if the references to an exempt public body included a reference to a prescribed excluded STB (within the meaning of Division 1AB).

159GF  Residual amounts

             (1)  Subject to subsection 159GJ(1), in this Division a reference to the residual amount at a particular time (in this subsection referred to as the relevant time) in relation to the eligible amount by reason of which an item of property is eligible depreciation property at the relevant time is a reference to the eligible amount reduced by:

                     (a)  where the item of property was not dealt with by the taxpayer who holds the item in the prescribed manner at any time during the period (in this subsection referred to as the relevant period) before the relevant time when it was held by the taxpayer (within the meaning of Division 40 of the Income Tax Assessment Act 1997)—the total amount of deductions for depreciation or decline in value that would, but for any deduction denying provision, have been allowable to the taxpayer under this Act or the Income Tax Assessment Act 1997 in respect of that item of property for the relevant period if:

                              (i)  at all times during the relevant period the taxpayer had wholly and exclusively dealt with the item of property in the prescribed manner; and

                             (ii)  those deductions were calculated using the diminishing value method; and

                            (iii)  section 57AG, as in force immediately before the commencement of section 1 of the Taxation Laws Amendment Act 1992, did not apply in relation to the item of property;

                     (b)  where the item of property was wholly and exclusively dealt with by the taxpayer who held the item in the prescribed manner at all times during the relevant period—the total amount of deductions for depreciation or decline in value that were or, but for any deduction denying provision, would have been, allowed or allowable to the taxpayer in respect of the item of property for that period under this Act or the Income Tax Assessment Act 1997; and

                     (c)  in any other case—the total amount of deductions for depreciation or decline in value that, but for any deduction denying provision, would have been allowable to the taxpayer who holds the item of property in respect of the item under this Act or the Income Tax Assessment Act 1997 for the relevant period if:

                              (i)  the taxpayer had wholly and exclusively dealt with the item of property in the prescribed manner at all times during the relevant period; and

                             (ii)  in respect of any part of the relevant period for which deductions for depreciation or decline in value were or, but for any deduction denying provision, would have been allowed or allowable under this Act or the Income Tax Assessment Act 1997—the deductions were allowable on the same basis and at the same percentage as was or would have been allowed or allowable for that part of the relevant period; and

                            (iii)  in respect of any other part (in this subparagraph referred to as the relevant part) of the relevant period—the deductions were allowable:

                                        (A)  where the relevant part was immediately succeeded by another part of the relevant period in respect of which deductions for depreciation or decline in value were or, but for any deduction denying provision, would have been allowed or allowable under this Act or the Income Tax Assessment Act 1997—on the same basis and at the same percentage as was or would have been allowed or allowable in respect of that other part; and

                                        (B)  in any other case—on the same basis and at the same percentage as was or, but for any deduction denying provision, would have been allowed or allowable under this Act or the Income Tax Assessment Act 1997 in respect of the part of the relevant period for which deductions for depreciation or decline in value was or would have been allowed or allowable, being the part that immediately preceded the relevant part.

             (2)  For the purposes of subsection (1):

                     (a)  an item of eligible depreciation property shall be taken to be dealt with by a taxpayer in the prescribed manner at a particular time if:

                              (i)  the item of property is used by the taxpayer at that time for the purpose of producing assessable income; or

                             (ii)  the item of property is, at that time, installed ready for use for the purpose of producing assessable income and held in reserve by the taxpayer; and

                     (b)  a reference to a deduction denying provision is a reference to a provision of this Act that would have the effect of denying an entitlement in whole or in part to a deduction otherwise wholly allowable under this Act.

             (3)  Subject to subsection 159GJ(2), where any of the following amounts (in this subsection referred to as the attributable amount):

                     (a)  an amount of residual previous capital expenditure within the meaning of the former Division 10 or 10AA;

                     (b)  an amount of residual capital expenditure within the meaning of the former Division 10, 10AA or 10A;

                     (c)  an amount of residual (1 May 1981 to 18 August 1981) capital expenditure within the meaning of the former Division 10 or 10AA;

                     (d)  an amount of residual (19 August 1981 to 19 July 1982) capital expenditure within the meaning of the former Division 10 or 10AA;

                     (e)  so much as is unrecouped of an amount of allowable (post‑19 July 1982) capital expenditure within the meaning of the former Division 10 or 10AA;

                      (f)  so much as is unrecouped of an amount of allowable capital expenditure within the meaning of the former Subdivision 330‑C of the Income Tax Assessment Act 1997;

                    (fa)  so much of an amount of mining capital expenditure or transport capital expenditure (within the meaning of the Income Tax Assessment Act 1997) as has not been deducted under Division 40 of that Act;

                     (g)  the difference between capital expenditure and previous deductions as defined in the former subsection 387‑470(1) of the Income Tax Assessment Act 1997;

                     (h)  the difference between the cost of a forestry road or timber mill building for the purposes of Division 40 of the Income Tax Assessment Act 1997 and its adjustable value for the purposes of that Division;

ascertained as at the end of a year of income, is attributable in whole or in part to an amount of expenditure (in this subsection referred to as the relevant expenditure) by reason of which an item of property is Division 10, 10AA or 10A property, in this Division a reference to the residual amount at any time during the year of income in relation to the relevant expenditure is a reference to so much of the attributable amount as is attributable to the relevant expenditure.

             (4)  Subject to subsection 159GJ(3), in this Division a reference to the residual amount at a particular time in relation to an amount of expenditure by reason of which an item of property is Division 10AAA property is a reference to the amount of expenditure reduced by any part of that expenditure that has been allowed or is allowable as a deduction under the former Division 10AAA of this Part or the former Subdivision 330‑H of the Income Tax Assessment Act 1997, or under Subdivision 40‑I of that Act for transport capital expenditure, from the assessable income of any taxpayer of a year of income preceding the year of income in which the particular time occurs.

             (5)  Subject to subsection 159GJ(4), in this Division a reference to the residual amount at a particular time in relation to an amount of expenditure by reason of which an item of property is Division 10C or 10D property is a reference to the residual capital expenditure within the meaning of the former Division 10C or 10D of this Part, or to the undeducted construction expenditure within the meaning of Division 43 of the Income Tax Assessment Act 1997, as appropriate, at that time in relation to the amount of expenditure.

             (6)  In this Division, a reference to the residual amount at a particular time in relation to an amount of expenditure because of which an item of property is an eligible spectrum licence is a reference to:

                     (a)  the amount of unrecouped expenditure (within the meaning of the former section 380‑20 of the Income Tax Assessment Act 1997) on that licence at that time; or

                     (b)  the adjustable value of that licence (within the meaning of Division 40 of that Act) at that time.

159GG  Qualifying arrangements

             (1)  For the purposes of this Division, where at any time (in this subsection referred to as the relevant time) any of the following conditions is satisfied in relation to an arrangement relating to the use by a person (in this subsection referred to as the end‑user), or to the control by a person (in this subsection also referred to as the end‑user) of the use, of property owned by another person who is a party to the arrangement, being property that is or includes an item of eligible property:

                     (a)  the arrangement contains provision to the effect that:

                              (i)  if:

                                        (A)  on the termination or expiration of the arrangement, the owner sells or otherwise disposes of the whole of the arrangement property, or part of the arrangement property that is or includes the item of eligible property, to any person; and

                                        (B)  the owner or an associate receives in respect of the sale or disposal no consideration, or consideration of an amount less than an amount (in this subparagraph referred to as the guaranteed residual value) specified in, or ascertainable under, the provision;

                                   the end‑user or an associate will pay to the owner or an associate an amount equal to the guaranteed residual value, or to the amount by which the guaranteed residual value exceeds the consideration, as the case may be;

                             (ii)  at or after the termination or expiration of the arrangement, the whole of the arrangement property or part of the arrangement property that is or includes the item of eligible property is to be transferred (whether or not for any consideration) to the end‑user or an associate;

                            (iii)  the end‑user or an associate has or will have the right to purchase or to require the transfer of the whole of the arrangement property or part of the arrangement property that is or includes the item of eligible property; or

                            (iv)  the arrangement period in relation to the item of eligible property in relation to the arrangement is a period that exceeds 1 year and the end‑user or an associate will be liable to carry out, to expend money in respect of or to reimburse the owner or an associate for expenditure in respect of, repairs that may be required to the whole of the arrangement property or to part of the arrangement property that is or includes the item of eligible property;

                     (b)  the arrangement period in relation to the item of eligible property in relation to the arrangement is equal to or greater than:

                              (i)  where the item is an item of eligible real property—50% of the effective life of that item at the commencement of the arrangement period; or

                             (ii)  in any other case—75% of the effective life of that item at the commencement of the arrangement period;

                     (c)  the sum of:

                              (i)  the payment portions of arrangement payments that were liable to be made at or before the relevant time in relation to the eligible amount, or in relation to all of the eligible amounts (including any eligible amount in respect of expenditure incurred after the commencement of the arrangement period), in relation to the item of eligible property; and

                             (ii)  the payment portions of arrangement payments that, having regard to the provisions of the arrangement and any other relevant circumstances, are or were, at the relevant time, likely to become liable to be made after the relevant time in relation to the eligible amount, or in relation to all of the eligible amounts (including any eligible amount in respect of expenditure that, having regard to the provisions of the arrangement and any other relevant circumstances, is or was likely to be incurred during the arrangement period), in relation to the item of eligible property;

                            is equal to or greater than 90% of the sum of:

                            (iii)  the residual amount in relation to the eligible amount, or the sum of the residual amounts in relation to the eligible amounts, in respect of which expenditure was incurred before the commencement of the arrangement period in relation to the item of eligible property, as ascertained at the commencement of the arrangement period; and

                            (iv)  the amount of any expenditure that was, or is likely to be, incurred during the arrangement period, being expenditure giving rise to an eligible amount in relation to the item of eligible property;

the arrangement shall be taken to be, or to have been, a qualifying arrangement in relation to the item of eligible property:

                     (d)  at the relevant time; and

                     (e)  at all times before the relevant time when the arrangement was in force in relation to the item of eligible property.

             (2)  For the purposes of this Division, where:

                     (a)  an item of eligible property is, or is included in, arrangement property in relation to an arrangement relating to the use by a person (in this subsection referred to as the end‑user), or to the control by a person (in this subsection also referred to as the end‑user) of the use, of property owned by another person who is a party to the arrangement; and

                     (b)  the ownership of the item of eligible property is transferred to the end‑user or an associate within 1 year after the arrangement ceases to be in force (whether by termination or expiration) in relation to the item of eligible property;

the arrangement shall be taken to have been a qualifying arrangement in relation to the item of eligible property at all times during the period during which the arrangement was in force in relation to the item of eligible property.

             (3)  For the purposes of subsections (1) and (2):

                     (a)  a lease to a person of property owned by another person shall be taken to be an arrangement relating to the use by the person of property owned by the other person; and

                     (b)  any arrangement entered into in relation to the lease referred to in paragraph (a) shall be taken to be part of the arrangement referred to in that paragraph.

             (4)  Where, but for this subsection, an arrangement would be a qualifying arrangement in relation to an item of eligible property at a particular time (in this subsection referred to as the relevant time) and the Commissioner, having regard to:

                     (a)  the circumstances by reason of which the arrangement is a qualifying arrangement in relation to that item of eligible property; and

                     (b)  any other relevant circumstances;

considers it unreasonable that the arrangement should be a qualifying arrangement at the relevant time in relation to the item of eligible property, the arrangement shall be taken not to be a qualifying arrangement at the relevant time in relation to the item of eligible property.

             (5)  Where an arrangement is a qualifying arrangement in relation to an item of eligible property at a particular time (in this subsection referred to as the relevant time) and the arrangement ceases to be a qualifying arrangement in relation to that item of eligible property at a later time, the arrangement shall not be taken not to have been a qualifying arrangement in relation to that item of eligible property at the relevant time by reason of it ceasing to be a qualifying arrangement in relation to that item of eligible property at the later time.

159GH  Application of Division in relation to property

          (1A)  This Division does not apply in relation to the item of eligible property that is put to a tax preferred use (within the meaning of the Income Tax Assessment Act 1997) if the tax preferred use:

                     (a)  starts on or after 1 July 2007; and

                     (b)  does not occur under a legally enforceable arrangement entered into before 1 July 2007.

          (1B)  This Division does not apply in relation to the item of eligible property that is put to a tax preferred use (within the meaning of the Income Tax Assessment Act 1997) if:

                     (a)  the tax preferred use starts on or after 1 July 2007; and

                     (b)  the tax preferred use occurs under a legally enforceable arrangement that was entered into before 1 July 2007; and

                     (c)  an election is made under item 71 of Schedule 1 to the Tax Laws Amendment (2007 Measures No. 5) Act 2007 to have subitem 71(2) of that Schedule apply to the property.

             (1)  Subject to subsections (1A), (1B) and (2), where:

                     (a)  at a particular time (in this subsection referred to as the relevant time) an arrangement is a qualifying arrangement under subsection 159GG(1) or (2) in relation to an item of eligible property; and

                     (b)  either of the following conditions is satisfied:

                              (i)  the qualifying arrangement was entered into after 5 o’clock in the afternoon, by standard time in the Australian Capital Territory, on 15 May 1984 and the end‑user referred to in subsection 159GG(1) or (2) is an exempt public body;

                             (ii)  the arrangement was entered into after 5 o’clock in the afternoon, by legal time in the Australian Capital Territory, on 16 December 1984 and the use of the property referred to in subsection 159GG(1) or (2) takes place, or will take place, outside Australia and is, or will be, wholly or partly for the purpose of producing exempt income;

this Division applies in relation to the item of eligible property at the relevant time.

             (2)  This Division does not apply in relation to an item of eligible property at a particular time if at that time section 51AD applies to the item of eligible property in relation to a taxpayer.

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

             (1)  Where this Division applies in relation to an item of eligible depreciation property:

                     (b)  in relation to any year of income the whole of which is included in or comprises the application period—no depreciation deduction shall be allowable to any taxpayer in relation to the item of property for that year of income;

                     (c)  in relation to any other year of income in which the whole or a part of the application period occurs:

                              (i)  in relation to any part (in this subsection referred to as the pre‑application part) of the year of income that precedes the application period—there shall be allowable to a taxpayer as a depreciation deduction in relation to the item of property:

                                        (A)  where this Division has not previously applied in relation to the item of property—the same depreciation deduction (if any) as would, apart from this Division, be allowable to the taxpayer; and

                                        (B)  in any other case—the same depreciation deduction (if any) as would, but for this application of this section, be allowable to the taxpayer;

                             (ii)  in relation to the part of the year of income during which this Division applies—no depreciation deduction shall be allowable to any taxpayer in relation to the item of property; and

                            (iii)  in relation to any part (in this subsection referred to as the post‑application part) of the year of income that occurs after the application period (not being a part that occurs after the commencement of a subsequent application period):

                                        (A)  the residual amount in relation to the item of eligible depreciation property at any time (in this sub‑subparagraph referred to as the relevant time) during the post‑application part is an amount ascertained in accordance with the formula:

                                              

                                               where:

                                               A is the amount that, but for this application of this section, would be the residual amount at the relevant time in relation to the eligible amount (in this subparagraph referred to as the relevant eligible amount) by reason of which the item is an item of eligible depreciation property.

                                               B is:

                                                (a)  where paragraph (b) of this component does not apply—the amount that, in determining the residual amount in component A, would be taken into account as depreciation under subsection 159GF(1) in respect of the application period; and

                                                (b)  where, in determining the residual amount in component A, depreciation deductions taken into account in respect of the post‑application part would be calculated under this Act or the Income Tax Assessment Act 1997 using the diminishing value method—the amount that, in determining the residual amount in component A, would be taken into account under subsection 159GF(1) as depreciation deductions in respect of the application period and the part of the post‑application part before the relevant time; and

                                               C is:

                                                (a)  where paragraph (a) of component B applies—an amount equal to the total notional principal in relation to the relevant eligible amount in relation to the application period; and

                                                (b)  where paragraph (b) of component B applies—the sum of:

                                                        (i)   the total notional principal in relation to the relevant eligible amount in relation to the application period; and

                                                       (ii)   the amount that, in determining the residual amount in component A, would be taken into account as depreciation deductions under subsection 159GF(1) in respect of the part of the post‑application part before the relevant time if the depreciated value under this Act, the undeducted cost under the former Division 42 of the Income Tax Assessment Act 1997 or the adjustable value under Division 40 of that Act, of the item of eligible depreciation property at the beginning of the year of income in which this Division ceases to apply were equal to the residual amount at the beginning of the application period as reduced by the total notional principal in relation to the relevant eligible amount in relation to the application period;

                                        (B)  for the purposes of any application of this Act or the Income Tax Assessment Act 1997, in relation to the item of property in relation to the post‑application part—the depreciated value, within the meaning of Division 3 of this Part, the undeducted cost under the former Division 42 of the Income Tax Assessment Act 1997 or the adjustable value under Division 40 of that Act, of the item of property at any time during the post‑application part shall be taken to be an amount equal to the residual amount in relation to the relevant eligible amount at that time as ascertained in accordance with sub‑subparagraph (A); and

                                        (C)  the depreciation deduction (if any) allowable to a taxpayer in relation to the item of property in relation to the post‑application part is the depreciation deduction that would be allowable in respect of that period if this Division did not apply and, in the case of an item of property in relation to which the former paragraph 56(1)(a) of this Act or the diminishing value method under the former Division 42, or Division 40, of the Income Tax Assessment Act 1997 would, apart from this Division, apply, if the depreciated value, within the meaning of the former section 62 of this Act, the undeducted cost, under the former Division 42 of the Income Tax Assessment Act 1997 or the adjustable value under Division 40 of that Act, of the item of property at the beginning of the year of income were equal to the residual amount, as ascertained under sub‑subparagraph (A), in relation to the relevant eligible amount at the commencement of the post‑application part;

                     (d)  the residual amount at any time (in this paragraph referred to as the relevant time) after the year of income in which the application period ends (not being a time after the commencement of a subsequent application period) in relation to the eligible amount (in this paragraph referred to as the relevant eligible amount) by reason of which the item is an item of eligible depreciation property is the amount that would be the residual amount in relation to the relevant eligible amount in relation to the relevant time under sub‑subparagraph (1)(c)(iii)(A) if the post‑application part referred to in that sub‑subparagraph extended to include the relevant time; and

                     (e)  for the purpose of the application of this Act and the Income Tax Assessment Act 1997 in relation to the item of property at any time after the year of income in which the application period ends—there shall be taken to have been allowed as a depreciation deduction in relation to the item of property in relation to the application period an amount equal to the total notional principal in relation to the eligible amount by reason of which the item of property is eligible depreciation property in relation to the application period.

             (2)  Where this Division applies in relation to an item of Division 10, 10AA or 10A property:

                     (a)  no deduction is allowable to any taxpayer under:

                             (ii)  section 40‑830 of the Income Tax Assessment Act 1997 for a project amount that is mining capital expenditure within the meaning of that Act; or

                            (iii)  Subdivision 40‑B of that Act for a depreciating asset that is a forestry road or timber mill building;

                            in relation to any amount of expenditure (not being expenditure incurred after the application period) by reason of which the item is Division 10, 10AA or 10A property for any year of income in which the whole or a part of the application period occurs;

                     (b)  the residual amount at any time after the application period (not being a time after the commencement of a subsequent application period) in relation to an amount of expenditure (not being expenditure incurred after the application period) by reason of which the item is Division 10, 10AA or 10A property is an amount equal to the amount that, but for this paragraph, would be the residual amount at that time in relation to the amount of expenditure under subsection 159GF(3) reduced by an amount equal to the total notional principal in relation to the amount of expenditure in relation to the application period and any prior application period; and

                     (c)  for the purposes of the application of:

                             (ii)  section 40‑830 of the Income Tax Assessment Act 1997 for a project amount that is mining capital expenditure within the meaning of that Act; or

                            (iii)  Subdivision 40‑B of that Act for a depreciating asset that is a forestry road or timber mill building;

                            in relation to an amount of expenditure (not being expenditure incurred after the application period) by reason of which the item is Division 10, 10AA or 10A property at any time after the application period, there shall be taken to have been allowed in respect of the amount of expenditure a deduction under whichever of those provisions applies in respect of the amount of expenditure of an amount equal to the total notional principal in relation to the amount of expenditure in relation to the application period.

             (3)  Where this Division applies in relation to an item of Division 10AAA property:

                     (a)  no deduction is allowable to any taxpayer under section 40‑830 of the Income Tax Assessment Act 1997 for a project amount that is transport capital expenditure within the meaning of that Act in relation to any amount of expenditure (not being expenditure incurred after the application period) by reason of which the item is Division 10AAA property for any year of income in which the whole or a part of the application period occurs; and

                     (b)  the residual amount at any time after the application period (not being a time after the commencement of a subsequent application period) in relation to an amount of expenditure (not being expenditure incurred after the application period) by reason of which the item is Division 10AAA property is an amount equal to the amount that, but for this paragraph, would be the residual amount at that time in relation to the amount of expenditure under subsection 159GF(4) reduced by an amount equal to the total notional principal in relation to the amount of expenditure in relation to the application period and any prior application period; and

                     (c)  for the purposes of the application of section 40‑830 of the Income Tax Assessment Act 1997, for a project amount that is transport capital expenditure within the meaning of that Act, in relation to an amount of expenditure (not being expenditure incurred after the application period) by reason of which the item is Division 10AAA property for any year of income after the year of income in which this Division ceases to apply—it is taken to be a requirement of that section that the deduction allowable under that section in respect of the amount of expenditure does not exceed the residual amount in relation to the amount of expenditure as worked out in accordance with paragraph (b).

             (4)  Where this Division applies in relation to an item of Division 10C or 10D property:

                     (a)  in relation to any year of income the whole of which is included in or comprises the application period—no deduction shall be allowable to any taxpayer under Division 43 of the Income Tax Assessment Act 1997, in relation to any amount of expenditure by reason of which the item is Division 10C or 10D property for that year of income;

                     (b)  in relation to any other year of income in which the whole or a part of the application period occurs:

                              (i)  in relation to any part (in this subsection referred to as the pre‑application part) of the year of income that precedes the application period—there shall be allowable to the taxpayer as a deduction under Division 43 of the Income Tax Assessment Act 1997 in relation to an amount of expenditure by reason of which the item is Division 10C or 10D property:

                                        (A)  where this Division has not previously applied in relation to the amount of expenditure—the same deduction (if any) as would, apart from this Division, be allowable under that Division; and

                                        (B)  in any other case—the same deduction (if any) as would, but for this application of this section, be allowable under that Division;

                             (ii)  in relation to the part of the year of income during which this Division applies—no deduction shall be allowable to any taxpayer under Division 43 of the Income Tax Assessment Act 1997 in relation to any amount of expenditure by reason of which the item is Division 10C or 10D property; and

                            (iii)  in relation to any part (in this subsection referred to as the post‑application part) of the year of income that occurs after the application period (not being a part that occurs after the commencement of a subsequent application period):

                                        (A)  the residual amount at any time during the post‑application part in relation to an amount of expenditure (not being expenditure incurred after the application period) by reason of which the item is Division 10C or 10D property is an amount equal to the amount that, but for this paragraph, would be the residual amount at that time in relation to the amount of expenditure under subsection 159GF(5) reduced by an amount equal to the total notional principal in relation to the amount of expenditure in relation to the application period and any prior application period; and

                                        (C)  the deduction (if any) allowable to a taxpayer in relation to an amount of expenditure (not being expenditure incurred after the application period) by reason of which the item is Division 10C or 10D property under Division 43 of the Income Tax Assessment Act 1997 in relation to the post‑application part is the deduction (if any) that would be allowable to the taxpayer under that Division in respect of that period if this Division (other than this sub‑subparagraph) did not apply and if it were a requirement of that Division that the deduction did not exceed the residual amount in relation to the amount of expenditure as ascertained in accordance with sub‑subparagraph (A);

                     (c)  the residual amount at any time after the year of income in which the application period ends (not being a time after the commencement of a subsequent application period) in relation to an amount of expenditure (not being expenditure incurred after the application period) by reason of which the item is Division 10C or 10D property is the amount that, but for this paragraph, would be the residual amount at that time in relation to the amount of expenditure under subsection 159GF (5) reduced by an amount equal to the total notional principal in relation to the amount of expenditure in relation to the application period and any prior application period; and

                     (d)  in the application of Division 43 of the Income Tax Assessment Act 1997 in relation to any year of income after the year of income in which this Division ceases to apply, in relation to an amount of expenditure (not being expenditure incurred after the application period) by reason of which the item is Division 10C or 10D property it shall be taken to be a requirement of Division 43 of the Income Tax Assessment Act 1997 that the deduction (if any) allowable to a taxpayer under that Division in respect of the amount of expenditure does not exceed the residual amount in relation to the amount of expenditure as ascertained in accordance with paragraph (c).

             (5)  If this Division applies in relation to an item of property that is an eligible spectrum licence:

                     (a)  an amount cannot be deducted under Division 40 of the Income Tax Assessment Act 1997 in relation to any amount of expenditure (other than expenditure incurred after the application period) by reason of which the item is an eligible spectrum licence for any year of income in which any of the application period occurs; and

                     (b)  the residual amount at any time after the application period (but before the start of a later application period) in relation to an amount of expenditure (other than ex