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Income Tax Assessment Act 1997

Authoritative Version
  • - C2019C00148
  • In force - Superseded Version
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Act No. 38 of 1997 as amended, taking into account amendments up to Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019
An Act about income tax and related matters
Administered by: Treasury
General Comments: Division 40, Subdivision 40-D, Section 40-340, Subdivision 328-G and Sections 328-430 and 328-450 of this Act have been modified by the operation of the Commissioner’s Remedial Power, click here to see the modification
Registered 18 Apr 2019
Start Date 01 Apr 2019
End Date 05 Apr 2019

Commonwealth Coat of Arms of Australia

Income Tax Assessment Act 1997

No. 38, 1997

Compilation No. 192

Compilation date:                              1 April 2019

Includes amendments up to:            Act No. 16, 2019

Registered:                                         18 April 2019

This compilation is in 12 volumes

Volume 1:       sections 1‑1 to 36‑55

Volume 2:       sections 40‑1 to 67‑30

Volume 3:       sections 70‑1 to 121‑35

Volume 4:       sections 122‑1 to 197‑85

Volume 5:       sections 200‑1 to 253‑15

Volume 6:       sections 275‑1 to 313‑85

Volume 7:       sections 315‑1 to 420‑70

Volume 8:       sections 615‑1 to 721‑40

Volume 9:       sections 723‑1 to 855‑55

Volume 10:     sections 900‑1 to 995‑1

Volume 11:     Endnotes 1 to 3

Volume 12:     Endnotes 4 and 5

Each volume has its own contents

This compilation includes commenced amendments made by Act No. 7, 2019, Act No. 8, 2019 and Act No. 15, 2019

About this compilation

This compilation

This is a compilation of the Income Tax Assessment Act 1997 that shows the text of the law as amended and in force on 1 April 2019 (the compilation date).

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

Uncommenced amendments

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

Application, saving and transitional provisions for provisions and amendments

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

Editorial changes

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

Modifications

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

Self‑repealing provisions

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

  

  

  


Contents

Chapter 5—Administration                                                                                1

Part 5‑30—Record‑keeping and other obligations                                            1

Division 900—Substantiation rules                                                                       1

Guide to Division 900                                                                                                1

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

Subdivision 900‑A—Application of Division                                                      1

900‑5..................... Application of the requirements of Division 900................ 2

900‑10................... Substantiation requirement.................................................. 2

900‑12................... Application to recipients and payers of certain withholding payments     2

Subdivision 900‑B—Substantiating work expenses                                           3

900‑15................... Getting written evidence..................................................... 4

900‑20................... Keeping travel records........................................................ 4

900‑25................... Retaining the written evidence and travel records............... 5

900‑30................... Meaning of work expense................................................... 5

900‑35................... Exception for small total of expenses.................................. 7

900‑40................... Exception for laundry expenses below a certain limit......... 8

900‑45................... Exception for work expense related to award transport payment             8

900‑50................... Exception for domestic travel allowance expenses.............. 9

900‑55................... Exception for overseas travel allowance expenses.............. 9

900‑60................... Exception for reasonable overtime meal allowance........... 10

900‑65................... Crew members on international flights need not keep travel records        10

Subdivision 900‑C—Substantiating car expenses                                            10

900‑70................... Getting written evidence................................................... 10

900‑75................... Retaining the written evidence and odometer records....... 11

Subdivision 900‑D—Substantiating business travel expenses                       11

900‑80................... Getting written evidence................................................... 12

900‑85................... Keeping travel records...................................................... 12

900‑90................... Retaining the written evidence and travel records............. 12

900‑95................... Meaning of business travel expense................................. 13

Subdivision 900‑E—Written evidence                                                                14

Guide to Subdivision 900‑E                                                                                   14

900‑100................. What this Subdivision is about......................................... 14

Operative provisions                                                                                               14

900‑105................. Ways of getting written evidence...................................... 14

900‑110................. Time limits........................................................................ 15

900‑115................. Written evidence from supplier......................................... 15

900‑120................. Written evidence of depreciating asset expense................. 16

900‑125................. Evidence of small expenses.............................................. 17

900‑130................. Evidence of expenses considered otherwise too hard to substantiate       18

900‑135................. Evidence on a payment summary...................................... 18

Subdivision 900‑F—Travel records                                                                    18

Guide to Subdivision 900‑F                                                                                    18

900‑140................. What this Subdivision is about......................................... 18

900‑145................. Purpose of a travel record................................................. 19

Operative provisions                                                                                               19

900‑150................. Recording activities in travel records................................ 19

900‑155................. Showing which of your activities were income‑producing activities        19

Subdivision 900‑G—Retaining and producing records                                  20

Guide to Subdivision 900‑G                                                                                   20

900‑160................. What this Subdivision is about......................................... 20

900‑165................. The retention period.......................................................... 20

Operative provisions                                                                                               20

900‑170................. Extending the retention period if an expense is disputed... 20

900‑175................. Commissioner may tell you to produce your records........ 21

900‑180................. How to comply with a notice............................................ 21

900‑185................. What happens if you don’t comply................................... 21

Subdivision 900‑H—Relief from effects of failing to substantiate              22

900‑195................. Commissioner’s discretion to review failure to substantiate 22

900‑200................. Reasonable expectation that substantiation would not be required           22

900‑205................. What if your documents are lost or destroyed?................. 22

Subdivision 900‑I—Award transport payments                                               23

Guide to Subdivision 900‑I                                                                                     23

900‑210................. What this Subdivision is about......................................... 23

Operative provisions                                                                                               24

900‑215................. Deducting an expense related to an award transport payment  24

900‑220................. Definition of award transport payment............................ 25

900‑225................. Substituted industrial instruments..................................... 25

900‑230................. Changes to industrial instruments applied for before 29 October 1986    26

900‑235................. Changes to industrial instruments solely referable to matters in the instrument        26

900‑240................. Deducting in anticipation of receiving award transport payment              26

900‑245................. Effect of exception in this Subdivision on exception for small total of expenses     27

900‑250................. Effect of exception in this Subdivision on methods of calculating car expense deductions      27

Part 5‑35—Miscellaneous                                                                                                29

Division 905—Offences                                                                                             29

905‑5..................... Application of the Criminal Code..................................... 29

Division 909—Regulations                                                                                       30

909‑1..................... Regulations....................................................................... 30

Chapter 6—The Dictionary                                                                              31

Part 6‑1—Concepts and topics                                                                                     31

Division 950—Rules for interpreting this Act                                               31

950‑100................. What forms part of this Act.............................................. 31

950‑105................. What does not form part of this Act.................................. 32

950‑150................. Guides, and their role in interpreting this Act................... 32

Division 960—General                                                                                               33

Subdivision 960‑B—Utilisation of tax attributes                                             33

960‑20................... Utilisation......................................................................... 33

Subdivision 960‑C—Foreign currency                                                               34

960‑49................... Objects of this Subdivision............................................... 34

960‑50................... Translation of amounts into Australian currency.............. 35

960‑55................... Application of translation rules......................................... 43

Subdivision 960‑D—Functional currency                                                          44

Guide to Subdivision 960‑D                                                                                   44

960‑56................... What this Subdivision is about......................................... 44

Operative provisions                                                                                               45

960‑59................... Object of this Subdivision................................................ 45

960‑60................... You may choose a functional currency............................. 45

960‑61................... Functional currency for calculating capital gains and losses on indirect Australian real property interests.......................................................................................... 48

960‑65................... Backdated startup choice................................................... 49

960‑70................... What is the applicable functional currency?..................... 54

960‑75................... What is a transferor trust?................................................ 55

960‑80................... Translation rules............................................................... 56

960‑85................... Special rule about translation—events that happened before the current choice took effect      63

960‑90................... Withdrawal of choice........................................................ 64

Subdivision 960‑E—Entities                                                                                  67

960‑100................. Entities.............................................................................. 67

960‑105................. Certain entities treated as agents........................................ 68

Subdivision 960‑F—Distribution by corporate tax entities                           68

960‑115................. Meaning of corporate tax entity........................................ 69

960‑120................. Meaning of distribution.................................................... 69

Subdivision 960‑G—Membership of entities                                                     70

960‑130................. Members of entities.......................................................... 70

960‑135................. Membership interest in an entity....................................... 71

960‑140................. Ordinary membership interest........................................... 71

Subdivision 960‑GP—Participation interests in entities                                72

960‑180................. Total participation interest................................................. 72

960‑185................. Indirect participation interest............................................. 72

960‑190................. Direct participation interest............................................... 73

960‑195................. Non‑portfolio interest test................................................. 74

Subdivision 960‑H—Abnormal trading in shares or units                            74

960‑220................. Meaning of trading........................................................... 75

960‑225................. Abnormal trading.............................................................. 75

960‑230................. Abnormal trading—5% of shares or units in one transaction.. 76

960‑235................. Abnormal trading—suspected 5% of shares or units in a series of transactions      76

960‑240................. Abnormal trading—suspected acquisition or merger........ 76

960‑245................. Abnormal trading—20% of shares or units traded over 60 day period    77

Subdivision 960‑J—Family relationships                                                          77

Guide to Subdivision 960‑J                                                                                    77

960‑250................. What this Subdivision is about......................................... 77

Operative provisions                                                                                               78

960‑252................. Object of this Subdivision................................................ 78

960‑255................. Family relationships.......................................................... 78

Subdivision 960‑M—Indexation                                                                           79

Guide to Subdivision 960‑M                                                                                  79

960‑260................. What this Subdivision is about......................................... 79

960‑265................. The provisions for which indexation is relevant............... 80

Operative provisions                                                                                               81

960‑270................. Indexing amounts............................................................. 81

960‑275................. Indexation factor............................................................... 81

960‑280................. Index number.................................................................... 83

960‑285................. Indexation—superannuation and employment termination 84

960‑290................. Indexation—levy threshold for the major bank levy......... 86

Subdivision 960‑S—Market value                                                                       87

Guide to Subdivision 960‑S                                                                                    87

960‑400................. What this Subdivision is about......................................... 87

Operative provisions                                                                                               88

960‑405................. Effect of GST on market value of an asset........................ 88

960‑410................. Market value of non‑cash benefits.................................... 88

960‑412................. Working out market value using an approved method...... 88

960‑415................. Amounts that depend on market value.............................. 89

Subdivision 960‑T—Meaning of Australia                                                        89

Guide to Subdivision 960‑T                                                                                   89

960‑500................. What this Subdivision is about......................................... 89

Operative provisions                                                                                               90

960‑505................. Meaning of Australia........................................................ 90

Subdivision 960‑U—Significant global entities                                                91

Guide to Subdivision 960‑U                                                                                   91

960‑550................. What this Subdivision is about......................................... 91

Operative provisions                                                                                               91

960‑555................. Meaning of significant global entity.................................. 91

960‑560................. Meaning of global parent entity........................................ 93

960‑565................. Meaning of annual global income.................................... 93

960‑570................. Meaning of global financial statements............................ 93

Division 961—Notional tax offsets                                                                      95

Subdivision 961‑A—Dependant (non‑student child under 21 or student) notional tax offset      95

Guide to Subdivision 961‑A                                                                                   95

961‑1..................... What this Subdivision is about......................................... 95

Entitlement to the notional tax offset                                                                  96

961‑5..................... Who is entitled to the notional tax offset........................... 96

Amount of the notional tax offset                                                                         97

961‑10................... Amount of the dependant (non‑student child under 21 or student) notional tax offset             97

961‑15................... Reduced amounts of the dependant (non‑student child under 21 or student) notional tax offset              97

961‑20................... Reductions to take account of the dependant’s income..... 98

Subdivision 961‑B—Dependant (sole parent of a non‑student child under 21 or student) notional tax offset        98

Guide to Subdivision 961‑B                                                                                   98

961‑50................... What this Subdivision is about......................................... 98

Operative provisions                                                                                               99

961‑55................... Who is entitled to the notional tax offset........................... 99

961‑60................... Amount of the dependant (sole parent of a non‑student child under 21 or student) notional tax offset    99

961‑65................... Reductions to take account of change in circumstances.. 100

Division 974—Debt and equity interests                                                        101

Subdivision 974‑A—General                                                                               101

Guide to Division 974                                                                                            101

974‑1..................... What this Division is about............................................. 101

974‑5..................... Overview of Division..................................................... 102

Operative provisions                                                                                             103

974‑10................... Object............................................................................. 103

Subdivision 974‑B—Debt interests                                                                     105

974‑15................... Meaning of debt interest................................................. 106

974‑20................... The test for a debt interest............................................... 108

974‑25................... Exceptions to the debt test............................................... 110

974‑30................... Providing a financial benefit........................................... 111

974‑35................... Valuation of financial benefits—general rules................ 112

974‑40................... Valuation of financial benefits—rights and options to terminate early     114

974‑45................... Valuation of financial benefits—convertible interests..... 114

974‑50................... Valuation of financial benefits—value in present value terms  115

974‑55................... The debt interest and its issue......................................... 116

974‑60................... Debt interest arising out of obligations owed by a number of entities      117

974‑65................... Commissioner’s power................................................... 118

Subdivision 974‑C—Equity interests in companies                                       119

974‑70................... Meaning of equity interest in a company........................ 119

974‑75................... The test for an equity interest.......................................... 122

974‑80................... Equity interest arising from arrangement funding return through connected entities                125

974‑85................... Right or return contingent on aspects of economic performance              127

974‑90................... Right or return at discretion of company or connected entity 128

974‑95................... The equity interest........................................................... 128

Subdivision 974‑D—Common provisions                                                        129

974‑100................. Treatment of convertible and converting interests........... 129

974‑105................. Effect of action taken in relation to interest arising from related schemes 129

974‑110................. Effect of material change................................................. 130

974‑112................. Determinations by Commissioner................................... 133

Subdivision 974‑E—Non‑share distributions by a company                       135

974‑115................. Meaning of non‑share distribution................................. 135

974‑120................. Meaning of non‑share dividend...................................... 135

974‑125................. Meaning of non‑share capital return............................. 135

Subdivision 974‑F—Related concepts                                                               135

974‑130................. Financing arrangement.................................................... 136

974‑135................. Effectively non‑contingent obligation............................. 138

974‑140................. Ordinary debt interest..................................................... 139

974‑145................. Benchmark rate of return................................................ 139

974‑150................. Schemes.......................................................................... 140

974‑155................. Related schemes.............................................................. 141

974‑160................. Financial benefit.............................................................. 142

974‑165................. Convertible and converting interests............................... 142

Division 975—Concepts about companies                                                     144

Subdivision 975‑A—General                                                                               144

975‑150................. Position to affect rights in relation to a company............ 144

975‑155................. When is an entity a controller (for CGT purposes) of a company?         145

975‑160................. When an entity has an associate‑inclusive control interest 145

Subdivision 975‑G—What is a company’s share capital account?           146

975‑300................. Meaning of share capital account.................................. 146

Subdivision 975‑W—Wholly‑owned groups of companies                         147

975‑500................. Wholly‑owned groups.................................................... 147

975‑505................. What is a 100% subsidiary?............................................ 148

Division 976—Imputation                                                                                      149

976‑1..................... Franked part of a distribution.......................................... 149

976‑5..................... Unfranked part of a distribution...................................... 149

976‑10................... The part of a distribution that is franked with an exempting credit           149

976‑15................... The part of a distribution that is franked with a venture capital credit       150

Division 977—Realisation events, and the gains and losses they realise for income tax purposes         151

CGT assets                                                                                                                151

977‑5..................... Realisation event............................................................. 151

977‑10................... Loss realised for income tax purposes............................ 151

977‑15................... Gain realised for income tax purposes............................ 152

Trading stock                                                                                                          152

977‑20................... Realisation event............................................................. 152

977‑25................... Disposal of trading stock: loss realised for income tax purposes             152

977‑30................... Ending of an income year: loss realised for income tax purposes            153

977‑35................... Disposal of trading stock: gain realised for income tax purposes             154

977‑40................... Ending of an income year: gain realised for income tax purposes            154

Revenue assets                                                                                                         155

977‑50................... Meaning of revenue asset............................................... 155

977‑55................... Loss or gain realised for income tax purposes................ 155

Part 6‑5—Dictionary definitions                                                                               157

Division 995—Definitions                                                                                       157

995‑1..................... Definitions...................................................................... 157


Chapter 5Administration

Part 5‑30Record‑keeping and other obligations

Division 900Substantiation rules

Table of Subdivisions

             Guide to Division 900

900‑A   Application of Division

900‑B    Substantiating work expenses

900‑C    Substantiating car expenses

900‑D   Substantiating business travel expenses

900‑E    Written evidence

900‑F    Travel records

900‑G   Retaining and producing records

900‑H   Relief from effects of failing to substantiate

900‑I     Award transport payments

Guide to Division 900

900‑1  What this Division is about

This Division sets out the substantiation rules that apply to certain types of losses or outgoings.

Subdivision 900‑AApplication of Division

Table of sections

900‑5        Application of the requirements of Division 900

900‑10      Substantiation requirement

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

900‑5  Application of the requirements of Division 900

             (1)  The requirements of this Division apply to an individual.

             (2)  They also apply to a partnership that includes at least one individual, as if the partnership were an individual.

             (3)  They do not apply to any other entity.

900‑10  Substantiation requirement

                   To deduct certain types of losses or outgoings, you need to substantiate them under this Division.

 

Item

For this type of loss or outgoing:

see:

1.

Work expenses

Subdivision 900‑B

2.

Car expenses

Subdivision 900‑C

3.

Business travel expenses

Subdivision 900‑D

Note:          There are exceptions to these requirements:

•       Subdivision 900‑B has some specific exceptions about work expenses.

•       Subdivision 900‑H provides for relief from the effects of failing to substantiate.

•       Subdivision 900‑I has an exception about certain losses or outgoings related to award transport payments.

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

Application to recipients

             (1)  If an individual receives, or is entitled to receive, *withholding payments covered by subsection (3), this Division applies to him or her:

                     (a)  in the same way as it applies to an employee; and

                     (b)  as if an entity that makes (or is liable to make) such payments to him or her were his or her employer; and

                     (c)  as if the withholding payments covered by subsection (3) that he or she receives (or is entitled to receive) were salary or wages.

Application to payers

             (2)  This Division applies to an entity that makes, or is liable to make, *withholding payments covered by subsection (3):

                     (a)  in the same way as it applies to an employer; and

                     (b)  as if an individual to whom the entity makes (or is liable to make) such payments were the entity’s employee.

Withholding payments covered

             (3)  This subsection covers a *withholding payment covered by any of the provisions in Schedule 1 to the Taxation Administration Act 1953 listed in the table.

 

Withholding payments covered

Item

Provision

Subject matter

1

Section 12‑35

Payment to employee

2

Section 12‑40

Payment to company director

3

Section 12‑45

Payment to office holder

3A

Section 12‑47

Payment to *religious practitioner

4

Section 12‑50

Return to work payment

5

Subdivision 12‑C

Payments for retirement or because of termination of employment

6

Subdivision 12‑D

Benefit and compensation payments

Subdivision 900‑BSubstantiating work expenses

Table of sections

900‑15      Getting written evidence

900‑20      Keeping travel records

900‑25      Retaining the written evidence and travel records

900‑30      Meaning of work expense

900‑35      Exception for small total of expenses

900‑40      Exception for laundry expenses below a certain limit

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

900‑50      Exception for domestic travel allowance expenses

900‑55      Exception for overseas travel allowance expenses

900‑60      Exception for reasonable overtime meal allowance

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

900‑15  Getting written evidence

             (1)  To deduct a *work expense:

                     (a)  it must qualify as a deduction under some provision of this Act outside this Division; and

                     (b)  you need to substantiate it by getting written evidence.

Subdivision 900‑E tells you about the evidence you need.

To find out whether an expense qualifies as a deduction under this Act, see Division 8 (Deductions).

             (2)  If your expense is for fuel or oil, you have a choice of either:

                     (a)  getting written evidence of it under Subdivision 900‑E; or

                     (b)  keeping odometer records for the period when you owned or leased the *car in the income year.

Subdivision 28‑H tells you about odometer records.

Note:          In certain circumstances (for example, under a hire purchase agreement) the notional buyer of property is taken to be its owner (see subsection 240‑20(2)).

900‑20  Keeping travel records

                   You need to keep travel records if your expense is for travel that involves you being away from your ordinary residence for 6 or more nights in a row.

                   The travel may be within or outside Australia. Subdivision 900‑F tells you about travel records.

Note:          Members of international flight crews may be exempt from keeping travel records for losses or outgoings covered by travel allowances: see section 900‑65.

900‑25  Retaining the written evidence and travel records

             (1)  Once you have the material required by section 900‑15 or 900‑20, you must retain it for 5 years. There is no need to lodge it with your *income tax return. The Commissioner may require you to produce it: see Subdivision 900‑G. The period for which you must retain it is called the retention period.

             (2)  The 5 years start on the due day for lodging your *income tax return for the income year. If you lodge your return later, the 5 years start on the day you lodge it.

             (3)  However, the *retention period is extended if, when the 5 years end, you are involved in a dispute with the Commissioner that relates to the expense. See section 900‑170.

             (4)  If you do not retain the material for the *retention period, you cannot deduct the expense. If you have already deducted it, your assessment may be amended to disallow the deduction.

             (5)  If you lose any of the material, there are rules that might help you in section 900‑205.

900‑30  Meaning of work expense

General

             (1)  A work expense is a loss or outgoing you incur in producing your salary or wages.

Note:          This Division also applies to withholding payments that are not salary or wages: see subsection 900‑12(3).

Travel allowance expenses included

             (2)  Travel allowance expenses count as *work expenses. A travel allowance expense is a loss or outgoing you incur for travel that is covered by a *travel allowance. The loss or outgoing must:

                     (a)  be for accommodation or for food or drink; or

                     (b)  be incidental to the travel.

             (3)  A travel allowance is an allowance your employer pays or is to pay to you to cover losses or outgoings:

                     (a)  that you incur for travel away from your ordinary residence that you undertake in the course of your duties as an employee; and

                     (b)  that are losses or outgoings for accommodation or for food or drink, or are incidental to the travel.

The travel may be within or outside Australia.

Note:          This Division also applies to individuals who are not employees: see section 900‑12.

Meal allowance expenses included

             (4)  Meal allowance expenses count as *work expenses. A meal allowance expense is a loss or outgoing that you incur for food or drink that is covered by a *meal allowance.

             (5)  A meal allowance is an allowance that your employer pays or is to pay to you as an employee to enable you to buy food or drink. However, an allowance is not a meal allowance if it is a *travel allowance or part of one.

Note:          This Division also applies to individuals who are not employees: see section 900‑12.

Motor vehicle expenses excluded

             (6)  A loss or outgoing to do with a *motor vehicle is not treated as a *work expense unless it is:

                     (a)  a loss or outgoing incurred, or a payment made, in respect of travel outside Australia; or

                     (b)  a taxi fare or similar loss or outgoing.

However, most losses or outgoings to do with a *motor vehicle are covered by the rules about *car expenses. See Division 28 and Subdivision 900‑C.

Other types of losses or outgoings included

             (7)  In addition to losses or outgoings within the general scope of subsection (1), any of the following is a *work expense:

                     (a)  the decline in value of property you own and that is used, or is *installed ready for use, by you in order to produce your salary or wages;

                     (b)  expenditure you incur that qualifies as a deduction under section 25‑60 (Parliament election expenses) or section 25‑65 (about local government election expenses);

                     (c)  expenditure you incur that entitles you to a deduction under section 25‑100 (transport expenses incurred in your travel between workplaces), other than *car expenses.

Note 1:       This Division also applies to payments that are not salary or wages, but are PAYE earnings: see section 900‑12.

Note 2:       In certain circumstances (for example, under a hire purchase agreement) the notional buyer of property is taken to be its owner (see subsection 240‑20(2)).

Note 3:       See Subdivision 900‑C for car expenses that are also transport expenses incurred in your travel between workplaces.

900‑35  Exception for small total of expenses

             (1)  If the total of all the *work expenses (including *laundry expenses, but excluding *travel allowance expenses and *meal allowance expenses) that you want to deduct is $300 or less, you can deduct them without getting written evidence or keeping travel records.

Note 1:       If the total is more than $300, you need to substantiate all the work expenses, not just the excess over $300.

Note 2:       Whether or not your work expenses total $300 or less, for certain expenses that are each $10 or less and total $200 or less you can get written evidence by making your own record, instead of getting a document from the supplier: see section 900‑125.

             (2)  This limit can be increased from time to time by regulations made under section 909‑1.

             (3)  A *transport expense that Subdivision 900‑I (Award transport payments) lets you deduct without following the rules in this Division does not count towards this limit.

900‑40  Exception for laundry expenses below a certain limit

             (1)  Even if the *work expenses you claim total more than $300, you can still deduct up to $150 of *laundry expenses without getting written evidence of them.

             (2)  However, this exception does not increase the $300 limit in section 900‑35 to $450: your *laundry expenses still count toward that limit.

Example:    You want to deduct laundry expenses of $140 and union dues of $200. These work expenses total more than $300, so the exception in section 900‑35 doesn’t apply. This means you must substantiate the union dues expense. However, because of the exception in this section, you don’t need to get written evidence of the laundry expenses.

             (3)  This limit can be increased from time to time by regulations made under section 909‑1.

             (4)  A laundry expense is a *work expense to do with washing, drying or ironing clothes (but not dry cleaning).

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

                   You may be able to deduct, without getting written evidence or keeping travel records, a *transport expense you incurred that is related to an allowance or reimbursement paid or payable to you by your employer under an *industrial instrument that was in force on 29 October 1986. Subdivision 900‑I tells you about this.

Note:          This Division also applies to entities that are not employers, but pay (or are liable to pay) withholding payments covered by subsection 900‑12(3).

900‑50  Exception for domestic travel allowance expenses

             (1)  You can deduct a *travel allowance expense for travel within Australia without getting written evidence or keeping travel records if the Commissioner considers reasonable the total of the losses or outgoings you claim for travel covered by the allowance.

             (2)  In deciding whether the total of the losses or outgoings you claim is reasonable, the Commissioner must take into account the total of the losses or outgoings of the following kinds that it would be reasonable for you to incur for the travel:

                     (a)  accommodation;

                     (b)  food or drink;

                     (c)  losses or outgoings incidental to the travel.

900‑55  Exception for overseas travel allowance expenses

             (1)  You can deduct a *travel allowance expense for travel outside Australia without getting written evidence under the same conditions as for domestic *travel allowances, except that you still have to get written evidence for losses or outgoings for accommodation.

             (2)  Consequently, in deciding whether the total of the losses or outgoings you claim is reasonable, the Commissioner must disregard losses or outgoings for accommodation.

             (3)  However, for overseas travel covered by a *travel allowance you must still keep travel records if the travel involves you being away from your ordinary residence for 6 or more nights in a row: Subdivision 900‑F tells you about travel records.

900‑60  Exception for reasonable overtime meal allowance

                   You can deduct a *meal allowance expense without getting written evidence if:

                     (a)  the allowance is to enable you to buy food or drink in connection with overtime that you work; and

                     (b)  the allowance is paid or payable to you under an *industrial instrument; and

                     (c)  the Commissioner considers reasonable the total of the losses or outgoings you claim that are covered by the allowance.

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

                   You can deduct a *travel allowance expense without keeping travel records if:

                     (a)  the allowance covers travel by you as a crew member of an aircraft; and

                     (b)  the travel is principally outside Australia; and

                     (c)  the total of the losses or outgoings you claim for the travel that are covered by the allowance does not exceed the allowance.

Subdivision 900‑CSubstantiating car expenses

Table of sections

900‑70      Getting written evidence

900‑75      Retaining the written evidence and odometer records

900‑70  Getting written evidence

             (1)  For the “log book” method of deducting a *car expense, you need to substantiate the expense by getting written evidence. Subdivision 900‑E tells you about the evidence you need.

Subdivision 28‑F tells you about the “log book” method.

             (3)  If you are using the “log book” method and your expense is for fuel or oil, you do not need to get written evidence of it, because section 28‑100 already requires you to keep odometer records for the period when you *held the *car in the income year.

900‑75  Retaining the written evidence and odometer records

             (1)  Once you have the material required by this Subdivision, you must retain it for 5 years. There is no need to lodge it with your *income tax return. The Commissioner may require you to produce it: see Subdivision 900‑G. The period for which you must retain it is called the retention period.

             (2)  The 5 years start on the due day for lodging your *income tax return for the income year. If you lodge your return later, the 5 years start on the day you lodge it.

             (3)  However, the *retention period is extended if, when the 5 years end, you are involved in a dispute with the Commissioner that relates to the expense. See section 900‑170.

             (4)  If you do not retain the material for the *retention period, you cannot deduct the expense. If you have already deducted it, your assessment may be amended to disallow the deduction.

             (5)  If you lose any of the material, there are rules that might help you in section 900‑205.

Subdivision 900‑DSubstantiating business travel expenses

Table of sections

900‑80      Getting written evidence

900‑85      Keeping travel records

900‑90      Retaining the written evidence and travel records

900‑95      Meaning of business travel expense

900‑80  Getting written evidence

             (1)  To deduct a *business travel expense:

                     (a)  it must qualify as a deduction under some provision of this Act outside this Division; and

                     (b)  you need to substantiate it by getting written evidence.

Subdivision 900‑E tells you about the evidence you need.

To find out whether an expense qualifies as a deduction under this Act, see Division 8 (Deductions).

             (2)  If your expense is for fuel or oil, you have a choice of either:

                     (a)  getting written evidence of it under Subdivision 900‑E; or

                     (b)  keeping odometer records for the period when you owned or leased the *car in the income year.

Subdivision 28‑H tells you about odometer records.

Note:          In certain circumstances (for example, under a hire purchase agreement) the notional buyer of property is taken to be its owner (see subsection 240‑20(2)).

900‑85  Keeping travel records

                   You need to keep travel records if your expense is for travel that involves you being away from your ordinary residence for 6 or more nights in a row. Subdivision 900‑F tells you about travel records.

900‑90  Retaining the written evidence and travel records

             (1)  Once you have the material required by section 900‑80 or 900‑85, you must retain it for 5 years. There is no need to lodge it with your *income tax return. The Commissioner may require you to produce it: see Subdivision 900‑G. The period for which you must retain it is called the retention period.

             (2)  The 5 years start on the due day for lodging your *income tax return for the income year. If you lodge your return later, the 5 years start on the day you lodge it.

             (3)  However, the *retention period is extended if, when the 5 years end, you are involved in a dispute with the Commissioner that relates to the expense. See section 900‑170.

             (4)  If you do not retain the material for the *retention period, you cannot deduct the expense. If you have already deducted it, your assessment may be amended to disallow the deduction.

             (5)  If you lose any of the material, there are rules that might help you in section 900‑205.

900‑95  Meaning of business travel expense

General

             (1)  A business travel expense is a *travel expense, in so far as you incur it in producing your assessable income other than salary or wages.

Travel expense

             (2)  A loss or outgoing is a travel expense if you incur it for travel by you that involves you being away from your ordinary residence for at least one night. The travel may be within or outside Australia.

Salary and wages travel expenses excluded

             (3)  In so far as you incur *travel expenses in producing your salary or wages, the expenses are not treated as *business travel expenses. Instead, they are dealt with as *work expenses in Subdivision 900‑B.

Note:          This Division also applies to withholding payments that are not salary or wages: see subsection 900‑12(3).

Travel allowance expenses excluded

             (4)  *Travel allowance expenses are not treated as *business travel expenses. They too are dealt with as *work expenses in Subdivision 900‑B.

Motor vehicle expenses excluded

             (5)  A loss or outgoing to do with a *motor vehicle is not treated as a *business travel expense unless it is:

                     (a)  a loss or outgoing incurred, or a payment made, in respect of travel outside Australia; or

                     (b)  a taxi fare or similar loss or outgoing.

However, most *motor vehicle expenses are covered by the rules about *car expenses. See Division 28 and Subdivision 900‑C.

Subdivision 900‑EWritten evidence

Guide to Subdivision 900‑E

900‑100  What this Subdivision is about

This Subdivision tells you how you must get written evidence to support a claim for a deduction.

Table of sections

Operative provisions

900‑105    Ways of getting written evidence

900‑110    Time limits

900‑115    Written evidence from supplier

900‑120    Written evidence of depreciating asset expense

900‑125    Evidence of small expenses

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

900‑135    Evidence on a payment summary

Operative provisions

900‑105  Ways of getting written evidence

                   Each of the following sections has a set of rules for a particular way of getting written evidence to substantiate a deduction. Which ones you can use depends on the type of expense. You only need to use one set of rules to support an expense.

900‑110  Time limits

             (1)  There is no time limit for getting written evidence of an expense (unless you want to record the expense yourself under section 900‑125 or 900‑130). But until you get written evidence of it, you are not entitled to a deduction for the expense.

             (2)  If when you lodge your *income tax return for the income year you have good reason to expect to get written evidence of the expense within a reasonable time, you can deduct the expense without actually getting the evidence. But if you don’t get the evidence within a reasonable time, your entitlement to the deduction ceases. If you have already deducted the expense, your assessment may be amended to disallow the deduction.

             (3)  Even if you only get written evidence of the expense after the end of the income year, you deduct the expense for that income year, not the income year in which you get the evidence.

900‑115  Written evidence from supplier

             (1)  You may use this set of rules for any type of expense except the decline in value of a *depreciating asset.

             (2)  You must get a document from the supplier of the goods or services the expense is for. The document must set out:

                     (a)  the name or business name of the supplier; and

                     (b)  the amount of the expense, expressed in the currency in which it was incurred; and

                     (c)  the nature of the goods or services; and

                     (d)  the day the expense was incurred; and

                     (e)  the day it is made out.

             (3)  There are 2 exceptions to these requirements:

                     (a)  if the document does not show the day the expense was incurred, you may use a bank statement or other reasonable, independent evidence that shows when it was paid;

                     (b)  if the document the supplier gave you does not specify the nature of the goods or services, you may write in the missing details yourself before you lodge your *income tax return for the income year.

             (4)  The document must be in English. However, if the expense was incurred in a country outside Australia, the document can instead be in a language of that country.

900‑120  Written evidence of depreciating asset expense

             (1)  You may use this set of rules only for a *depreciating asset expense.

             (2)  You must get evidence of the original acquisition of the *depreciating asset. It must be a document that you get from the supplier of the asset and that specifies:

                     (a)  the name or business name of the supplier; and

                     (b)  the cost of the asset to you; and

                     (c)  the nature of the asset; and

                     (d)  the day you acquired the asset; and

                     (e)  the day it is made out.

             (3)  However, if the document the supplier gave you does not specify the nature of the asset, you may write in the missing details yourself before you lodge your *income tax return for the income year in which you first claim a deduction for the decline in value of the asset.

             (4)  If you don’t get the document in time, for example because you only decided to use the asset for income‑producing purposes several years after you acquired it, there are rules that might help you in Subdivision 900‑H (Relief from effects of failing to substantiate).

             (5)  The document must be in English. However, if you *imported the asset into Australia, the document can instead be in a language of the country from which the asset was originally exported.

900‑125  Evidence of small expenses

             (1)  If your expense is small, and you have a small total of small expenses, you can make a record of the expenses instead of getting a document from the supplier.

             (2)  Each expense must be $10 or less, and the total of all your expenses that:

                     (a)  are each $10 or less; and

                     (b)  you incurred in the income year and wish to deduct; and

                     (c)  you must get written evidence for under this Division;

must be $200 or less. These limits can be increased from time to time by regulations made under section 909‑1.

             (3)  If the expense is not the decline in value of a *depreciating asset, you must get a document with the same information as required by section 900‑115, except that you may create the document and record all the details yourself. You must do so as soon as possible after incurring the expense.

             (4)  If the expense is the decline in value of a *depreciating asset, you must, as soon as possible after the last day of the income year, record in a document the following:

                     (a)  the nature of the property;

                     (b)  the amount of the decline in value;

                     (c)  who made the record;

                     (d)  the day the record is made.

             (5)  A record must be in English.

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

             (1)  If the Commissioner considers it unreasonable to expect you to have got written evidence of an expense in any other way permitted by this Subdivision, you can use the method in section 900‑125 to get written evidence of your claim.

             (2)  The expense may be more than $10 and does not count towards the $200 limit in section 900‑125.

900‑135  Evidence on a payment summary

             (1)  If the nature and amount of a *work expense are shown on your copy of a *payment summary given to you by your employer, you can use the copy as written evidence of the expense.

Note:          This Division also applies to entities that are not employers, but pay (or are liable to pay) withholding payments covered by subsection 900‑12(3).

             (2)  Expenses of the same nature need not be separately itemised; it is acceptable if they are totalled together on the *payment summary.

Subdivision 900‑FTravel records

Guide to Subdivision 900‑F

900‑140  What this Subdivision is about

This Subdivision tells you how to keep travel records. A travel record is a record of activities you undertake during your travel.

Table of sections

900‑145    Purpose of a travel record

Operative provisions

900‑150    Recording activities in travel records

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

900‑145  Purpose of a travel record

                   The purpose of a travel record is to show which of your activities were undertaken in the course of producing your assessable income, so that your losses or outgoings, or portions of them, can be attributed to income‑producing purposes.

Operative provisions

900‑150  Recording activities in travel records

             (1)  You record an activity by specifying in a diary or similar document:

                     (a)  the nature of the activity;

                     (b)  the day and approximate time when it began;

                     (c)  how long it lasted;

                     (d)  where you engaged in it.

             (2)  An activity must be recorded before it ends, or as soon as possible afterwards. Each entry must be in English.

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

             (1)  You need not record an income‑producing activity. But if you don’t, the activity cannot be taken into account in working out the extent to which you can deduct an expense you incur for the travel.

Example:    If you fly to Los Angeles for the sole purpose of attending a 7 day conference, but you don’t record the conference in your travel record, you cannot deduct the cost of the air fare. This is so even if you have written evidence that you paid the fare (eg a receipt), as required by Subdivision 900‑E.

             (2)  You don’t need to record any other kind of activity, although you may do so.

Subdivision 900‑GRetaining and producing records

Guide to Subdivision 900‑G

900‑160  What this Subdivision is about

This Subdivision tells you how long you need to retain records of an expense and when you have to produce those records.

Table of sections

900‑165    The retention period

Operative provisions

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

900‑175    Commissioner may tell you to produce your records

900‑180    How to comply with a notice

900‑185    What happens if you don’t comply

900‑165  The retention period

                   Whenever you are required to retain records of an expense under this Division or Division 28, you need to retain the records for 5 years.

Operative provisions

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

                   The *retention period is automatically extended if one of the following types of dispute relating to the expense is unresolved when the 5 years end:

                     (a)  an objection;

                     (b)  a review or appeal arising from an objection;

                     (c)  a request for amendment of an assessment.

The extension lasts until the dispute is resolved.

900‑175  Commissioner may tell you to produce your records

             (1)  The Commissioner may give you a written notice telling you to produce records of expenses specified in the notice. The records must be ones that you have to retain for the *retention period: you do not have to produce records if the retention period for those records is over.

             (2)  The notice must give you 28 days or more to comply, starting on the day after the notice is given. The Commissioner may allow you more time to comply with the notice.

900‑180  How to comply with a notice

             (1)  To comply with the notice, you must produce to the Commissioner, for each of the expenses, the material that this Division or Division 28 requires you to retain during the *retention period.

             (2)  You must also produce a summary that, for each expense for which you produce written evidence (see Subdivision 900‑E):

                     (a)  notes the expense; and

                     (b)  has a cross‑reference to the written evidence of the expense; and

                     (c)  summarises the particulars set out in the written evidence; and

                     (d)  if the expense was in a foreign currency—shows the amount of the expense in Australian currency.

The summary must be in English in a form approved by the Commissioner.

900‑185  What happens if you don’t comply

             (1)  If you do not comply with a notice for a particular expense, you cannot deduct the expense. If you have already deducted it, your assessment may be amended to disallow the deduction.

             (2)  You do not commit an offence merely by not complying with the notice, despite section 8C of the Taxation Administration Act 1953.

Subdivision 900‑HRelief from effects of failing to substantiate

Table of sections

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

900‑200    Reasonable expectation that substantiation would not be required

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

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

                   Not doing something necessary to follow the rules in this Division does not affect your right to a deduction if the nature and quality of the evidence you have to substantiate your claim satisfies the Commissioner:

                     (a)  that you incurred the expense; and

                     (b)  that you are entitled to deduct the amount you claim.

900‑200  Reasonable expectation that substantiation would not be required

                   Not doing something necessary to follow the rules in this Division does not affect your right to deduct an amount if the only reason was that you had a reasonable expectation that you would not need to do it in order to be able to deduct that amount.

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

             (1)  If you have a complete copy of a document that is lost or destroyed during the *retention period, it is treated as the original from the time of the loss or destruction.

             (2)  If you don’t have such a copy, but the Commissioner is satisfied that you took reasonable precautions to prevent the loss or destruction, the rest of this section explains what to do.

             (3)  If the lost or destroyed document was a travel record, log book or other document that is not written evidence of an expense under Subdivision 900‑E, you do not need to replace it; your deduction is not affected by your failing to retain or produce the document.

             (4)  If the lost or destroyed document was written evidence, you must try to get a substitute document that meets all the original requirements (except the time limit for getting the original).

             (5)  If you succeed, your deduction is not affected by your failing to retain or produce the original document. The substitute document is treated as the original from the time of the loss or destruction.

             (6)  If it is not reasonably possible to succeed, your deduction is not affected by your failing to retain or produce the original document.

             (7)  If it is reasonably possible for you to get a substitute document, but you don’t get one, this section does not protect you from the consequences of failing to retain or produce the original.

Subdivision 900‑IAward transport payments

Guide to Subdivision 900‑I

900‑210  What this Subdivision is about

This Subdivision tells you when you can deduct an expense related to an award transport payment without getting written evidence or keeping travel records.

Table of sections

Operative provisions

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

900‑220    Definition of award transport payment

900‑225    Substituted industrial instruments

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

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

900‑240    Deducting in anticipation of receiving award transport payment

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

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

Operative provisions

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

The exception

             (1)  If:

                     (a)  you are paid one or more *award transport payments in the income year; and

                     (b)  the total of the *transport expenses, to the extent that they relate to the award transport payments, that you incur during any income year and claim as deductions for any income year is no more than the total amount of the payments; and

                     (c)  those transport expenses qualify as a deduction under some provision of this Act outside this Division;

then you can deduct those transport expenses without getting written evidence or keeping travel records.

To find out whether an expense qualifies as a deduction under this Act, see Division 8 (Deductions).

Increases to amounts payable under industrial instrument must be ignored

             (2)  For each *award transport payment, you can deduct no more than the amount you could have deducted if the *industrial instrument the payment is under were still in force as it was on 29 October 1986. If your claim exceeds this amount, you cannot use the exception for the expenses.

900‑220  Definition of award transport payment

Award transport payment

             (1)  An award transport payment is a *transport payment covering particular travel that was paid under an *industrial instrument that was in force on 29 October 1986.

Transport payment

             (2)  A transport payment is an amount your employer pays you, or is to pay you, for travel by you in the course of working for the employer that is:

                     (a)  an allowance (or part of an allowance) for the sole or main purpose of covering your *transport expenses; or

                     (b)  a reimbursement to which section 15‑70 applies that is for the whole or a part of a *car expense. However, an amount is not a transport payment if it is, or is part of, a *travel allowance.

Note:          This Division also applies to entities that are not employers, but pay (or are liable to pay) withholding payments covered by subsection 900‑12(3).

Transport expense

             (3)  A transport expense is a loss or outgoing to do with transport, including the decline in value of a *depreciating asset used in connection with transport, but not including a loss or outgoing for accommodation or for food or drink, or expenditure incidental to transport.

900‑225  Substituted industrial instruments

                   An *industrial instrument that comes into force in substitution for another industrial instrument is taken to be a continuation of the original instrument.

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

             (1)  Changes made to an *industrial instrument after 29 October 1986 are taken to have been made on 29 October 1986 if they were made in response to an application made on or before 29 October 1986 that sought increases in *transport payments.

             (2)  If the application was amended after 29 October 1986, the alterations made to the *industrial instrument count as being made on 29 October 1986 only if they did not result in increases in *transport payments that were greater than increases in those payments sought by the application as at 29 October 1986.

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

                   Changes made to an *industrial instrument after 29 October 1986 are taken to have been made on 29 October 1986 if the whole amount of the change is determined solely by reference to matters that were contained in the industrial instrument on 29 October 1986.

900‑240  Deducting in anticipation of receiving award transport payment

                   If:

                     (a)  you have incurred a *transport expense during an income year; and

                     (b)  when you lodge your *income tax return for the income year, you reasonably believe that you will later receive an *award transport payment to cover the expense;

you may deduct the expense without getting written evidence or keeping travel records.

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

                   A *transport expense that section 900‑215 lets you deduct without getting written evidence or keeping travel records does not count towards the $300 limit in section 900‑35.

Note:          Section 900‑35 tells you that if the total of all the work expenses that you want to deduct is $300 or less, you can deduct them without getting written evidence or keeping travel records.

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

             (1)  If the exception in this Subdivision lets you deduct, without getting written evidence or keeping travel records, losses or outgoings (exempt losses or outgoings) that are or include *car expenses, or parts of *car expenses, your use of the 2 methods for calculating deductions for car expenses for the *car is affected.

You may elect not to use the exception

             (2)  However, if you do not want your use of the 2 methods to be affected, you may elect not to use the exception in this Subdivision for the *award transport payments you are paid in the income year. If you so elect, the rest of this section does not affect you.

“Cents per kilometre” method

             (3)  You can still use the “cents per kilometre” method (see Subdivision 28‑C) of deducting *car expenses you incurred for the *car in the income year. However, the kilometres the car travelled during the income year in the course of travel covered by the *award transport payment or payments are not counted as *business kilometres.

“Log book” method

             (5)  You can still use the “log book” method (see Subdivision 28‑F) of deducting *car expenses you incurred for the *car in the income year. If you do:

                     (a)  the kilometres the car travelled during the income year in the course of travel covered by the *award transport payment or payments are not counted as *business kilometres; and

                     (b)  in working out the amount (if any) you can deduct for such a car expense that consists partly of an exempt loss or outgoing, Subdivision 28‑F is applied to the whole of the car expense, without excluding the part that consists of an exempt loss or outgoing.

Part 5‑35Miscellaneous

Division 905Offences

905‑5  Application of the Criminal Code

                   Chapter 2 of the Criminal Code applies to all offences against this Act.

Note:          Chapter 2 of the Criminal Code sets out the general principles of criminal responsibility.

Division 909Regulations

909‑1  Regulations

             (1)  The Governor‑General may make regulations prescribing matters that:

                     (a)  this Act requires or permits to be prescribed; or

                     (b)  are necessary or convenient to prescribe for carrying out or giving effect to this Act.

             (2)  The regulations may prescribe penalties for offences against the regulations. A penalty may not exceed a fine of 5 penalty units.

Note:          Section 4AA of the Crimes Act 1914 deals with penalty units.

Chapter 6The Dictionary

Part 6‑1Concepts and topics

Division 950Rules for interpreting this Act

Table of sections

950‑100    What forms part of this Act

950‑105    What does not form part of this Act

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

950‑100  What forms part of this Act

             (1)  These all form part of this Act:

•    the headings of the Chapters, Parts, Divisions and Subdivisions of this Act;

•    *Guides;

•    the headings of the sections and subsections of this Act;

•    the headings for groups of sections of this Act (group headings);

•    the notes and examples (however described) that follow provisions of this Act.

             (2)  The asterisks used to identify defined terms form part of this Act. However, if a term is not identified by an asterisk, disregard that fact in deciding whether or not to apply to that term a definition or other interpretation provision.

950‑105  What does not form part of this Act

                   These do not form part of this Act:

   footnotes and endnotes;

   Tables of Subdivisions;

   Tables of sections.

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

             (1)  A Guide consists of:

                     (a)  sections under a heading indicating that what follows is a Guide to a particular Subdivision, Division etc.; or

                     (b)  a Subdivision, Division or Part that is identified as a Guide by a provision in the Subdivision, Division or Part.

             (2)  Guides form part of this Act, but they are kept separate from the operative provisions. In interpreting an operative provision, a Guide may only be considered:

                     (a)  in determining the purpose or object underlying the provision; or

                     (b)  to confirm that the provision’s meaning is the ordinary meaning conveyed by its text, taking into account its context in the Act and the purpose or object underlying the provision; or

                     (c)  in determining the provision’s meaning if the provision is ambiguous or obscure; or

                     (d)  in determining the provision’s meaning if the ordinary meaning conveyed by its text, taking into account its context in the Act and the purpose or object underlying the provision, leads to a result that is manifestly absurd or is unreasonable.

Division 960General

Subdivision 960‑BUtilisation of tax attributes

Table of sections

960‑20      Utilisation

960‑20  Utilisation

             (1)  None of the following can be *utilised, to the extent it has already been utilised:

                     (a)  a *tax loss;

                     (b)  a *net capital loss;

                     (c)  *net exempt income.

Utilisation of losses

             (2)  A *tax loss is utilised to the extent that:

                     (a)  it is deducted from an amount of assessable income or *net exempt income; or

                     (b)  it is reduced by applying a *total net forgiven amount.

             (3)  A *net capital loss is utilised to the extent that:

                     (a)  it is applied to reduce an amount of *capital gains; or

                     (b)  it is reduced by applying a *total net forgiven amount.

Utilisation of net exempt income

             (4)  *Net exempt income for an income year is utilised to the extent that:

                     (a)  it is subtracted:

                              (i)  from deductions; or

                             (ii)  under subsection 268‑60(4) in Schedule 2F to the Income Tax Assessment Act 1936 or subsection 165‑70(4) or 175‑35(4) of this Act;

                            in determining a *tax loss for the income year; or

                     (b)  because of it, the extent to which a tax loss can be deducted in that income year is reduced; or

                     (c)  because of it, an amount is reduced under subsection 35‑15(2) (about deferral of deductions from non‑commercial business activities); or

                     (d)  because of it, a quarantined amount is reduced under subsection 26‑47(8); or

                     (e)  it is reduced under subsection 65‑35(3) because of a *tax offset carried forward.

Subdivision 960‑CForeign currency

Table of sections

960‑49      Objects of this Subdivision

960‑50      Translation of amounts into Australian currency

960‑55      Application of translation rules

960‑49  Objects of this Subdivision

                   The objects of this Subdivision are as follows:

                     (a)  to set out a basic rule requiring an amount in a *foreign currency to be translated into an Australian dollar amount (the basic rule is subject to the functional currency rules in Subdivision 960‑D and to certain specific exclusions);

                     (b)  to ensure that the rules for identifying the exchange rate for the translation of a foreign currency amount into Australian dollars:

                              (i)  reflect an appropriate prevailing exchange rate; and

                             (ii)  take into account, as appropriate, commercial practices for the translation of foreign currency amounts into Australian dollars.

960‑50  Translation of amounts into Australian currency

             (1)  For the purposes of this Act, an amount in a *foreign currency is to be translated into Australian currency.

Examples of an amount

             (2)  The following are examples of an amount:

                     (a)  an amount of *ordinary income;

                     (b)  an amount of an expense;

                     (c)  an amount of an obligation;

                     (d)  an amount of a liability;

                     (e)  an amount of a receipt;

                      (f)  an amount of a payment;

                     (g)  an amount of consideration;

                     (h)  a value.

             (3)  The amounts set out in paragraphs (2)(b) to (h) may be amounts on revenue account, capital account or otherwise.

Amounts that are elements in the calculation of other amounts

             (4)  In applying this section:

                     (a)  first, translate any amounts that are elements in the calculation of other amounts (except *special accrual amounts); and

                     (b)  then, calculate the other amounts.

Special accrual amounts

             (5)  In applying this section:

                     (a)  calculate a *special accrual amount without translation; and

                     (b)  then, translate the special accrual amount.

Special translation rules

             (6)  The table has effect:

 

Special translation rules

Item

In this case...

this is the result...

1

forex realisation event 4 happens when you cease to have an obligation, or a part of an obligation, to pay *foreign currency, and neither of subparagraphs 775‑55(1)(b)(ii) and (iii) applies

for the purposes of section 775‑55, the amount of the obligation, or the part of the obligation, at the tax recognition time (see subsection 775‑55(7)) is to be translated to Australian currency at the exchange rate applicable at that time.

2

cost of a *depreciating asset

(a) if you incur an obligation in return for your starting to hold the asset, and the obligation is not satisfied before you begin to hold the asset (worked out under Division 40)—the cost of the asset is to be translated to Australian currency at the exchange rate applicable when you begin to hold the asset; or

(b) if you incur an obligation in return for your starting to hold the asset, and the obligation is satisfied before you begin to hold the asset (worked out under Division 40)—the cost of the asset is to be translated to Australian currency at the exchange rate applicable when the obligation is satisfied.

3

value of an item of *trading stock on hand at the end of an income year, where you have elected to use its *cost

the value is to be translated to Australian currency at the exchange rate applicable at the time when the item became on hand.

4

value of an item of *trading stock on hand at the end of an income year, where you have elected to use:

(a) its market selling value; or

(b) its replacement value

the value is to be translated to Australian currency at the exchange rate applicable at the end of the income year.

5

a transaction or event that:

(a) involves an amount of money or the *market value of other property; and

(b) is relevant for the purposes of Part 3‑1 or 3‑3;

to the extent to which the amount or value is relevant for the purposes of Part 3‑1 or 3‑3

the amount or value is to be translated, for the purposes of Part 3‑1 or 3‑3, to Australian currency at the exchange rate applicable at the time of the transaction or event.

6

an amount of *ordinary income

(a) if the amount is received at or before the time when it is *derived—the amount is to be translated to Australian currency at the exchange rate applicable at the time of receipt; or

(b) in any other case—the amount is to be translated to Australian currency at the exchange rate applicable when it is derived.

7

an amount of *statutory income (other than an amount included in assessable income under Division 102)

(a) if the amount is received at or before the time when the requirement first arose to include it in your assessable income—the amount is to be translated to Australian currency at the exchange rate applicable at the time of receipt; or

(b) in any other case—the amount is to be translated to Australian currency at the exchange rate applicable at the time when the requirement first arose to include it in your assessable income.

8

an amount that you deduct (other than under Division 40)

(a) if the amount is paid at or before the time when it became deductible—the amount is to be translated to Australian currency at the exchange rate applicable at the time of payment; or

(b) in any other case—the amount is to be translated to Australian currency at the exchange rate applicable at the time when it became deductible.

9

an amount that is relevant for the purposes of quantifying:

(a) the total of all of a company’s *production expenditure on a *film; or

(b) the total of the company’s *qualifying Australian production expenditure on a film; or

(c) the company’s *total film expenditure on a film;

to the extent to which the amount is relevant for the purposes of issuing a certificate under section 376‑20 or 376‑65

the amount is to be translated to Australian currency at the exchange rate applicable at the time when principal photography commences or production of the animated image commences.

9A

an amount that is relevant for the purposes of quantifying:

(a) the total of all of a company’s *production expenditure on a *film; or

(b) the total of the company’s *qualifying Australian production expenditure on a film;

to the extent to which the amount is relevant for the purposes of issuing a certificate under section 376‑45

the amount is to be translated to Australian currency at the exchange rate applicable when *post, digital and visual effects production for the film commences.

 

9B

subject to item 9C, an amount that is relevant for the purposes of quantifying:

(a) the total of all of a company’s *production expenditure on a *film; or

(b) the total of the company’s *qualifying Australian production expenditure on a film; or

(c) the company’s *total film expenditure on a film;

to the extent to which the amount is relevant for the purposes of calculating an amount of a *tax offset under section 376‑15, 376‑40 or 376‑60

the amount is to be translated to Australian currency at the average of the exchange rates applicable from time to time during the period that qualifying Australian production expenditure is incurred on the film.

 

9C

an amount that is relevant for the purposes of quantifying:

(a) the total of all of a company’s *production expenditure on a *film; or

(b) the total of the company’s *qualifying Australian production expenditure on a film; or

(c) the company’s *total film expenditure on a film;

to the extent to which the total of the company’s qualifying Australian production expenditure on a film is less than $15 million and the amount is relevant for the purposes of calculating an amount of a *tax offset under section 376‑60

the amount is to be translated to Australian currency at the exchange rate applicable at the time when expenditure is incurred on the film

10

an amount that Division 12 of Part 2.5 in Schedule 1 to the Taxation Administration Act 1953 requires to be withheld from a payment

the amount is to be translated to Australian currency at the exchange rate applicable at the time when the amount is required to be withheld under that Division.

11

an amount of a receipt or a payment, where none of the above items apply

the amount is to be translated to Australian currency at the exchange rate applicable at the time of the receipt or payment.

             (7)  Subsection (6) has effect subject to any modifications made by the regulations.

          (7A)  Despite subsections (6) and (7), an amount that is relevant for the purposes of quantifying, for the purposes of section 960‑565, the *annual global income of a *global parent entity as shown in *global financial statements for the entity is to be translated into Australian currency at the average exchange rate applicable for the period for which the statements are prepared.

          (7B)  For the purposes of subsection (7A):

                     (a)  the entity must obtain:

                              (i)  all of the exchange rates that it will use to work out the average exchange rate; or

                             (ii)  an average exchange rate that has been worked out for the period referred to in that subsection;

                            from one or more sources that are not *associates of the entity, and not the entity itself, or from one or more sources specified by the Commissioner in a notice to the entity; and

                     (b)  the entity must use the average exchange rate so worked out in translating into Australian currency any amount referred to in that subsection that is relevant to that period.

          (7C)  A notice under paragraph (7B)(a) is not a legislative instrument.

Regulations about translation

             (8)  An entity must comply with the regulations (if any) in translating an amount into Australian currency.

Note:          For example, the regulations could require the use of a particular translation method and require consistency in the use of the translation method.

             (9)  Regulations made for the purposes of subsection (8) may make provision in relation to a matter by applying, adopting or incorporating (with or without modifications) matter contained in any of the *accounting standards:

                     (a)  as in force or existing at a particular time; or

                     (b)  as in force or existing from time to time.

          (9A)  Regulations made for the purposes of subsection (8) do not apply to translating an amount into Australian currency under subsection (7A), unless they provide otherwise.

Operation of certain provisions unaffected

           (10)  This section does not affect the operation of the following provisions:

                    (aa)  section 220‑110 (*maximum franking credit);

                     (a)  section 775‑210 (notional loans under *facility agreements);

                     (b)  Subdivision 960‑D (functional currency);

                     (c)  subsection 974‑35(6) (valuation of financial benefits for the purposes of the debt/equity provisions).

960‑55  Application of translation rules

             (1)  Section 960‑50 applies to:

                     (a)  a transaction, event or thing that:

                              (i)  involves an amount in a *foreign currency; and

                             (ii)  occurs on or after the applicable commencement date (within the meaning of Division 775); or

                     (b)  a transaction, event or thing that:

                              (i)  involves an amount in a foreign currency; and

                             (ii)  occurs before the applicable commencement date (within the meaning of Division 775);

                            to the extent to which the transaction, event or thing is relevant for the purposes of Division 775; or

                     (c)  an amount that Division 12 of Part 2‑5 in Schedule 1 to the Taxation Administration Act 1953 requires to be withheld from a payment, if the time when the amount is required to be withheld occurs on or after 1 July 2003; or

                     (d)  a payment that Part 5‑30 in Schedule 1 to the Taxation Administration Act 1953 requires to be reported, if the amount is paid on or after 1 July 2003.

Note:          For applicable commencement date, see section 775‑155.

Exceptions

             (2)  Despite subsection (1), section 960‑50 does not apply to a transaction, event or thing that involves:

                     (a)  an amount covered by subsection 775‑165(1); or

                     (b)  a right, or a part of a right, covered by subsection 775‑165(2); or

                     (c)  an obligation, or a part of an obligation, covered by subsection 775‑165(4).

Note:          Subsections 775‑165(1), (2) and (4) are transitional provisions relating to forex realisation events.

Subdivision 960‑DFunctional currency

Guide to Subdivision 960‑D

960‑56  What this Subdivision is about

The net income of any of the following entities (or parts of entities) that keeps its accounts solely or predominantly in a particular foreign currency can be worked out in that currency, with the net amount being translated into Australian currency:

               (a)     an Australian resident who is required to prepare financial reports under section 292 of the Corporations Act 2001;

              (b)     a permanent establishment;

               (c)     an offshore banking unit;

              (d)     a controlled foreign company (CFC);

               (e)     a transferor trust.

Table of sections

Operative provisions

960‑59      Object of this Subdivision

960‑60      You may choose a functional currency

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

960‑65      Backdated startup choice

960‑70      What is the applicable functional currency?

960‑75      What is a transferor trust?

960‑80      Translation rules

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

960‑90      Withdrawal of choice

Operative provisions

960‑59  Object of this Subdivision

                   The object of this Subdivision is, for the purposes of reducing compliance costs and reflecting commercial practice, to allow certain entities (or parts of entities) whose accounts are kept solely or predominantly in a particular *foreign currency (the functional currency) to calculate their net incomes by reference to the functional currency.

960‑60  You may choose a functional currency

             (1)  The table has effect:

 

Choosing to use a functional currency

Item

If you are:

you may choose to use the *applicable functional currency to...

with effect from the start of...

1

an Australian resident who is required to prepare financial reports under section 292 of the Corporations Act 2001

work out so much of your taxable income or tax loss as is not subject to a choice made by you under any of the other items of this table

(a) if the choice you make under this item is a backdated startup choice (see section 960‑65)—the income year in which you make the choice; or

(b) in any other case—the income year following the one in which you make the choice.

2

(a) an Australian resident carrying on an activity or business at or through an*overseas permanent establishment; or

(b) a foreign resident carrying on an activity or business at or through an *Australian permanent establishment

work out the taxable income or tax loss derived from the activity or business carried on at or through the permanent establishment

(a) if the choice you make under this item is a backdated startup choice (see section 960‑65)—the income year in which you make the choice; or

(b) in any other case—the income year following the one in which you make the choice.

3

an *offshore banking unit

work out your total assessable OB income (within the meaning of Division 9A of Part III of the Income Act Assessment Act 1936) and your total allowable OB deductions (within the meaning of that Division)

(a) if the choice you make under this item is a backdated startup choice (see section 960‑65)—the income year in which you make the choice; or

(b) in any other case—the income year following the one in which you make the choice.

4

an attributable taxpayer (within the meaning of Part X of the Income Tax Assessment Act 1936) of a *controlled foreign company (CFC)

work out the *attributable income of the CFC

(a) if the choice you make under this item is a backdated startup choice (see section 960‑65)—the CFC’s *statutory accounting period in which you make the choice; or

(b) in any other case—the CFC’s statutory accounting period following the one in which you make the choice.

5

a *transferor trust

work out your attributable income (within the meaning of Division 6AAA of Part III of the Income Tax Assessment Act 1936)

(a) if the choice you make under this item is a backdated startup choice (see section 960‑65)—the income year in which you make the choice; or

(b) in any other case—the income year following the one in which you make the choice.

Note:          The attributable income of a controlled foreign company is calculated separately for each attributable taxpayer—see section 381 of the Income Tax Assessment Act 1936.

             (2)  A choice must be in writing.

             (3)  A choice under item 1 of the table in subsection (1) continues in effect until:

                     (a)  a withdrawal of the choice takes effect (see section 960‑90); or

                     (b)  immediately after the end of the income year in which you cease to be subject to a requirement to prepare financial reports under section 292 of the Corporations Act 2001;

whichever happens first.

             (4)  A choice under item 2, 3, 4 or 5 of the table in subsection (1) continues in effect until a withdrawal of the choice takes effect (see section 960‑90).

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

             (1)  Subsection (2) applies if:

                     (a)  you are a foreign resident; and

                     (b)  a *CGT event happens in relation to a *CGT asset that is an *indirect Australian real property interest for you; and

                     (c)  the sole or predominant currency in which you keep your accounts at the time of the CGT event is a currency other than Australian currency.

             (2)  You must use the *applicable functional currency to work out the amount of your *capital gain or *capital loss (if any).

960‑65  Backdated startup choice

                   The table has effect:

 

Backdated startup choice

Item

In this case:

the choice is a backdated startup choice if...

1

you make a choice under item 1 of the table in subsection 960‑60(1)

(a) both:

(i) you were in existence at the start of the income year in which you made the choice; and

(ii) you make the choice within 90 days after the beginning of that income year or within 30 days after the commencement of this section; or

(b) both:

(i) you came into existence during the income year in which you made the choice; and

(ii) you make the choice within 90 days after you came into existence or within 30 days after the commencement of this section.

2

you make a choice under item 2 of the table in subsection 960‑60(1)

(a) both:

(i) the permanent establishment was in existence at the start of the income year in which you made the choice; and

(ii) you make the choice within 90 days after the beginning of that income year or within 30 days after the commencement of this section; or

(b) both:

(i) the permanent establishment came into existence during the income year in which you made the choice; and

(ii) you make the choice within 90 days after the permanent establishment came into existence or within 30 days after the commencement of this section.

3

you make a choice under item 3 of the table in subsection 960‑60(1)

(a) both:

(i) the *offshore banking unit was in existence at the start of the income year in which you made the choice; and

(ii) you make the choice within 90 days after the beginning of that income year or within 30 days after the commencement of this section; or

(b) both:

(i) the offshore banking unit came into existence during the income year in which you made the choice; and

(ii) you make the choice within 90 days after the offshore banking unit came into existence or within 30 days after the commencement of this section.

4

you make a choice under item 4 of the table in subsection 960‑60(1)

(a) both:

(i) you are an attributable taxpayer of the CFC at the beginning of the CFC’s *statutory accounting period in which you made the choice; and

(ii) you make the choice within 90 days after the beginning of the CFC’s statutory accounting period or within 30 days after the commencement of this section; or

(b) both:

(i) you became an attributable taxpayer in relation to the CFC during the CFC’s statutory accounting period during which you made the choice; and

(ii) you make the choice within 90 days after the beginning of the CFC’s statutory accounting period or within 30 days after the commencement of this section.

5

you make a choice under item 5 of the table in subsection 960‑60(1)

you make the choice within 90 days after the beginning of an income year or within 30 days after the commencement of this section.

960‑70  What is the applicable functional currency?

Australian resident required to prepare financial reports under section 292 of the Corporations Act 2001

             (1)  If you make a choice under item 1 of the table in subsection 960‑60(1) with effect from the start of a particular income year, your applicable functional currency for:

                     (a)  that income year; and

                     (b)  each later income year for which the choice is in effect;

is the sole or predominant *foreign currency in which you kept your accounts at the time when you made the choice.

Permanent establishment, offshore banking unit or transferor trust

             (2)  If you make a choice under item 2, 3 or 5 of the table in subsection 960‑60(1) in relation to a *permanent establishment, an *offshore banking unit or a *transferor trust with effect from the start of a particular income year, the applicable functional currency of the establishment, unit or trust for:

                     (a)  that income year; and

                     (b)  each later income year for which the choice is in effect;

is the sole or predominant *foreign currency in which the establishment, unit or trust kept its accounts at the time when you made the choice.

Controlled foreign company

             (3)  If you make a choice under item 4 of the table in subsection 960‑60(1) in relation to a *controlled foreign company (CFC) with effect from the start of a particular *statutory accounting period, the applicable functional currency of the CFC for:

                     (a)  that statutory accounting period; and

                     (b)  each later statutory accounting period for which the choice is in effect;

is the sole or predominant *foreign currency in which the CFC kept its accounts at the time when you made the choice.

Note:          The attributable income of a controlled foreign company is calculated separately for each attributable taxpayer—see section 381 of the Income Tax Assessment Act 1936.

Calculating capital gains and losses on indirect Australian real property interests

          (3A)  If subsection 960‑61(2) applies, your applicable functional currency for the purposes of that subsection is the sole or predominant currency in which you keep your accounts at the time of the *CGT event.

Accounts

             (4)  For the purposes of this section, accounts means:

                     (a)  ledgers; and

                     (b)  journals; and

                     (c)  statements of financial performance; and

                     (d)  profit and loss accounts; and

                     (e)  balance‑sheets; and

                      (f)  statements of financial position;

and includes statements, reports and notes attached to, or intended to be read with, any of the foregoing.

960‑75  What is a transferor trust?

                   A transferor trust is a trust where, having regard to all relevant circumstances, it would be reasonable to conclude that another entity is, or is likely to be, an attributable taxpayer in relation to the trust for the purposes of Division 6AAA of Part III of the Income Tax Assessment Act 1936.

960‑80  Translation rules

             (1)  The table has effect:

 

Translation rules

Item

In this case...

these rules apply...

1

(a) you are an Australian resident required to prepare financial reports under section 292 of the Corporations Act 2001; and

(b) you have made a choice under item 1 of the table in subsection 960‑60(1), and that choice is in effect for an income year

(a) first, for the purpose of working out, for the income year, so much of your taxable income or tax loss as is not the subject of a choice made by you under any other item of that table:

(i) an amount that is not in the *applicable functional currency is to be translated into the applicable functional currency; and

(ii) the definition of foreign currency in subsection 995‑1(1) does not apply; and

(iii) the applicable functional currency is taken not to be a foreign currency; and

(iv) Australian currency and any other currency (except the applicable functional currency) are taken to be foreign currencies; and

(b) second, so much of your taxable income as is not the subject of a choice made by you under any other item of that table is to be translated into Australian currency.

2

(a) you are:

(i) an Australian resident carrying on an activity or business at or through an*overseas permanent establishment; or

(ii) a foreign resident carrying on an activity or business at or through an *Australian permanent establishment; and

(b) you have made a choice under item 2 of the table in subsection 960‑60(1) in relation to the permanent establishment, and that choice is in effect for an income year

(a) first, for the purpose of working out, for the income year, the taxable income or tax loss derived from the activity or business carried on at or through the permanent establishment:

(i) an amount that is not in the *applicable functional currency is to be translated into the applicable functional currency; and

(ii) the definition of foreign currency in subsection 995‑1(1) does not apply; and

(iii) the applicable functional currency is taken not to be a foreign currency; and

(iv) Australian currency and any other currency (except the applicable functional currency) are taken to be foreign currencies; and

(b) second, the taxable income derived from the activity or business carried on at or through the permanent establishment is to be translated into Australian currency.

3

(a) you are an *offshore banking unit (OBU); and

(b) you have made a choice under item 3 of the table in subsection 960‑60(1) in relation to the OBU, and that choice is in effect for an income year

(a) first, for the purpose of working out, for the income year, your total assessable OB income (within the meaning of Division 9A of Part III of the Income Tax Assessment Act 1936) and your total OB deductions (within the meaning of that Division):

(i) an amount that is not in the *applicable functional currency is to be translated into the applicable functional currency; and

(ii) the definition of foreign currency in subsection 995‑1(1) does not apply; and

(iii) the applicable functional currency is taken not to be a foreign currency; and

(iv) Australian currency and any other currency (except the applicable functional currency) are taken to be foreign currencies; and

(b) second, the total assessable OB income and the total allowable OB deductions are to be translated into Australian currency.

4

(a) you are an attributable taxpayer (within the meaning of Part X of the Income Tax Assessment Act 1936) of a *controlled foreign company (CFC); and

(b) you have made a choice under item 4 of the table in subsection 960‑60(1) in relation to the CFC, and that choice is in effect for a *statutory accounting period of the CFC

(a) first, for the purpose of working out, for the statutory accounting period, the *attributable income of the CFC:

(i) an amount that is not in the *applicable functional currency is to be translated into the applicable functional currency; and

(ii) the definition of foreign currency in subsection 995‑1(1) does not apply; and

(iii) the applicable functional currency is taken not to be a foreign currency; and

(iv) Australian currency and any other currency (except the applicable functional currency) are taken to be foreign currencies; and

(b) second, the attributable income is to be translated into Australian currency.

5

(a) you are a *transferor trust; and

(b) you have made a choice under item 5 of the table in subsection 960‑60(1) in relation to the trust, and that choice is in effect for an income year

(a) first, for the purpose of working out, for the income year, your attributable income (within the meaning of Division 6AAA of Part III of the Income Tax Assessment Act 1936):

(i) an amount that is not in the *applicable functional currency is to be translated into the applicable functional currency; and

(ii) the definition of foreign currency in subsection 995‑1(1) does not apply; and

(iii) the applicable functional currency is taken not to be a foreign currency; and

(iv) Australian currency and any other currency (except the applicable functional currency) are taken to be foreign currencies; and

(b) second, the attributable income is to be translated into Australian currency.

6

(a) you are a *foreign resident who makes a *capital gain or *capital loss from a *CGT event in relation to an asset that is an *indirect Australian real property interest; and

(b) you are required by subsection 960‑61(2) to work out the amount of your capital gain or capital loss in the *applicable functional currency

(a) first, for the purpose of working out, for the income year, the amount of your capital gain or capital loss from the CGT event, an amount that is not in the applicable functional currency is to be translated into the applicable functional currency; and

(b) second, the amount of the capital gain or capital loss is to be translated into Australian currency.

Note:          The attributable income of a controlled foreign company is calculated separately for each attributable taxpayer—see section 381 of the Income Tax Assessment Act 1936.

Examples of an amount

             (2)  The following are examples of an amount:

                     (a)  an amount of *ordinary income;

                     (b)  an amount of an expense;

                     (c)  an amount of an obligation;

                     (d)  an amount of a liability;

                     (e)  an amount of a receipt;

                      (f)  an amount of a payment;

                     (g)  an amount of consideration;

                     (h)  a value;

                      (i)  a monetary limit or other amount set out in this Act or any other law of the Commonwealth.

             (3)  The amounts set out in paragraphs (2)(b) to (i) may be amounts on revenue account, capital account or otherwise.

Amounts that are elements in the calculation of other amounts

             (4)  In applying this section:

                     (a)  first, translate any amounts that are elements in the calculation of other amounts (except *special accrual amounts); and

                     (b)  then, calculate the other amounts.

Special accrual amounts

             (5)  In applying this section:

                     (a)  calculate a *special accrual amount without translation and without applying the first rule set out in the relevant item of the table in subsection (1); and

                     (b)  then, translate the special accrual amount to Australian currency for the purposes of applying the second rule set out in the relevant item of the table in subsection (1).

Special translation rules

             (6)  Subsection 960‑50(6) has effect, in relation to the translation of an amount into the *applicable functional currency, as if each reference in that subsection to Australian currency were a reference to the applicable functional currency.

Regulations about translation

             (7)  An entity must comply with the regulations (if any) in translating an amount into:

                     (a)  the *applicable functional currency; or

                     (b)  Australian currency.

Note:          For example, the regulations could require the use of a particular translation method and require consistency in the use of the translation method.

             (8)  Regulations made for the purposes of subsection (7) may make provision in relation to a matter by applying, adopting or incorporating (with or without modifications) matter contained in any of the *accounting standards:

                     (a)  as in force or existing at a particular time; or

                     (b)  as in force or existing from time to time.

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

Australian resident required to prepare financial reports under section 292 of the Corporations Act 2001

             (1)  If:

                     (a)  as the result of a choice (the current choice) made by you under item 1 of the table in subsection 960‑60(1), subsection 960‑80(1) requires that an amount be translated to the *applicable functional currency; and

                     (b)  the amount is attributable to an event that happened, or a state of affairs that came into existence, at a time (the event time) before the current choice took effect;

the table has effect:

 

Special rule about translation

Item

In this case...

this is the result...

1

at the event time, no previous choice made by you under item 1 of the table in subsection 960‑60(1) was in effect

the amount is to be translated first to Australian currency at the exchange rate applicable at the event time, and then to the *applicable functional currency at the exchange rate applicable when the current choice took effect.

2

at the event time, a previous choice made by you under item 1 of the table in subsection 960‑60(1) was in effect

the amount is to be translated first to the previous *applicable functional currency at the exchange rate applicable at the event time, and then to the current applicable functional currency at the exchange rate applicable when the current choice took effect.

Permanent establishment, offshore banking unit, CFC or transferor trust

             (2)  If:

                     (a)  as the result of a choice (the current choice) made by you under item 2, 3, 4 or 5 of the table in subsection 960‑60(1), subsection 960‑80(1) requires that an amount be translated to the *applicable functional currency; and

                     (b)  the amount is attributable to an event that happened, or a state of affairs that came into existence, at a time (the event time) before the current choice took effect;

the table has effect:

 

Special rule about translation

Item

In this case...

this is the result...

1

at the event time, no previous choice made by you under section 960‑60 in relation to the establishment, unit, CFC or trust was in effect

the amount is to be translated first to Australian currency at the exchange rate applicable at the event time, and then to the *applicable functional currency at the exchange rate applicable when the current choice took effect.

2

at the event time, a previous choice made by you under section 960‑60 in relation to the establishment, unit, CFC or trust was in effect

the amount is to be translated first to the previous *applicable functional currency at the exchange rate applicable at the event time, and then to the current applicable functional currency at the exchange rate applicable when the current choice took effect.

960‑90  Withdrawal of choice

             (1)  The table has effect if you have made a choice under section 960‑60:

 

Withdrawal

Item

In this case:

you may withdraw your choice with effect from immediately after the end of...

1

(a) you are an Australian resident who is required to prepare financial reports under section 292 of the Corporations Act 2001; and

(b) your *applicable functional currency has ceased to be the sole or predominant currency in which you keep your accounts (within the meaning of section 960‑70)

the income year in which you withdraw your choice.

2

(a) you are an Australian resident carrying on an activity or business at or through an*overseas permanent establishment or a foreign resident carrying on an activity or business at or through an *Australian permanent establishment; and

(b) the *applicable functional currency of the permanent establishment has ceased to be the sole or predominant currency in which the establishment keeps its accounts (within the meaning of section 960‑70)

the income year in which you withdraw your choice.

3

(a) you are an *offshore banking unit (OBU); and

(b) the *applicable functional currency of the OBU has ceased to be the sole or predominant currency in which the OBU keeps its accounts (within the meaning of section 960‑70)

the income year in which you withdraw your choice.

4

(a) you are an attributable taxpayer (within the meaning of Part X of the Income Tax Assessment Act 1936) of a *controlled foreign company (CFC); and

(b) you have made a choice under item 4 of the table in subsection 960‑60(1) in relation to the CFC; and

(c) the *applicable functional currency of the CFC has ceased to be the sole or predominant currency in which the CFC keeps its accounts (within the meaning of section 960‑70)

the CFC’s *statutory accounting period in which you withdraw your choice.

5

(a) you are a *transferor trust; and

(b) the *applicable functional currency of the trust has ceased to be the sole or predominant currency in which the trust keeps its accounts (within the meaning of section 960‑70)

the income year in which you withdraw your choice.

             (2)  A withdrawal must be in writing.

             (3)  Withdrawing a choice does not prevent you from making a fresh choice under section 960‑60.

Subdivision 960‑EEntities

Table of sections

960‑100    Entities

960‑105    Certain entities treated as agents

960‑100  Entities

             (1)  Entity means any of the following:

                     (a)  an individual;

                     (b)  a body corporate;

                     (c)  a body politic;

                     (d)  a partnership;

                     (e)  any other unincorporated association or body of persons;

                      (f)  a trust;

                     (g)  a *superannuation fund;

                     (h)  an *approved deposit fund.

Note:          The term entity is used in a number of different but related senses. It covers all kinds of legal person. It also covers groups of legal persons, and other things, that in practice are treated as having a separate identity in the same way as a legal person does.

          (1A)  Paragraph (1)(e) does not include a *non‑entity joint venture.

             (2)  The trustee of a trust, of a *superannuation fund or of an *approved deposit fund is taken to be an entity consisting of the person who is the trustee, or the persons who are the trustees, at any given time.

Note 1:       This is because a right or obligation cannot be conferred or imposed on an entity that is not a legal person.

Note 2:       The entity that is the trustee of a trust or fund does not change merely because of a change in the person who is the trustee of the trust or fund, or persons who are the trustees of the trust or fund.

             (3)  A legal person can have a number of different capacities in which the person does things. In each of those capacities, the person is taken to be a different entity.

Example:    In addition to his or her personal capacity, an individual may be:

•       sole trustee of one or more trusts; and

•       one of a number of trustees of a further trust.

                   In his or her personal capacity, he or she is one entity. As trustee of each trust, he or she is a different entity. The trustees of the further trust are a different entity again, of which the individual is a member.

             (4)  If a provision refers to an entity of a particular kind, it refers to the entity in its capacity as that kind of entity, not to that entity in any other capacity.

Example:    A provision that refers to a company does not cover a company in a capacity as trustee, unless it also refers to a trustee.

Note:          Under section 87‑35, certain parts of Australian governments and authorities are treated as separate entities for the purposes of ascertaining whether another entity is conducting a personal services business.

960‑105  Certain entities treated as agents

             (1)  This Act applies to an entity as if the entity were an agent of another entity (the principal) if:

                     (a)  the principal is outside Australia; and

                     (b)  the entity is in Australia and, on behalf of the principal, holds money of the principal or has control, receipt or disposal of money of the principal.

             (2)  This Act, or a provision of this Act, applies to an entity as if the entity were an agent of another entity if the Commissioner determines in writing that the entity is the agent or sole agent of the other entity for the purposes of this Act or of that provision.

             (3)  A determination under subsection (2) is not a legislative instrument.

Subdivision 960‑FDistribution by corporate tax entities

Table of sections

960‑115    Meaning of corporate tax entity

960‑120    Meaning of distribution

960‑115  Meaning of corporate tax entity

                   An entity is a corporate tax entity at a particular time if:

                     (a)  the entity is a company at that time; or

                     (b)  the entity is a *corporate limited partnership in relation to the income year in which that time occurs; or

                     (d)  the entity is a *public trading trust in relation to the income year in which that time occurs.

960‑120  Meaning of distribution

             (1)  What constitutes a distribution by various *corporate tax entities is set out in the following table:

 

Distribution

Item

Corporate tax entity

Distribution

1

company

a dividend, or something that is taken to be a dividend, under this Act

2

*corporate limited partnership

(a) a distribution made by the partnership, whether in money or in other property, to a partner in the partnership, other than a distribution, or so much of a distribution, as is attributable to profits or gains arising during an income year in relation to which the partnership was not a corporate limited partnership

(b) something that is taken to be a dividend by the partnership under this Act

4

*public trading trust

a unit trust dividend, as defined in section 102M of the Income Tax Assessment Act 1936

             (2)  A *corporate tax entity makes a distribution in the form of a dividend on the day on which the dividend is paid, or taken to have been paid.

Subdivision 960‑GMembership of entities

Table of sections

960‑130    Members of entities

960‑135    Membership interest in an entity

960‑140    Ordinary membership interest

960‑130  Members of entities

             (1)  The following table sets out who is a member of various entities.

 

Members

Item

Entity

Member

1

company

a member of the company or a stockholder in the company

2

partnership

a partner in the partnership

3

trust (except a *public trading trust)

a beneficiary, unitholder or object of the trust

5

*public trading trust

a unitholder of the trust

             (2)  If 2 or more entities jointly hold interests or rights that give rise to membership of another entity, each of them is a member of the other entity.

             (3)  An entity is not a member of another entity just because the entity holds one or more interests or rights relating to the other entity that are *debt interests. This subsection has effect despite subsections (1) and (2) of this section.

Example:    An entity is not a member of a company as defined in this section merely because it is a member of the company in the ordinary sense of the term because it holds a finance share in the company, if the finance share is a debt interest. However, if the entity holds other shares in the company that are not debt interests, it will be a member because of those other shares.

960‑135  Membership interest in an entity

                   If you are a *member of an entity:

                     (a)  each interest, or set of interests, in the entity; or

                     (b)  each right, or set of rights, in relation to the entity;

by virtue of which you are a member of the entity is a membership interest of yours in the entity.

Note:          In conjunction with subsection 960‑130(3), this means that a debt interest is not a membership interest.

Example:    A member of a company holds a finance share in a company that is a debt interest and some other shares in the company that are not debt interests. Only the other shares are membership interests in the company. The finance share is not, because the member is not a member of the company because of that share (see subsection 960‑130(3)).

960‑140  Ordinary membership interest

                         A *membership interest in a *corporate tax entity is an ordinary membership interest if:

                            (a)   in the case of a membership interest in a company—it is an ordinary share; and

                            (b)   in the case of a membership interest in a *corporate limited partnership—it is an interest in the income of the partnership; and

                            (c)   in the case of a membership interest in a *public trading trust—it is a unit in the trust.

Subdivision 960‑GPParticipation interests in entities

Table of sections

960‑180    Total participation interest

960‑185    Indirect participation interest

960‑190    Direct participation interest

960‑195    Non‑portfolio interest test

960‑180  Total participation interest

                   An entity’s total participation interest at a particular time in another entity is the sum of:

                     (a)  the entity’s *direct participation interest in the other entity at that time; and

                     (b)  the entity’s *indirect participation interest in the other entity at that time.

960‑185  Indirect participation interest

             (1)  Work out the indirect participation interest that an entity (the holding entity) holds at a particular time in another entity (the test entity) by multiplying:

                     (a)  the holding entity’s *direct participation interest (if any) in another entity (the intermediate entity) at that time;

by:

                     (b)  the sum of:

                              (i)  the intermediate entity’s direct participation interest (if any) in the test entity at that time; and

                             (ii)  the intermediate entity’s indirect participation interest (if any) in the test entity at that time (as worked out under one or more other applications of this section).

             (2)  If there is more than one intermediate entity to which paragraph (1)(a) applies at that time, the holding entity’s indirect participation interest is the sum of the percentages worked out under subsection (1) in relation to each of those intermediate entities.

960‑190  Direct participation interest

             (1)  Use the following table to work out the direct participation interest that one entity holds in another entity.

 

Direct participation interest

 

If the other entity is this kind of entity:

the direct participation interest that the first entity holds in the other entity is:

1

A company (within the meaning of Part X of the Income Tax Assessment Act 1936)

the direct control interest (within the meaning of section 350 of the Income Tax Assessment Act 1936) that the first entity holds in the other entity

2

A trust (within the meaning of Part X of the Income Tax Assessment Act 1936)

the direct control interest (within the meaning of section 351 of the Income Tax Assessment Act 1936) that the first entity holds in the other entity

3

A partnership

the direct control interest (within the meaning of section 350 of the Income Tax Assessment Act 1936) that the first entity would hold in the other entity, if the assumptions in subsection (3) of this section were made

             (2)  For the purposes of subsection (1):

                     (a)  apply sections 350 and 351 of the Income Tax Assessment Act 1936 as if those sections apply for the purposes of this Division rather than only for the purposes of Part X of that Act; and

                     (b)  do not apply subsections 350(6) and (7) and 351(3) and (4) of that Act.

             (3)  For the purposes of item 3 of the table in subsection (1), assume that:

                     (a)  the *partnership is a company; and

                     (b)  the partners in the partnership are shareholders in the company; and

                     (c)  the total amount of assets or capital contributed to the partnership is the total paid‑up share capital of the company; and

                     (d)  a partner’s right of distribution of capital, assets or profits on the dissolution of the partnership is a shareholder’s right to distribution of capital or profits of the company on winding‑up; and

                     (e)  a partner’s right of distribution of capital, assets or profits otherwise than on the dissolution of the partnership is a shareholder’s right to distribution of capital or profits of the company otherwise than on winding‑up.

960‑195  Non‑portfolio interest test

                   An interest held by an entity (the holding entity) in another entity (the test entity) passes the non‑portfolio interest test at a time if the sum of the *direct participation interests held by the holding entity and its *associates in the test entity at that time is 10% or more.

Subdivision 960‑HAbnormal trading in shares or units

Table of sections

960‑220    Meaning of trading

960‑225    Abnormal trading

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

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

960‑240    Abnormal trading—suspected acquisition or merger

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

960‑220  Meaning of trading

Shares in a listed public company

             (1)  There is a trading in *shares in a company if there is an issue, redemption or transfer of those shares, or any other dealing in those shares, but only if it changes the respective proportions in which all the registered holders of shares in the company:

                     (a)  can exercise the voting power in the company; or

                     (b)  have the right to receive, as registered holders (whether or not for their own benefit) any dividends that the company may pay; or

                     (c)  have the right to receive, as registered holders (whether or not for their own benefit) any distribution of capital of the company.

Note:          A special rule applies in working out whether an asset has stopped being a pre‑CGT asset: see section 149‑10.

Units in a unit trust

             (2)  There is a trading in units in a unit trust if there is an issue, redemption or transfer of those units, or any other dealing in those units, but only if it changes the respective proportions in which all the registered holders of units in the trust hold (whether beneficially or not) interests in the trust income or trust capital.

Note:          A special rule applies in working out whether an asset has stopped being a pre‑CGT asset: see section 149‑10.

960‑225  Abnormal trading

             (1)  There is an abnormal trading in *shares in a company, or in units in a unit trust, if a *trading in the shares or units is abnormal having regard to all relevant factors, including these:

                     (a)  the timing of the trading, when compared with the normal timing for trading in the company’s shares or in the trust’s units;

                     (b)  the number of shares or units traded, when compared with the normal number of the company’s shares, or the trust’s units, traded;

                     (c)  any connection between the trading and any other trading in the company’s shares or in the trust’s units;

                     (d)  any connection between the trading and a *tax loss or other deduction of the company or trust.

             (2)  There may also be an abnormal trading under any of the following provisions.

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

                   There is an abnormal trading in *shares in a company, or in units in a unit trust, if 5% or more of the shares or units are *traded in one transaction.

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

             (1)  There is an abnormal trading in *shares in a company, or in units in a unit trust, if the company or trustee knows or reasonably suspects that an entity (or an entity and one or more of the entity’s *associates) has acquired (or redeemed) 5% or more of the shares or units in 2 or more transactions and would not have done so if the company or trust did not have a *tax loss or other deduction.

Time when abnormal trading happens

             (2)  The *abnormal trading happens at the time of the particular transaction that causes the 5% figure to be exceeded.

960‑240  Abnormal trading—suspected acquisition or merger

                   There is an abnormal trading in *shares in a company, or in units in a unit trust, if a *trading in those shares or units happens which the company or trustee knows or reasonably suspects is part of an acquisition or merger of the company with another company, or of the trust with another trust.

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

             (1)  There is an abnormal trading in *shares in a company or units in a unit trust if more than 20% of the shares or units are *traded during a 60 day period.

Time when abnormal trading happens

             (2)  The *abnormal trading happens at the end of the 60 day period concerned.

Subdivision 960‑JFamily relationships

Guide to Subdivision 960‑J

960‑250  What this Subdivision is about

This Subdivision has 2 principles for defining family relationships.

The first principle is to treat an unmarried couple (whether of the same sex or different sexes) in the same way as a married couple if:

               (a)     their relationship is registered under particular State or Territory laws; or

              (b)     they live together on a genuine domestic basis.

The second principle is to treat anyone who is defined to be an individual’s child in the same way as the individual’s natural child would be treated.

Both principles extend to tracing other family relationships, including beyond couples and children and their parents.

Table of sections

Operative provisions

960‑252    Object of this Subdivision

960‑255    Family relationships

Operative provisions

960‑252  Object of this Subdivision

             (1)  The first object of this Subdivision is to ensure that the same consequences flow under this Act and the other Acts to which this Subdivision applies from the relationship between 2 people who are an unmarried couple (whether of the same sex or different sexes) as from a marriage, if:

                     (a)  the relationship is registered under a *State law or *Territory law (as mentioned in paragraph (a) of the definition of spouse in subsection 995‑1(1)); or

                     (b)  they live together on a genuine domestic basis.

             (2)  The second object of this Subdivision is to ensure that under this Act and the other Acts to which this Subdivision applies, anyone who is defined to be an individual’s *child is treated in the same way as if he or she were the individual’s natural child.

960‑255  Family relationships

Relationships between couples

             (1)  If one individual is the *spouse of another individual because of the definition of spouse in subsection 995‑1(1), relationships traced to, from or through the individual, and family groups of which either individual is a member, are to be determined in the same way as if the individual were legally married to the other individual.

Example:    George and Angelika are not legally married but live together on a genuine domestic basis in a relationship as a couple. This Act treats them as part of each other’s family.

Relationships involving children

             (2)  If one individual is the *child of another individual because of the definition of child in subsection 995‑1(1), relationships traced to, from or through the individual, and family groups of which either individual is a member, are to be determined in the same way as if the individual were the natural child of the other individual.

Example:    Clare’s stepfather Frank has a sister Angela. This Act applies as if Angela were Clare’s aunt because Clare is defined to be Frank’s child. That is, Clare’s relationship to Angela is determined on the basis that Clare is Frank’s natural child.

Application

             (3)  Subsections (1) and (2) apply for the purposes of this Act. They also apply for the purposes of a provision of another Act if one or more of the following applies for the purposes of that provision (or would apply if it were used in the provision):

                     (a)  the definition of child in subsection 995‑1(1);

                     (b)  the definition of parent in subsection 995‑1(1);

                     (c)  the definition of relative in subsection 995‑1(1);

                     (d)  the definition of spouse in subsection 995‑1(1).

Subdivision 960‑MIndexation

Guide to Subdivision 960‑M

960‑260  What this Subdivision is about

There are a number of provisions that require amounts to be indexed. This Subdivision shows you:

        how to index those amounts; and

     •   how to calculate the indexation factor.

Table of sections

960‑265    The provisions for which indexation is relevant

Operative provisions

960‑270    Indexing amounts

960‑275    Indexation factor

960‑280    Index number

960‑285    Indexation—superannuation and employment termination

960‑290    Indexation—levy threshold for the major bank levy

960‑265  The provisions for which indexation is relevant

                   This table sets out the provisions for which indexation is relevant.

 

Provisions for which indexation is relevant

Item

Topic of provision:

See:

1

Car limit

section 40‑230

2

Capital gains—cost base

Parts 3‑1 and 3‑3

3

Capital gains—Improvements as separate assets

Subdivision 108‑D

3A

Dependant (invalid and carer) tax offset

section 61‑30

4

child care offset limit

section 61‑495

5

*Genuine redundancy payments and *early retirement scheme payments—base amount

subsection 83‑170(3)

6

*Genuine redundancy payments and *early retirement scheme payments—service amount

subsection 83‑170(3)

7

Reduction of superannuation contributions—pre‑1 July 88 funding credits (unused amount at end of previous income year)

subsection 295‑265(2)

8

*Employment termination payments—*ETP cap amount

section 82‑160

9

*Excess concessional contributions—*concessional contributions cap

subsection 291‑20(2)

10

*Excess non‑concessional contributions tax on superannuation contributions—index amount (*CGT cap amount)

subsection 292‑105(4)

10A

*General transfer balance cap

section 294‑35

11

*Superannuation benefits—index amount (*low rate cap amount)

subsection 307‑345(4)

12

*Superannuation benefits—index amount (*untaxed plan cap amount)

subsection 307‑350(4)

13

Thresholds for application of Division 250

sections 250‑25 and 250‑30

14

Levy threshold for the major bank levy

subsection 4(3) of the Major Bank Levy Act 2017

Note:          There are provisions of the Income Tax Assessment Act 1936 dealing with indexation that have not yet been rewritten.

Operative provisions

960‑270  Indexing amounts

             (1)  Some provisions of this Act require amounts to be indexed. You index an amount by multiplying it by its *indexation factor.

             (2)  You do not index the amount if its *indexation factor is 1 or less.

             (3)  This section does not apply in relation to amounts mentioned in the provisions listed at items 8 to 12, or at item 14, in section 960‑265.

Note:          For the indexation of those amounts, see sections 960‑285 and 960‑290.

960‑275  Indexation factor

             (1)  For indexation of amounts on an annual basis, the indexation factor is:

          (1A)  However, for indexation of the amounts mentioned in the provisions listed at items 5, 6 and 7 in section 960‑265, the indexation factor is:

                  

             (2)  For indexation of the *cost base of a *CGT asset (except the first element of the cost base of an asset covered by subsection (3)), the indexation factor for expenditure in an element of the cost base is:

The expenditure can include giving property: see section 103‑5.

Note 1:       This rule does not apply to expenditure incurred after 11.45 am on 21 September 1999 or any expenditure relating to a CGT asset acquired after that time: see section 114‑1.

Note 2:       This rule applies even if you do not actually pay some of the expenditure until a later time (for example, under a contract to purchase an asset by instalments).

Note 3:       There are rules affecting when the expenditure was incurred: see sections 114‑15 and 114‑20.

             (3)  For indexation of the first element of the *cost base of a *CGT asset that is:

                     (a)  a *share in a company; or

                     (b)  a unit in a unit trust;

the indexation factor for an amount in the first element of the *cost base of the asset that was paid to the company or trust at a time after it was *acquired is:

The payment can include giving property: see section 103‑5.

Example:    Peter acquires shares in a company. The shares are partly‑paid, and the company makes a call on the shares. Peter sells the shares to Narina before he is liable to pay the call.

                   The amount Narina paid to Peter for the shares is indexed under subsection 960‑275(2) from the quarter in which she incurred the expenditure to acquire the shares.

                   The amount Narina later pays for the call on the shares is indexed in accordance with subsection 960‑275(3) from the quarter in which she made that later payment.

Note 1:       This subsection does not apply to shares or units you acquired before 16 August 1989: see section 960‑275 of the Income Tax (Transitional Provisions) Act 1997.

Note 2:       This subsection does not apply to an amount paid after 11.45 am on 21 September 1999 or an amount paid in relation to a CGT asset acquired after that time: see section 114‑1.

             (4)  However, you cannot index expenditure in the third element of the *cost base of a CGT asset (costs of ownership).

             (5)  You work out the *indexation factor to 3 decimal places (rounding up if the fourth decimal place is 5 or more).

Example:    If the factor is 1.102795, it would be rounded up to 1.103.

             (6)  This section does not apply in relation to amounts mentioned in the provisions listed at items 8 to 12, or at item 14, in section 960‑265.

Note:          For the indexation of those amounts, see sections 960‑285 and 960‑290.

960‑280  Index number

             (1)  In most cases, the index number for a *quarter is the All Groups Consumer Price Index number (being the weighted average of the 8 capital cities) first published by the Australian Statistician for the quarter.

Car limit

             (2)  For calculating the *car limit, the index number for a *quarter is the index number for the motor vehicle purchase sub‑group of the Consumer Price Index, being the weighted average of the 8 capital cities, first published by the Australian Statistician for the quarter.

             (3)  If the Australian Statistician changes the index reference period for an *index number, only index numbers published in terms of the new index reference period are to be used after the change.

Genuine redundancy, early retirement schemes, pre‑1 July 88 funding credits

             (4)  For calculating the amounts mentioned in the provisions listed at items 5, 6 and 7 in section 960‑265, the index number for a *quarter is the estimate of full‑time adult average weekly ordinary time earnings for the middle month of the quarter first published by the Australian Statistician in respect of that month.

             (5)  Subsection (3) does not apply to the index numbers mentioned in subsection (4).

Exceptions

             (6)  This section does not apply in relation to amounts mentioned in the provisions listed at items 8 to 12, or at item 14, in section 960‑265.

Note:          For the indexation of those amounts, see sections 960‑285 and 960‑290.

960‑285  Indexation—superannuation and employment termination

             (1)  This section applies in relation to the amounts listed at items 8 to 12 in section 960‑265.

Indexing amounts

             (2)  You index the amount by:

                     (a)  first, multiplying its base amount mentioned in subsection (3) by its *indexation factor mentioned in subsection (5); and

                     (b)  next, rounding the result in paragraph (a) down to the nearest multiple of its *rounding amount.

Example 1: An amount of $140,000 is to be indexed, with a rounding amount of $5,000. If the indexation factor increases this to an indexed amount of $143,000, the indexed amount is rounded back down to $140,000.

Example 2: An amount of $140,000 is to be indexed, with a rounding amount of $5,000. If the indexation factor increases this to an indexed amount of $146,000, the indexed amount is rounded down to $145,000.

             (3)  The amount (the base amount) for an amount to which this section applies is:

                     (a)  unless paragraph (b) applies—the amount for the 2007‑2008 income year or *financial year; or

                     (b)  if the amount is mentioned in item 9 or 10A in section 960‑265—the amount for the 2017‑2018 financial year.

             (4)  You do not index the amount if the *indexation factor is 1 or less.

Indexation factor

             (5)  For indexing an amount, its indexation factor is:

where:

base quarter means:

                     (a)  unless paragraph (b) applies—the quarter ending on 31 December 2006; or

                     (b)  if the amount is mentioned in item 9 or 10A in section 960‑265—the quarter ending on 31 December 2016.

             (6)  You work out the *indexation factor mentioned in subsection (5) to 3 decimal places (rounding up if the fourth decimal place is 5 or more).

Index number and rounding amount

             (7)  For indexing an amount to which this section applies:

                     (a)  the index number for a *quarter is set out in column 2 of the relevant item in the following table; and

                     (b)  the rounding amount is set out in column 3 of that item.

 

Concepts for indexing rounded caps

Item

Column 1
Item in section 960‑265

Column 2
Index number

Column 3
Rounding amount

1

Items 8, 10, 11 and 12

the *index number mentioned in subsection 960‑280(4) (which is about average weekly ordinary time earnings)

$5,000

2

Item 9 (concessional contributions cap)

the *index number mentioned in subsection 960‑280(4) (which is about average weekly ordinary time earnings)

$2,500

3

Item 10A (general transfer balance cap)

the *index number mentioned in subsection 960‑280(1) (which is about the CPI)

$100,000

960‑290  Indexation—levy threshold for the major bank levy

             (1)  You index, on a *quarterly basis, the amount mentioned in the provision listed at item 14 in section 960‑265 by:

                     (a)  first, multiplying the amount by its *indexation factor mentioned in subsection (3); and

                     (b)  next, rounding the result in paragraph (a) down to the nearest multiple of $1,000,000.

             (2)  You do not index the amount if the *indexation factor is 1 or less.

             (3)  For indexation of the amount, the indexation factor is:

where:

GDP number for the base quarter is the estimate that is, at the end of the *quarter to which the indexation is to be applied, the estimate of the Gross Domestic Product: Current Prices‑Seasonally Adjusted most recently published by the Australian Statistician for the *quarter ending on 30 June 2017.

GDP number for the preceding quarter is the estimate of the Gross Domestic Product: Current Prices‑Seasonally Adjusted first published by the Australian Statistician for the *quarter preceding the quarter to which the indexation is to be applied.

             (4)  You work out the *indexation factor mentioned in subsection (3) to 3 decimal places (rounding up if the fourth decimal place is 5 or more).

Subdivision 960‑SMarket value

Guide to Subdivision 960‑S

960‑400  What this Subdivision is about

The expression “market value” is often used in this Act with its ordinary meaning.

However, in some cases that expression has a meaning affected by this Subdivision.

The Commissioner may approve methods to use for working out the market value of assets or non‑cash benefits.

Table of sections

Operative provisions

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

960‑410    Market value of non‑cash benefits

960‑412    Working out market value using an approved method

960‑415    Amounts that depend on market value

Operative provisions

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

             (1)  The market value of an asset at a particular time is reduced by the amount of the *input tax credit (if any) to which you would be entitled assuming that:

                     (a)  you had *acquired the asset at that time; and

                     (b)  the acquisition had been solely for a *creditable purpose.

             (2)  Subsection (1) does not apply:

                     (a)  to an asset the *supply of which cannot be a *taxable supply; or

                     (b)  in working out the *market value of economic benefits, or of *equity or loan interests, for the purposes of Part 3‑95 (about value shifting).

Note:          Some assets, such as shares, cannot be the subject of a taxable supply.

960‑410  Market value of non‑cash benefits

                   In working out the market value of a *non‑cash benefit, disregard anything that would prevent or restrict conversion of the benefit to money.

960‑412  Working out market value using an approved method

             (1)  The *market value of an asset or *non‑cash benefit that you work out using a method approved under subsection (2) for that kind of asset or benefit binds the Commissioner in relation to you.

Note:          You do not have to use the method.

             (2)  The Commissioner may, by legislative instrument, approve methods for working out the *market value of assets or *non‑cash benefits. A method may include conditions.

Note 1:       Different methods may be approved for different kinds of assets or non‑cash benefits (see subsection 13(3) of the Legislation Act 2003).

Note 2:       Any approved method would need to be consistent with the other rules about market value in this Subdivision.

960‑415  Amounts that depend on market value

                   To avoid doubt, apply the rules in this Subdivision to the *market value component of any calculation that involves market value.

Subdivision 960‑TMeaning of Australia

Guide to Subdivision 960‑T

960‑500  What this Subdivision is about

This Subdivision includes rules about the meaning of Australia when used in a geographical sense.

The ordinary meaning of Australia includes each State and internal Territory of Australia and their internal waters and any islands that are part of those State and Territories.

This Subdivision extends the ordinary meaning of Australia to include each external Territory of Australia (other than the Australian Antarctic Territory) and certain offshore areas and certain offshore installations.

Table of sections

Operative provisions

960‑505    Meaning of Australia

Operative provisions

960‑505  Meaning of Australia

Territories

             (1)  Australia, when used in a geographical sense, includes each of the following:

                     (a)  Norfolk Island;

                     (b)  the Coral Sea Islands Territory;

                     (c)  the Territory of Ashmore and Cartier Islands;

                     (d)  the Territory of Christmas Island;

                     (e)  the Territory of Cocos (Keeling) Islands;

                      (f)  the Territory of Heard Island and the McDonald Islands.

Note:          Section 15B of the Acts Interpretation Act 1901 provides that an Act is taken to have effect in the coastal sea of Australia as if the coastal sea were part of Australia.

Offshore areas

             (2)  Australia, when used in a geographical sense, includes each of the following areas:

                     (a)  an offshore area for the purpose of the Offshore Petroleum and Greenhouse Gas Storage Act 2006;

                     (b)  the Joint Petroleum Development Area (within the meaning of the Petroleum (Timor Sea Treaty) Act 2003).

Note 1:       The offshore area and the Joint Petroleum Development Area include all things located in those areas, including all installations and structures such as oil and gas rigs. The areas also extend to the airspace over, and the sea‑bed and subsoil beneath, those areas.

Note 2:       The offshore area and the Joint Petroleum Development Area include the exclusive economic zone and the continental shelf of Australia.

Subdivision 960‑USignificant global entities

Guide to Subdivision 960‑U

960‑550  What this Subdivision is about

Generally speaking, a significant global entity is:

       (a)     a global parent entity with an annual global income of $1 billion or more; or

      (b)     any member of such a global parent entity’s group.

Table of sections

Operative provisions

960‑555    Meaning of significant global entity

960‑560    Meaning of global parent entity

960‑565    Meaning of annual global income

960‑570    Meaning of global financial statements

Operative provisions

960‑555  Meaning of significant global entity

             (1)  An entity is a significant global entity for a period if the entity is a *global parent entity:

                     (a)  whose *annual global income for the period is $1 billion or more; or

                     (b)  in relation to whom the Commissioner makes a determination under subsection (3) for the period.

             (2)  An entity is also a significant global entity for a period if:

                     (a)  the entity is a member of a group of entities that are consolidated for accounting purposes as a single group; and

                     (b)  one of the other members of the group is a *global parent entity:

                              (i)  whose *annual global income for the period is $1 billion or more; or

                             (ii)  in relation to whom the Commissioner makes a determination under subsection (3) for the period.

             (3)  The Commissioner may make a determination under this subsection in relation to a *global parent entity for a period if:

                     (a)  *global financial statements have not been prepared for the entity for the period; and

                     (b)  on the basis of the information available to the Commissioner, the Commissioner reasonably believes that, if such statements had been prepared for the period, the entity’s *annual global income for the period would have been $1 billion or more.

The Commissioner must give a notice of the determination to the global parent entity, or to another entity that becomes a *significant global entity as a result of the determination.

             (4)  An entity who is dissatisfied with a determination made in relation to the entity may object against the determination in the manner set out in Part IVC of the Taxation Administration Act 1953.

             (5)  However, if:

                     (a)  there has been a taxation objection (within the meaning of section 14ZL of the Taxation Administration Act 1953) against an *assessment relating to the entity; and

                     (b)  the assessment involved the application of section 177DA of the Income Tax Assessment Act 1936 (schemes that limit a taxable presence in Australia) in relation to the entity;

the right of objection under subsection (4) of this section is unaffected, but the outcome of that objection has no effect on the assessment or on the outcome of the taxation objection.

Note:          Section 14ZVA of the Taxation Administration Act 1953 excludes from a taxation objection to an assessment any grounds (or potential grounds) for an objection to a determination under subsection (3) of this section.

             (6)  A determination under subsection (3) is not a legislative instrument.

             (7)  Section 175 of the Income Tax Assessment Act 1936 (validity) applies to a determination under subsection (3) of this section in the same way as it applies to an *assessment.

960‑560  Meaning of global parent entity

                   A global parent entity is an entity that, according to:

                     (a)  *accounting principles; or

                     (b)  if accounting principles do not apply in relation to the entity—commercially accepted principles relating to accounting;

is not controlled by another entity.

Note:          A global parent entity may be a single entity that is not a member of a group of entities.

960‑565  Meaning of annual global income

                   The annual global income of a *global parent entity for a period is:

                     (a)  if the entity is a member of a group of entities that are consolidated for accounting purposes as a single group—the total annual income of all the members of the group; or

                     (b)  otherwise—the total annual income of the entity;

as shown in the latest *global financial statements for the entity for the period.

960‑570  Meaning of global financial statements

                   Global financial statements for a *global parent entity for a period (the relevant period) are the financial statements that:

                     (a)  have been prepared and audited in relation to that entity, or that entity and other entities, in accordance with:

                              (i)  *accounting principles and *auditing principles; or

                             (ii)  if such principles do not apply—commercially accepted principles, relating to accounting and auditing, that ensure the statements give a true and fair view of the financial position and performance of that entity (or that entity and the other entities on a consolidated basis); and

                     (b)  are for the most recent period ending:

                              (i)  no later than the end of the relevant period; and

                             (ii)  no earlier than 12 months before the start of the relevant period.

Division 961Notional tax offsets

Table of Subdivisions

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

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

Subdivision 961‑ADependant (non‑student child under 21 or student) notional tax offset

Guide to Subdivision 961‑A

961‑1  What this Subdivision is about

This Subdivision provides for a notional tax offset for an income year if you contribute to the maintenance of a non‑student child or a student dependant. The notional tax offset can only be taken into account in working out certain tax offsets under the Income Tax Assessment Act 1936.

Table of sections

Entitlement to the notional tax offset

961‑5        Who is entitled to the notional tax offset

Amount of the notional tax offset

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

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

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

Entitlement to the notional tax offset

961‑5  Who is entitled to the notional tax offset

             (1)  You are entitled to a notional tax offset for an income year if:

                     (a)  you are an individual; and

                     (b)  you are an Australian resident; and

                     (c)  during the year you contribute to the maintenance of another individual (the dependant) who:

                              (i)  is less than 25 years of age, and is a full‑time student at a school, college or university; or

                             (ii)  if subparagraph (i) does not apply—is less than 21 years of age; and

                     (d)  during the year:

                              (i)  the dependant is an Australian resident; or

                             (ii)  you had a domicile in Australia.

             (2)  You may be entitled to more than one notional tax offset for the year under subsection (1) if you contributed to the maintenance of more than one dependant during the year.

Note:          The amount of the notional tax offset in relation to each subsequent dependant may only be part of the full amount: see subsection 961‑15(1).

             (3)  The notional tax offset only affects your income tax liability as provided for by sections 23AB, 79A and 79B of the Income Tax Assessment Act 1936.

Note:          Section 23AB of that Act provides a tax offset for service with an armed force under the control of the United Nations; section 79A provides a tax offset for residents of isolated areas; section 79B provides a tax offset for members of the Defence Force who are serving overseas.

Amount of the notional tax offset

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

             (1)  The amount of the notional tax offset to which you are entitled in relation to a dependant under section 961‑5 for an income year is $376.

             (2)  However, if you are entitled to 2 or more such notional tax offsets for the income year in relation to individuals covered by subparagraph 961‑5(1)(c)(ii), the amount of the notional tax offset under section 961‑5 is:

                     (a)  in relation to the oldest of those individuals—$376; and

                     (b)  in relation to each of the others—$282.

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

             (1)  The amount of the notional tax offset under section 961‑10 is reduced by the amount in accordance with subsection (2) of this section if one or more of the following applies:

                     (a)  paragraph 961‑5(1)(c) applies during part only of the year;

                     (b)  paragraph 961‑5(1)(d) applies during part only of the year;

                     (c)  during the whole or part of the year, 2 or more individuals contribute to the maintenance of the dependant;

                     (d)  the dependant only meets the description of the individual covered by subparagraph 961‑5(1)(c)(i) or (ii) for part of the year.

             (2)  The amount of a notional tax offset is reduced to an amount that, in the Commissioner’s opinion, is a reasonable apportionment in the circumstances, having regard to the applicable matters referred to in paragraphs (1)(a) to (d).

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

                   The amount of the notional tax offset under sections 961‑10 and 961‑15 in relation to the dependant for the year is reduced by $1 for every $4 by which the following exceeds $282:

                     (a)  if you contribute to the maintenance of the dependant for the whole of the year—the dependant’s *adjusted taxable income for offsets for the year;

                     (b)  if paragraph (a) does not apply—the dependant’s adjusted taxable income for offsets for that part of the year during which you contribute to the dependant’s maintenance.

Subdivision 961‑BDependant (sole parent of a non‑student child under 21 or student) notional tax offset

Guide to Subdivision 961‑B

961‑50  What this Subdivision is about

This Subdivision provides for a notional tax offset for an income year if you are the sole contributor to the maintenance of a non‑student child or a student dependant. The notional tax offset can only be taken into account in working out certain tax offsets under the Income Tax Assessment Act 1936.

Table of sections

Operative provisions

961‑55      Who is entitled to the notional tax offset

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

961‑65      Reductions to take account of change in circumstances

Operative provisions

961‑55  Who is entitled to the notional tax offset

             (1)  You are entitled to a notional tax offset for an income year if:

                     (a)  during the year you have the sole care of another individual (the dependant) who:

                              (i)  is less than 25 years of age, and is a full‑time student at a school, college or university; or

                             (ii)  if subparagraph (i) does not apply—is less than 21 years of age; and

                     (b)  you are entitled to a notional tax offset under Subdivision 961‑A for the dependant; and

                     (c)  during the year you did not have a *spouse.

             (2)  Paragraph (1)(c) does not apply if, in the opinion of the Commissioner, because of special circumstances, the paragraph should not apply.

             (3)  The notional tax offset only affects your income tax liability as provided for by sections 79A and 79B of the Income Tax Assessment Act 1936.

Note:          Section 79A of that Act provides a tax offset for residents of isolated areas; section 79B provides a tax offset for members of the Defence Force who are serving overseas.

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

                   The amount of the notional tax offset to which you are entitled under section 961‑55 for an income year is $1,607.

Note:          The amount of the offset under this section applies regardless of whether you have one or more dependants that satisfy section 961‑55.

961‑65  Reductions to take account of change in circumstances

             (1)  The amount of the notional tax offset under section 961‑60 is reduced in accordance with subsection (2) if:

                     (a)  paragraph 961‑55(1)(a) applies during only part of the year; or

                     (b)  paragraph 961‑55(1)(c) does not apply because of subsection 961‑55(2).

             (2)  The amount of the notional tax offset is reduced to an amount that, in the Commissioner’s opinion, is a reasonable apportionment in the circumstances, having regard to the matters referred to in paragraphs (1)(a) and (b).

Division 974Debt and equity interests

Table of Subdivisions

974‑A   General

974‑B    Debt interests

974‑C    Equity interests

974‑D   Common provisions

974‑E    Non‑share distributions by a company

974‑F    Related concepts

Subdivision 974‑AGeneral

Guide to Division 974

974‑1  What this Division is about

This Division tells you whether an interest is a debt interest, or an equity interest, for tax purposes. An interest that could be characterised as both a debt interest and an equity interest will be treated as a debt interest for tax purposes (except for certain interests that fund returns on equity interests).

Whether an interest is a debt interest or an equity interest matters because returns on debt interests are not frankable but may be deductible while returns on equity interests are not deductible but may be frankable.

This Division extends beyond shares the range of interests that are recognised as equity in a company. An interest that is an equity interest in a company but is not a share will be treated in the same way as a share for some tax purposes (particularly in relation to the determination of the tax treatment of returns on the interest).

This Division also tells you how to work out which distributions made in respect of a non‑share equity interest in a company will be non‑share dividends and which will be non‑share capital returns. Those that are non‑share dividends will be treated, for most tax purposes, in the same way as dividends.

Table of sections

974‑5        Overview of Division

Operative provisions

974‑10      Object

974‑5  Overview of Division

Test for distinguishing debt and equity interests

             (1)  The test for distinguishing between debt interests and equity interests focuses on economic substance rather than mere legal form (see subsection 974‑10(2)). The test is designed to assess the economic substance of an interest in terms of its impact on the issuer’s position.

Debt interests

             (2)  Subdivision 974‑B tells you when an interest is a debt interest in an entity. The basic test is in section 974‑20.

Equity interests

             (3)  Subdivision 974‑C tells you when an interest is an equity interest in a company. The basic test is in section 974‑75.

Tie breaker between debt and equity

             (4)  If an interest satisfies both the debt test and the equity test, it is treated as a debt interest and not an equity interest.

Distributions in relation to equity interests that are not shares

             (5)  If you have an equity interest in a company that is not a share, Subdivision 974‑E tells you what will count as a non‑share distribution, a non‑share dividend and a non‑share capital return in relation to the interest.

Concepts used in the debt and equity tests

             (6)  Subdivision 974‑F defines a number of concepts that are used in the debt and equity tests (financing arrangement, effectively non‑contingent obligation, benchmark rate of return and converting interest).

Operative provisions

974‑10  Object

             (1)  An object of this Division is to establish a test for determining for particular tax purposes whether a *scheme, or the combined operation of a number of schemes:

                     (a)  gives rise to a *debt interest; or

                     (b)  gives rise to an *equity interest.

Note 1:       The test is used, for example, for:

(a)    identifying distributions that may be frankable and which may be subject to dividend withholding tax; and

(b)    identifying returns that may be deductible to the company making the return; and

(c)    resolving uncertainty as to the proper tax treatment for debt/equity hybrid interests (interests that have some debt qualities and some equity qualities); and

(d)    identifying debt capital for the purposes of Division 820 (thin capitalisation rules).

Note 2:       Subdivision 167‑A has special rules for working out rights to dividends and capital distributions in a company whose shares do not all carry the same rights to those matters. Those rules include disregarding debt interests.

             (2)  Another object of this Division is that the test referred to in subsection (1) is to operate on the basis of the economic substance of the rights and obligations arising under the *scheme or schemes rather than merely on the basis of the legal form of the scheme or schemes.

Note 1:       The basic indicator of the economic character of a debt interest is the non‑contingent nature of the returns. The basic indicator of the economic character of an equity interest, on the other hand, is the contingent nature of the returns (or convertibility into an interest of that nature).

Note 2:       The test is intended to operate, for example, to:

(a)    deny deductibility (but allow franking) for “interest” in relation to a scheme that has the legal form of a loan if the economic substance of the rights and obligations arising under the relevant scheme gives the interest characteristics that are the same as or similar to those of a dividend on an ordinary share (and thereby prevent deductible returns on equity); and

(b)    allow a deduction (but not franking) for a “dividend” in relation to a scheme that has the legal form of an ordinary share if the economic substance of the rights and obligations arising under the relevant scheme gives the dividend characteristics that are the same as or similar to those of deductible interest on an ordinary loan (and thereby prevent frankable returns on debt).

                   This will not happen if a provision in this Act specifically provides for a different treatment for the interest or dividend.

             (3)  Another object of this Division is that the combined effect of *related schemes be taken into account in appropriate cases:

                     (a)  to ensure that the test operates effectively on the basis of the economic substance of the rights and obligations arising under the schemes rather than merely on the basis of the legal form of the schemes; and

                     (b)  to prevent the test being circumvented by entities merely entering into a number of separate schemes instead of a single scheme.

             (4)  Another object of this Division is to identify the distributions and credits made in respect of *non‑share equity interests in a company that are to be treated as *dividends (non‑share dividends) and those that are to be treated as returns of capital (non‑share capital returns).

Note:          Non‑share dividends will generally be included in the recipient’s assessable income and may be frankable.

             (5)  The Commissioner must have regard to the objects stated in subsections (1) to (3) in exercising the power to make a determination under any of the following provisions:

                     (a)  subsection 974‑15(4);

                     (b)  subsection 974‑60(3), (4) or (5);

                     (c)  section 974‑65;

                     (d)  subsection 974‑70(4);

                     (e)  subsection 974‑150(1).

Note:          An entity can apply to the Commissioner to have a determination made and can object under Part IVC of the Taxation Administration Act 1953 if it is dissatisfied with a determination (see section 974‑112).

             (6)  Regulations may also be made under the provisions of this Division:

                     (a)  to clarify the meaning of certain words and phrases in the light of emerging commercial practices, conditions and products; and

                     (b)  to give guidance on the detailed operation of particular provisions.

The regulations must be consistent with the objects stated in subsections (1) to (3).

             (7)  Without limiting subsection 13(3) of the Legislation Act 2003, the regulations made for the purposes of this Division may specify different rules for different classes of circumstances.

Subdivision 974‑BDebt interests

Table of sections

974‑15      Meaning of debt interest

974‑20      The test for a debt interest

974‑25      Exceptions to the debt test

974‑30      Providing a financial benefit

974‑35      Valuation of financial benefit—general rules

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

974‑45      Valuation of financial benefits—convertible interests

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

974‑55      The debt interest and its issue

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

974‑65      Commissioner’s power

974‑15  Meaning of debt interest

Single scheme giving rise to debt interest

             (1)  A *scheme gives rise to a debt interest in an entity if the scheme, when it comes into existence, satisfies the debt test in subsection 974‑20(1) in relation to the entity.

Note 1:       A debt interest can also arise under subsection (2) (related schemes) or section 974‑65 (Commissioner’s discretion).

Note 2:       Section 974‑55 defines various aspects of the debt interest that arises.

Related schemes giving rise to debt interest

             (2)  Two or more *related schemes (the constituent schemes) together give rise to a debt interest in an entity if:

                     (a)  the entity enters into, participates in or causes another entity to enter into or participate in the constituent schemes; and

                     (b)  a scheme with the combined effect or operation of the constituent schemes (the notional scheme) would satisfy the debt test in subsection 974‑20(1) in relation to the entity if the notional scheme came into existence when the last of the constituent schemes came into existence; and

                     (c)  it is reasonable to conclude that the entity intended, or knew that a party to the scheme or one of the schemes intended, the combined economic effects of the constituent schemes to be the same as, or similar to, the economic effects of a debt interest.

This is so whether or not the constituent schemes come into existence at the same time and even if none of the constituent schemes would individually give rise to that or any other *debt interest.

Note:          Section 974‑105 explains the effect, for tax purposes, of actions taken under the schemes.

             (3)  Subsection (2) does not apply if each of the *schemes individually gives rise to a *debt interest in the entity.

             (4)  Two or more *related schemes do not give rise to a debt interest in an entity under subsection (2) if the Commissioner determines that it would be unreasonable to apply that subsection to those schemes.

             (5)  Without limiting subsection 974‑10(5), the Commissioner must, in exercising the power to make a determination under subsection (4), have regard to the following:

                     (a)  the purpose of the *schemes (considered both individually and in combination);

                     (b)  the effects of the schemes (considered both individually and in combination);

                     (c)  the rights and obligations of the parties to the schemes (considered both individually and in combination);

                     (d)  whether the schemes (when considered either individually or in combination) provide the basis for, or underpin, an interest issued to investors with the expectation that the interest can be assigned to other investors;

                     (e)  whether the schemes (when considered either individually or in combination) comprise a set of rights and obligations issued to investors with the expectation that it can be assigned to other investors;

                      (f)  any other relevant circumstances.

             (6)  If:

                     (a)  2 or more *related schemes give rise to a *debt interest in an entity; and

                     (b)  one or more of those schemes (the hedging scheme or schemes) are schemes for hedging or managing financial risk; and

                     (c)  the other scheme or schemes give rise to a debt interest in the entity even if the hedging scheme or schemes are disregarded;

the debt interest that arises from the schemes is taken, for the purposes of Division 820 (the thin capitalisation rules), not to include the hedging scheme or schemes.

Note:          This means that in these circumstances the losses associated with the hedging scheme or schemes are not debt deductions under section 820‑40.

974‑20  The test for a debt interest

Satisfying the debt test

             (1)  A *scheme satisfies the debt test in this subsection in relation to an entity if:

                     (a)  the scheme is a *financing arrangement for the entity; and

                     (b)  the entity, or a *connected entity of the entity, receives, or will receive, a *financial benefit or benefits under the scheme; and

                     (c)  the entity has, or the entity and a connected entity of the entity each has, an *effectively non‑contingent obligation under the scheme to provide a financial benefit or benefits to one or more entities after the time when:

                              (i)  the financial benefit referred to in paragraph (b) is received if there is only one; or

                             (ii)  the first of the financial benefits referred to in paragraph (b) is received if there are more than one; and

                     (d)  it is substantially more likely than not that the value provided (worked out under subsection (2)) will be at least equal to the value received (worked out under subsection (3)); and

                     (e)  the value provided (worked out under subsection (2)) and the value received (worked out under subsection (3)) are not both nil.

The scheme does not need to satisfy paragraph (a) if the entity is a company and the interest arising from the scheme is an interest covered by item 1 of the table in subsection 974‑75(1) (interest as a member or stockholder of the company).

Note:          Section 974‑30 tells you when a financial benefit is taken to be provided to an entity.

             (2)  The value provided is:

                     (a)  the value of the *financial benefit to be provided under the *scheme by the entity or a *connected entity if there is only one; or

                     (b)  the sum of the values of all the financial benefits provided or to be provided under the scheme by the entity or a connected entity of the entity if there are 2 or more.

Note:          Section 974‑35 tells you how to value financial benefits.

             (3)  The value received is:

                     (a)  the value of the *financial benefit received, or to be received, under the *scheme by the entity or a *connected entity of the entity if there is only one; or

                     (b)  the sum of the values of all the financial benefits received, or to be received, under the scheme by the entity or a connected entity if there are 2 or more.

             (4)  For the purposes of paragraph (1)(b) and subsections (2) and (3):

                     (a)  a *financial benefit to be provided under the *scheme by the entity or a *connected entity is taken into account only if it is one that the entity or connected entity has an *effectively non‑contingent obligation to provide; and

                     (b)  a financial benefit to be received under the scheme by the entity or a connected entity is taken into account only if it is one that another entity has an effectively non‑contingent obligation to provide.

Multiple financial benefits

             (5)  Paragraphs (1)(b) and (c) apply to 2 or more *financial benefits whether they are provided at the same time or over a period of time.

Regulations

             (6)  The regulations:

                     (a)  may specify circumstances in which paragraph (1)(d) is satisfied or not satisfied; and

                     (b)  may otherwise specify rules to be applied in determining whether or not paragraph (1)(d) is satisfied.

974‑25  Exceptions to the debt test

Short term schemes

             (1)  A *scheme does not satisfy the debt test in subsection 974‑20(1) in relation to an entity if:

                     (a)  at least a substantial part of a *financial benefit mentioned in that subsection does not consist of either of the following or a combination of either of the following:

                              (i)  a liquid or monetary asset;

                             (ii)  an amount of money; and

                     (b)  the scheme requires the financial benefit mentioned in paragraph 974‑20(1)(c) to be provided within a period of no more than 100 days of the receipt of the first financial benefit mentioned in paragraph 974‑20(1)(b); and

                     (c)  the financial benefit mentioned in paragraph 974‑20(1)(c):

                              (i)  is in fact provided within that period; or

                             (ii)  is not provided within that period because the entity required to provide the benefit neglects to provide the benefit within that period (although willing to do so); or

                            (iii)  is not provided within that period because the entity required to provide the benefit is unable to provide the benefit within that period (although willing to do so); and

                     (d)  the scheme is not one of a number of *related schemes that together are taken to give rise to a *debt interest under subsection 974‑15(2).

Regulations

             (2)  The regulations may make provision in relation to the application or operation of subsection (1). Without limiting this, the regulations may:

                     (a)  specify what constitutes a substantial part of a *financial benefit for the purposes of paragraph (1)(a); or

                     (b)  specify a period to be substituted for the period referred to in paragraph (1)(b).

974‑30  Providing a financial benefit

Issue of equity interest

             (1)  The following do not constitute the provision of a *financial benefit by an entity or a *connected entity of the entity:

                     (a)  the issue of an *equity interest in the entity or a connected entity of the entity; or

                     (b)  an amount that is to be applied in respect of the issue of an equity interest in the entity or a connected entity of the entity.

Providing a financial benefit to an entity

             (2)  A *financial benefit is taken to be provided to an entity if it is provided:

                     (a)  to the entity; or

                     (b)  on the entity’s behalf; or

                     (c)  for the entity’s benefit.

Obligation to provide future financial benefit

             (3)  For the avoidance of doubt, if you have a present obligation to provide a *financial benefit to an entity at some time in the future:

                     (a)  the financial benefit is taken to be a financial benefit to be provided in the future; and

                     (b)  the obligation to provide the financial benefit is taken not to be a financial benefit being provided at the present.

974‑35  Valuation of financial benefits—general rules

Value in nominal terms or present value terms

             (1)  For the purposes of this Subdivision:

                     (a)  the value of a *financial benefit received or provided under a *scheme is its value calculated:

                              (i)  in nominal terms if the performance period (see subsection (3)) must end no later than 10 years after the interest arising from the scheme is issued; or

                             (ii)  in present value terms (see section 974‑50) if the performance period must or may end more than 10 years after the interest arising from the scheme is issued; and

                     (b)  the regulations may make provisions relating to the valuation of a financial benefit.

Assume scheme runs its full term

             (2)  The value of a *financial benefit received or provided under a *scheme is calculated assuming that the interest arising from the scheme will continue to be held for the rest of its life.

Note 1:       Section 974‑40 makes specific provision for cases in which there is a right or option to terminate the interest early.

Note 2:       Section 974‑45 makes specific provision for cases involving convertible interests.

Performance period

             (3)  The performance period is the period within which, under the terms on which the interest is issued, the *effectively non‑contingent obligations of the issuer, and any *connected entity of the issuer, to provide a *financial benefit in relation to the interest have to be met.

             (4)  An obligation is treated as having to be met within 10 years after the interest is issued if:

                     (a)  the issuer; or

                     (b)  the *connected entity of the issuer;

has an *effectively non‑contingent obligation to terminate the interest within that 10 year period even if the terms on which the interest is issued formally allow the obligation to continue after the end of that 10 year period.

Benefit dependent on variable factor

             (5)  If:

                     (a)  a *financial benefit received or provided in respect of an interest depends on a factor that may vary over time (such as a variable interest rate); and

                     (b)  that factor is one commonly used in commercial arrangements; and

                     (c)  it would be unreasonable to expect any of the parties to the *scheme to know, or to anticipate accurately, the future value of that factor; and

                     (d)  that factor has a particular value (the starting value) when the scheme is entered into;

the value of the financial benefit is calculated assuming that the factor’s value will retain the starting value for the whole of the life of the scheme.

Note:          For example, the value of a return based on a floating interest rate is calculated on the basis that the interest rate remains the interest rate that is applicable when the scheme is entered into.

Scheme wholly in foreign currency etc.

             (6)  If all the *financial benefits provided and received under a *scheme are denominated in a particular foreign currency or in terms of quantities of a particular commodity or other unit of account, they are not to be converted into Australian currency for the purpose of comparing their relative values for the purposes of this Subdivision.

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

             (1)  This section deals with the situation in which a party to a *scheme has a right or option to terminate the scheme early (whether by discharging an obligation early, converting the interest arising from the scheme into another interest or otherwise).

Note 1:       An example of terminating a scheme early by discharging an obligation early is terminating a loan by discharging the obligation to repay the principal (and any outstanding interest) early.

Note 2:       In certain circumstances, conversion of an interest into another interest can terminate its life (see section 974‑45).

             (2)  The existence of the right or option is to be disregarded in working out the length of the life of the interest arising from the *scheme for the purposes of this Subdivision if the party does not have an *effectively non‑contingent obligation to exercise the right or option.

             (3)  If the party does have an *effectively non‑contingent obligation to exercise the right or option, the life of the interest ends at the earliest time at which the party will have to exercise the right or option.

             (4)  This section does not limit subsection 974‑35(2).

974‑45  Valuation of financial benefits—convertible interests

             (1)  This section deals with the situation in which a *scheme gives rise to an *interest that will or may convert into an *equity interest in a company.

             (2)  The life of the interest ends no later than the time when it converts into that *equity interest.

             (3)  The possibility of the conversion is to be disregarded in working out the length of the life of the interest arising from the *scheme for the purposes of section 974‑35 if it is uncertain:

                     (a)  whether the interest will ever convert; or

                     (b)  when the interest will convert.

Note:          Section 974‑40 deals with the situation in which a party to the scheme may exercise a right or option to convert the interest.

             (4)  This section does not limit subsection 974‑35(2).

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

             (1)  Subject to the regulations made for the purposes of subsection (5), the value in present value terms of a *financial benefit to be provided or received in respect of an interest (the test interest) is calculated under subsection (4).

             (2)  If you need to calculate the values in present value terms of a number of *financial benefits, the value of each financial benefit is to be calculated separately.

             (3)  The value of a *financial benefit is to be calculated assuming that all amounts to be paid by an entity in respect of the test interest are paid at the earliest time when the entity becomes liable to pay them.

             (4)  The value of a *financial benefit in present value terms is:

where:

adjusted benchmark rate of return is 75% of the *benchmark rate of return on the test interest.

n is the number of years in the period starting on the day on which the test interest is issued and ending on the day on which the *financial benefit is to be provided. If the period includes a part of a year, that part is to be expressed as the fraction:

year means a period of 12 months.

             (5)  The regulations may provide for the method of calculating the value in present value terms of a *financial benefit.

             (6)  Without limiting subsection (5), the regulations may:

                     (a)  provide for an entirely different method of calculating the present value of the *financial benefit; or

                     (b)  specify the adjusted *benchmark rate of return; or

                     (c)  provide for a different method of determining the adjusted benchmark rate of return; or

                     (d)  specify rules for determining whether a *debt interest is an *ordinary debt interest.

974‑55  The debt interest and its issue

             (1)  If a *scheme, or 2 or more *related schemes, give rise to a *debt interest in an entity, the debt interest:

                     (a)  consists of the interest that carries the right to receive a *financial benefit that the entity or a *connected entity has an *effectively non‑contingent obligation to provide under the scheme or any of the schemes; and

                     (b)  is taken, subject to section 974‑60, to be a debt interest in the entity; and

                     (c)  is taken to be issued by the entity; and

                     (d)  is issued when the entity (or a connected entity of the entity) first receives a *financial benefit under the scheme or any of the schemes; and

                     (e)  is on issue while an effectively non‑contingent obligation of the entity (or a connected entity of the entity) to provide a financial benefit under the scheme or any of the schemes remains unfulfilled.

             (2)  The interest referred to in paragraph (1)(a) may take the form of a proprietary right, a chose in action or any other form.

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

             (1)  This section deals with the situation in which a *scheme, or a number of *related schemes together, would, apart from this section, give rise to the same *debt interest in 2 or more entities.

Note:          A scheme may give rise to the same debt interest in 2 or more entities if each of those entities has non‑contingent obligations to provide financial benefits under the scheme.

             (2)  The *debt interest:

                     (a)  is a debt interest in the entity identified under subsection (3) or (4); and

                     (b)  is not a debt interest in the other entity or entities.

             (3)  The *debt interest is a debt interest in the entity identified using the following method statement:

Method statement

Step 1.   Work out, for each of the entities, the total value of the *financial benefits that the entity is under an *effectively non‑contingent obligation to provide under the *scheme or schemes: this is the entity’s obligation value.

Step 2.   The *debt interest is taken to be a debt interest in the entity with the greatest obligation value.

Step 3.   If it is not possible to determine which entity has the greatest obligation value (whether because of an equality of, or uncertainty as to, obligation values or otherwise), the *debt interest is taken to be a debt interest in the entity agreed on by all the entities.

Step 4.   If the entities do not agree, the interest is taken to be a *debt interest in the entity determined by the Commissioner.

             (4)  Despite subsection (3), the Commissioner may determine that the *debt interest is a debt interest in the entity specified in the determination.

             (5)  The Commissioner may make the determination only if satisfied, having regard to the economic substance of the relevant transactions, that the *debt interest is properly considered from a commercial point of view to be an interest in the entity specified in the determination.

974‑65  Commissioner’s power

             (1)  Despite subsection 974‑20(1) (the debt test), the Commissioner may determine that a *scheme gives rise to a debt interest in an entity if the Commissioner considers that:

                     (a)  the scheme would satisfy paragraphs 974‑20(1)(a), (b), (c) and (e); but

                     (b)  instead of satisfying paragraph 974‑20(1)(d), the scheme would satisfy all the following subparagraphs:

                              (i)  it is substantially more likely than not that the value of the *