Income Tax Assessment Act 1997

Contents

Chapter 4—International aspects of income tax 1

Part 4‑5—General 1

Division 768—Exempt foreign income and gains 1

Subdivision 768‑B—Some items of income that are exempt from income tax 1

768‑100. Foreign government officials in Australia........................................... 1

768‑105. Compensation arising out of Second World War................................ 3

Subdivision 768‑G—Reduction in capital gains and losses arising from CGT events in relation to certain voting interests in active foreign companies 5

Guide to Subdivision 768‑G 5

768‑500. What this Subdivision is about........................................................... 5

Operative provisions 6

768‑505. Reducing a capital gain or loss from certain CGT events in relation to certain voting interests 6

Active foreign business asset percentage 7

768‑510. Active foreign business asset percentage............................................ 7

768‑515. Choices to apply market value method or book value method.......... 8

768‑520. Market value method—choice made under subsection 768‑515(1)... 8

768‑525. Book value method—choice made under subsection 768‑515(2)..... 10

768‑530. Active foreign business asset percentage—modifications for foreign life insurance companies and foreign general insurance companies......................................................................... 14

768‑535. Modified rules for foreign wholly‑owned groups............................ 16

Types of assets of a foreign company 18

768‑540. Active foreign business assets of a foreign company....................... 18

768‑545. Assets included in the total assets of a foreign company................. 20

Voting percentages in a company 21

768‑550. Direct voting percentage in a company............................................ 21

768‑555. Indirect voting percentage in a company.......................................... 22

768‑560. Total voting percentage in a company.............................................. 22

Subdivision 768‑R—Temporary residents 23

Guide to Subdivision 768‑R 23

768‑900. What this Subdivision is about......................................................... 23

Operative provisions 24

768‑905. Objects.............................................................................................. 24

768‑910. Income derived by temporary resident............................................. 24

768‑915. Certain capital gains and capital losses of temporary resident to be disregarded 26

768‑920. Capital gains and losses on employee shares and rights where taxation of discount not deferred 26

768‑925. Notional gain or loss......................................................................... 29

768‑930. Adjustment to notional gain or loss.................................................. 30

768‑935. Adjustment for share or right acquired under employee share scheme 31

768‑940. Adjustment for derived share........................................................... 33

768‑945. Amending assessment to take account of effect on capital gain or loss of recalculating discount 35

768‑950. Individual becoming an Australian resident...................................... 36

768‑955. Temporary resident who ceases to be temporary resident but remains an Australian resident 36

768‑960. Temporary resident not attributable taxpayer for purposes of controlled foreign companies rules 37

768‑965. Exemption of temporary resident from taxation in respect of foreign investment fund income 37

768‑970. Modification of rules for accruals system of taxation of certain non‑resident trust estates 37

768‑975. Calculation of beneficiary’s share of net income of non‑resident trust estate 38

768‑980. Interest paid by temporary resident................................................. 38

Division 775—Foreign currency gains and losses 39

Guide to Division 775 39

775‑5..... What this Division is about.............................................................. 39

Subdivision 775‑A—Objects of this Division 40

775‑10... Objects of this Division.................................................................... 40

Subdivision 775‑B—Realisation of forex gains or losses 41

775‑15... Forex realisation gains are assessable................................................ 42

775‑20... Certain forex realisation gains are exempt income............................ 43

775‑25... Certain forex realisation gains are non‑assessable non‑exempt income 44

775‑30... Forex realisation losses are deductible.............................................. 44

775‑35... Certain forex realisation losses are disregarded................................. 45

775‑40... Disposal of foreign currency or right to receive foreign currency—forex realisation event 1 46

775‑45... Ceasing to have a right to receive foreign currency—forex realisation event 2 48

775‑50... Ceasing to have an obligation to receive foreign currency—forex realisation event 3 51

775‑55... Ceasing to have an obligation to pay foreign currency—forex realisation event 4 53

775‑60... Ceasing to have a right to pay foreign currency—forex realisation event 5 59

775‑65... Only one forex realisation event to be counted................................ 61

775‑70... Tax consequences of certain short‑term forex realisation gains........ 63

775‑75... Tax consequences of certain short‑term forex realisation losses...... 68

775‑80... You may choose not to have sections 775‑70 and 775‑75 apply to you 71

775‑85... Forex cost base of a right to receive foreign currency....................... 72

775‑90... Forex entitlement base of a right to pay foreign currency................ 72

775‑95... Proceeds of assuming an obligation to pay foreign currency............ 73

775‑100. Net costs of assuming an obligation to receive foreign currency...... 74

775‑105. Currency exchange rate effect........................................................... 75

775‑110. Constructive receipts and payments................................................ 75

775‑115. Economic set‑off to be treated as legal set‑off.................................. 76

775‑120. Non‑arm’s length transactions.......................................................... 76

775‑125. CGT consequences of the acquisition of foreign currency as a result of forex realisation event 2 or 3 76

775‑130. Certain deductions not allowable...................................................... 77

775‑135. Right to receive or pay foreign currency.......................................... 77

775‑140. Obligation to pay or receive foreign currency.................................. 78

775‑145. Application of forex realisation events to currency and fungible rights and obligations 78

775‑150. Transitional election......................................................................... 79

775‑155. Applicable commencement date....................................................... 79

775‑160. Exception—event happens before the applicable commencement date 80

775‑165. Exception—currency or right acquired, or obligation incurred, before the applicable commencement date 80

775‑170. Exemption for ADIs and non‑ADI financial institutions................. 82

775‑175. Application to things happening before commencement................. 82

Subdivision 775‑C—Roll‑over relief for facility agreements 83

Guide to Subdivision 775‑C 83

775‑180. What this Subdivision is about......................................................... 83

Operative provisions 84

775‑185. What is a facility agreement?............................................................ 84

775‑190. What is an eligible security?.............................................................. 84

775‑195. You may choose roll‑over relief for a facility agreement.................. 85

775‑200. Forex realisation event 4 does not apply.......................................... 86

775‑205. What is a roll‑over?.......................................................................... 86

775‑210. Notional loan.................................................................................... 87

775‑215. Discharge of obligation to pay the principal amount of a notional loan under a facility agreement—forex realisation event 6.............................................................................................. 91

775‑220. Material variation of a facility agreement—forex realisation event 7 93

Subdivision 775‑D—Qualifying forex accounts that pass the limited balance test 95

Guide to Subdivision 775‑D 95

775‑225. What this Subdivision is about......................................................... 95

Operative provisions 96

775‑230. Election to have this Subdivision apply to one or more qualifying forex accounts 96

775‑235. Variation of election.......................................................................... 97

775‑240. Withdrawal of election...................................................................... 97

775‑245. When does a qualifying forex account pass the limited balance test? 98

775‑250. Tax consequences of passing the limited balance test.................... 101

775‑255. Notional realisation when qualifying forex account starts to pass the limited balance test 102

775‑260. Modification of tax recognition time.............................................. 103

Subdivision 775‑E—Retranslation for qualifying forex accounts 104

Guide to Subdivision 775‑E 104

775‑265. What this Subdivision is about....................................................... 104

Operative provisions 104

775‑270. You may choose retranslation for a qualifying forex account......... 104

775‑275. Withdrawal of choice...................................................................... 105

775‑280. Tax consequences of choosing retranslation for an account........... 105

775‑285. Retranslation of gains and losses relating to a qualifying forex account—forex realisation event 8 106

Division 802—Foreign residents’ income with an underlying foreign source 109

Subdivision 802‑A—Conduit foreign income 109

Guide to Subdivision 802‑A 109

802‑5..... What this Subdivision is about....................................................... 109

Operative provisions 110

802‑10... Objects............................................................................................ 110

802‑15... Foreign residents—exempting CFI from Australian tax................. 110

802‑20... Distributions between Australian corporate tax entities—non‑assessable non‑exempt income 111

802‑25... Conduit foreign income of an Australian corporate tax entity....... 112

802‑30... Foreign source income amounts...................................................... 113

802‑35... Capital gains and losses.................................................................. 114

802‑40... Effect of foreign tax credits on conduit foreign income.................. 115

802‑45... Previous declarations of conduit foreign income............................ 115

802‑50... Receipt of an unfranked distribution from another Australian corporate tax entity 116

802‑55... No double benefits.......................................................................... 116

802‑60... No streaming of distributions......................................................... 116

Division 820—Thin capitalisation rules 118

Guide to Division 820 119

820‑1..... What this Division is about............................................................ 119

820‑5..... Does this Division apply to an entity?.......................................... 119

820‑10... Map of Division............................................................................. 121

Subdivision 820‑A—Preliminary 122

820‑30... Object of Division.......................................................................... 123

820‑32... Exemption for private or domestic assets and non‑debt liabilities. 123

820‑35... Application—$250,000 threshold.................................................. 123

820‑37... Application—assets threshold....................................................... 123

820‑39... Exemption of certain special purpose entities................................ 125

820‑40... Meaning of debt deduction.............................................................. 126

Subdivision 820‑B—Thin capitalisation rules for outward investing entities (non‑ADI) 128

Guide to Subdivision 820‑B 128

820‑65... What this Subdivision is about....................................................... 128

Operative provisions 129

820‑85... Thin capitalisation rule for outward investing entities (non‑ADI). 129

820‑90... Maximum allowable debt................................................................ 132

820‑95... Safe harbour debt amount—outward investor (general)................. 133

820‑100. Safe harbour debt amount—outward investor (financial)............... 134

820‑105. Arm’s length debt amount.............................................................. 138

820‑110. Worldwide gearing debt amount..................................................... 141

820‑115. Amount of debt deduction disallowed............................................ 143

820‑120. Application to part year periods.................................................... 143

Subdivision 820‑C—Thin capitalisation rules for inward investing entities (non‑ADI) 145

Guide to Subdivision 820‑C 145

820‑180. What this Subdivision is about....................................................... 145

Operative provisions 146

820‑185. Thin capitalisation rule for inward investing entities (non‑ADI)... 146

820‑190. Maximum allowable debt................................................................ 149

820‑195. Safe harbour debt amount—inward investment vehicle (general)... 149

820‑200. Safe harbour debt amount—inward investment vehicle (financial) 150

820‑205. Safe harbour debt amount—inward investor (general)................... 153

820‑210. Safe harbour debt amount—inward investor (financial)................. 154

820‑215. Arm’s length debt amount.............................................................. 157

820‑220. Amount of debt deduction disallowed............................................ 161

820‑225. Application to part year periods.................................................... 161

Subdivision 820‑D—Thin capitalisation rules for outward investing entities (ADI) 163

Guide to Subdivision 820‑D 163

820‑295. What this Subdivision is about....................................................... 163

Operative provisions 164

820‑300. Thin capitalisation rule for outward investing entities (ADI)........ 164

820‑305. Minimum capital amount............................................................... 166

820‑310. Safe harbour capital amount........................................................... 166

820‑315. Arm’s length capital amount.......................................................... 167

820‑320. Worldwide capital amount.............................................................. 169

820‑325. Amount of debt deduction disallowed............................................ 171

820‑330. Application to part year periods.................................................... 172

Subdivision 820‑E—Thin capitalisation rules for inward investing entities (ADI) 173

Guide to Subdivision 820‑E 173

820‑390. What this Subdivision is about....................................................... 173

Operative provisions 174

820‑395. Thin capitalisation rule for inward investing entities (ADI).......... 174

820‑400. Minimum capital amount............................................................... 175

820‑405. Safe harbour capital amount........................................................... 176

820‑410. Arm’s length capital amount.......................................................... 176

820‑415. Amount of debt deduction disallowed............................................ 178

820‑420. Application to part year periods.................................................... 179

Subdivision 820‑EA—Some financial entities may choose to be treated as ADIs 181

820‑430. When choice can be made, and what effect it has........................... 181

820‑435. Conditions...................................................................................... 182

820‑440. Revocation of choice....................................................................... 184

820‑445. How this Subdivision interacts with Subdivision 820‑FA............. 184

Subdivision 820‑FA—How the thin capitalisation rules apply to consolidated groups and MEC groups 185

Guide to Subdivision 820‑FA 185

820‑579. What this Subdivision is about....................................................... 185

Operative provisions 186

820‑581. How this Division applies to head company for income year in which group comes into existence or ceases to exist........................................................................................................ 186

820‑583. Classification of head company...................................................... 187

820‑584. Exempt special purpose entities treated as not being member of group 189

820‑585. Exemption for consolidated group headed by foreign‑controlled Australian ADI or its holding company 189

820‑587. Additional application of Subdivision 820‑D to MEC group that includes foreign‑controlled Australian ADI 190

820‑589. How Subdivision 820‑D applies to a MEC group......................... 191

820‑591. Effect on safe harbour capital amount if group member is foreign‑controlled Australian ADI and on‑lends section 128F amounts.......................................................................................... 191

Subdivision 820‑FB—Grouping branches of foreign banks and foreign financial entities with a consolidated group, MEC group or single Australian resident company 193

Guide to Subdivision 820‑FB 193

820‑595. What this Subdivision is about....................................................... 193

Choice to group with branches of foreign banks and foreign financial entities 194

820‑597. Choice by head company of consolidated group or MEC group... 194

820‑599. Choice by Australian resident company outside consolidatable group and MEC group 195

Effect of choice 196

820‑601. Application..................................................................................... 196

820‑603. General............................................................................................ 196

820‑605. Effect on establishment entity if certain debt deductions disallowed 198

820‑607. Effect on test periods under this Division...................................... 199

820‑609. Effect on classification of head company or single company......... 199

820‑611. Values to be based on what would be in consolidated accounts for group 201

820‑613. How Subdivision 820‑D applies.................................................... 202

820‑615. How Subdivision 820‑E applies..................................................... 203

820‑617. Effect on safe harbour capital amount if single company is foreign‑controlled Australian ADI and on‑lends section 128F amounts..................................................................... 204

Subdivision 820‑G—Calculating the average values 205

Guide to Subdivision 820‑G 205

820‑625. What this Subdivision is about....................................................... 205

How to calculate the average values 206

820‑630. Methods of calculating average values............................................ 206

820‑635. The opening and closing balances method...................................... 207

820‑640. The 3 measurement days method................................................... 207

820‑645. The frequent measurement method................................................ 209

Special rules about values and valuation 211

820‑675. Amount to be expressed in Australian currency............................ 211

820‑680. Valuation of assets, liabilities and equity capital............................ 211

820‑685. Valuation of debt capital................................................................. 214

820‑690. Commissioner’s power................................................................... 214

Subdivision 820‑H—Control of entities 215

Guide to Subdivision 820‑H 215

820‑740. What this Subdivision is about....................................................... 215

Australian controller of a foreign entity 216

820‑745. What is an Australian controlled foreign entity?............................ 216

820‑750. What is an Australian controller of a controlled foreign company? 216

820‑755. What is an Australian controller of a controlled foreign trust?....... 217

820‑760. What is an Australian controller of a controlled foreign corporate limited partnership? 217

Foreign controlled Australian entity 218

820‑780. What is a foreign controlled Australian entity?.............................. 218

820‑785. What is a foreign controlled Australian company?......................... 218

820‑790. What is a foreign controlled Australian trust?................................ 219

820‑795. What is a foreign controlled Australian partnership?..................... 221

Thin capitalisation control interest 223

820‑815. General rule about thin capitalisation control interest in a company, trust or partnership 223

820‑820. Special rules about calculating TC control interest held by an entity 224

820‑825. Special rules about calculating TC control interests held by a group of entities 225

820‑830. Special rules about determining percentage of TC control interest 225

820‑835. Commissioner’s power................................................................... 226

TC direct control interest, TC indirect control interest and TC control tracing interest 226

820‑855. TC direct control interest in a company......................................... 226

820‑860. TC direct control interest in a trust................................................ 227

820‑865. TC direct control interest in a partnership..................................... 228

820‑870. TC indirect control interest in a company, trust or partnership.... 229

820‑875. TC control tracing interest in a company, trust or partnership..... 232

Subdivision 820‑HA—Controlled foreign entity debt and controlled foreign entity equity 233

Guide to Subdivision 820‑HA 233

820‑880. What this Subdivision is about....................................................... 233

820‑881. Application..................................................................................... 233

820‑885. What is controlled foreign entity debt?............................................ 233

820‑890. What is controlled foreign entity equity?......................................... 234

Subdivision 820‑I—Associate entities 235

Guide to Subdivision 820‑I 235

820‑900. What this Subdivision is about....................................................... 235

820‑905. Associate entity.............................................................................. 235

820‑910. Associate entity debt...................................................................... 239

820‑915. Associate entity equity.................................................................. 241

820‑920. Associate entity excess amount...................................................... 242

Subdivision 820‑J—Equity interest in a trust or partnership 247

Guide to Subdivision 820‑J 247

820‑925. What this Subdivision is about....................................................... 247

820‑930. Equity interest in a trust or partnership.......................................... 247

Subdivision 820‑K—Zero‑capital amount 250

Guide to Subdivision 820‑K 250

820‑940. What this Subdivision is about....................................................... 250

820‑942. How to work out the zero‑capital amount..................................... 251

Subdivision 820‑KA—Cost‑free debt capital and excluded equity interests 255

Guide to Subdivision 820‑KA 255

820‑945. What this Subdivision is about....................................................... 255

820‑946. Cost‑free debt capital and excluded equity interest.......................... 255

Subdivision 820‑L—Record keeping requirements 258

Guide to Subdivision 820‑L 258

820‑950. What this Subdivision is about....................................................... 258

Records about Australian permanent establishments 259

820‑960. Records about Australian permanent establishments..................... 259

820‑965. Review of Commissioner’s decision............................................... 262

Records about arm’s length amounts 262

820‑980. Records about arm’s length debt amount and arm’s length capital amount 262

Records about asset revaluations 263

820‑985. Methodology of revaluation and independence of valuer............... 263

Offences committed by certain entities 264

820‑990. Offences—treatment of partnerships............................................. 264

820‑995. Offences—treatment of unincorporated companies....................... 265

Division 830—Foreign hybrids 267

Guide to Division 830 267

830‑1..... What this Division is about............................................................ 267

Subdivision 830‑A—Meaning of “foreign hybrid” 267

830‑5..... Foreign hybrid................................................................................ 268

830‑10... Foreign hybrid limited partnership................................................. 268

830‑15... Foreign hybrid company................................................................ 269

Subdivision 830‑B—Extension of normal partnership provisions to foreign hybrid companies 270

830‑20... Treatment of company as a partnership........................................ 270

830‑25... Partners are the shareholders in the company................................ 271

830‑30... Individual interest of a partner in net income etc. equals percentage of notional distribution of company’s profits........................................................................................................ 271

830‑35... Partner’s interest in assets.............................................................. 271

830‑40... Control and disposal of share in partnership income..................... 271

Subdivision 830‑C—Special rules applicable while an entity is a foreign hybrid 272

830‑45... Partner’s revenue and net capital losses from foreign hybrid not to exceed partner’s loss exposure amount 272

830‑50... Deduction etc. where partner’s foreign hybrid revenue loss amount and foreign hybrid net capital loss amount are less than partner’s loss exposure amount.............................................. 273

830‑55... Meaning of foreign hybrid net capital loss amount........................ 275

830‑60... Meaning of loss exposure amount.................................................. 275

830‑65... Meaning of outstanding foreign hybrid revenue loss amount........ 277

830‑70... Meaning of outstanding foreign hybrid net capital loss amount..... 277

830‑75... Extended meaning of subject to tax................................................. 278

Subdivision 830‑D—Special rules applicable when an entity becomes or ceases to be a foreign hybrid 280

830‑80... Setting the tax cost of partners’ interests in the assets of an entity that becomes a foreign hybrid 281

830‑85... Setting the tax cost of assets of an entity when it ceases to be a foreign hybrid 281

830‑90... What the expression tax cost is set means...................................... 281

830‑95... What the expression tax cost setting amount means....................... 283

830‑100. What the expression tax cost means............................................... 286

830‑105. What the expression asset‑based income tax regime means........... 287

830‑110. No disposal of assets etc. on entity becoming or ceasing to be a foreign hybrid 287

830‑115. Tax losses cannot be transferred to a foreign hybrid...................... 287

830‑120. End of CFC’s last statutory accounting period.............................. 288

830‑125. How long interest in asset, or asset, held....................................... 288

Division 842—Exempt Australian source income and gains of foreign residents 290

Subdivision 842‑B—Some items of Australian source income of foreign residents that are exempt from income tax 290

Guide to Subdivision 842‑B 290

842‑100. What this Subdivision is about....................................................... 290

842‑105. Amounts of Australian source ordinary income and statutory income that are exempt 290

Division 855—Capital gains and foreign residents 294

Guide to Division 855 294

855‑1..... What this Division is about............................................................ 294

Subdivision 855‑A—Disregarding a capital gain or loss by foreign residents 294

855‑5..... Objects of this Subdivision............................................................. 295

855‑10... Disregarding a capital gain or loss from CGT events..................... 295

855‑15... When an asset is taxable Australian property................................ 296

855‑20... Taxable Australian real property.................................................... 296

855‑25... Indirect Australian real property interests..................................... 297

855‑30... Principal asset test.......................................................................... 298

855‑35... Reducing a capital gain or loss from a business asset—Australian permanent establishments 300

855‑40... Capital gains and losses of foreign residents through fixed trusts.. 300

Subdivision 855‑B—Becoming an Australian resident 302

855‑45... Individual or company becomes an Australian resident................. 302

855‑50... Trust becomes a resident trust....................................................... 303

855‑55... CFC becomes an Australian resident.............................................. 304

Chapter 5—Administration 305

Part 5‑30—Record‑keeping and other obligations 305

Division 900—Substantiation rules 305

Guide to Division 900 305

900‑1..... What this Division is about............................................................ 305

Subdivision 900‑A—Application of Division 305

900‑5..... Application of the requirements of Division 900........................... 306

900‑10... Substantiation requirement............................................................. 306

900‑12... Application to recipients and payers of certain withholding payments 306

Subdivision 900‑B—Substantiating work expenses 307

900‑15... Getting written evidence................................................................. 308

900‑20... Keeping travel records.................................................................... 308

900‑25... Retaining the written evidence and travel records.......................... 309

900‑30... Meaning of work expense............................................................... 309

900‑35... Exception for small total of expenses............................................. 311

900‑40... Exception for laundry expenses below a certain limit.................... 311

900‑45... Exception for work expense related to award transport payment. 312

900‑50... Exception for domestic travel allowance expenses......................... 312

900‑55... Exception for overseas travel allowance expenses.......................... 313

900‑60... Exception for reasonable overtime meal allowance......................... 313

900‑65... Crew members on international flights need not keep travel records 313

Subdivision 900‑C—Substantiating car expenses 314

900‑70... Getting written evidence................................................................. 314

900‑75... Retaining the written evidence and odometer records.................... 314

Subdivision 900‑D—Substantiating business travel expenses 315

900‑80... Getting written evidence................................................................. 315

900‑85... Keeping travel records.................................................................... 316

900‑90... Retaining the written evidence and travel records.......................... 316

900‑95... Meaning of business travel expense............................................... 317

Subdivision 900‑E—Written evidence 318

Guide to Subdivision 900‑E 318

900‑100. What this Subdivision is about....................................................... 318

Operative provisions 318

900‑105. Ways of getting written evidence................................................... 318

900‑110. Time limits...................................................................................... 318

900‑115. Written evidence from supplier...................................................... 319

900‑120. Written evidence of depreciating asset expense.............................. 319

900‑125. Evidence of small expenses............................................................. 320

900‑130. Evidence of expenses considered otherwise too hard to substantiate 321

900‑135. Evidence on a payment summary................................................... 321

Subdivision 900‑F—Travel records 322

Guide to Subdivision 900‑F 322

900‑140. What this Subdivision is about....................................................... 322

900‑145. Purpose of a travel record............................................................... 322

Operative provisions 322

900‑150. Recording activities in travel records.............................................. 322

900‑155. Showing which of your activities were income‑producing activities 323

Subdivision 900‑G—Retaining and producing records 323

Guide to Subdivision 900‑G 323

900‑160. What this Subdivision is about....................................................... 323

900‑165. The retention period....................................................................... 323

Operative provisions 324

900‑170. Extending the retention period if an expense is disputed............... 324

900‑175. Commissioner may tell you to produce your records.................... 324

900‑180. How to comply with a notice......................................................... 324

900‑185. What happens if you don’t comply............................................... 325

Subdivision 900‑H—Relief from effects of failing to substantiate 325

900‑195. Commissioner’s discretion to review failure to substantiate.......... 325

900‑200. Reasonable expectation that substantiation would not be required 325

900‑205. What if your documents are lost or destroyed?............................. 326

Subdivision 900‑I—Award transport payments 326

Guide to Subdivision 900‑I 326

900‑210. What this Subdivision is about....................................................... 326

Operative provisions 327

900‑215. Deducting an expense related to an award transport payment....... 327

900‑220. Definition of award transport payment.......................................... 328

900‑225. Substituted industrial instruments.................................................. 329

900‑230. Changes to industrial instruments applied for before 29 October 1986 329

900‑235. Changes to industrial instruments solely referable to matters in the instrument 329

900‑240. Deducting in anticipation of receiving award transport payment.. 329

900‑245. Effect of exception in this Subdivision on exception for small total of expenses 330

900‑250. Effect of exception in this Subdivision on methods of calculating car expense deductions 330

Part 5‑35—Miscellaneous 332

Division 905—Offences 332

905‑5..... Application of the Criminal Code.................................................. 332

Division 909—Regulations 333

909‑1..... Regulations..................................................................................... 333

Chapter 6—The Dictionary 334

Part 6‑1—Concepts and topics 334

Division 950—Rules for interpreting this Act 334

950‑100. What forms part of this Act........................................................... 334

950‑105. What does not form part of this Act.............................................. 334

950‑150. Guides, and their role in interpreting this Act................................ 335

Division 960—General 336

Subdivision 960‑C—Foreign currency 336

960‑49... Objects of this Subdivision............................................................. 336

960‑50... Translation of amounts into Australian currency........................... 336

960‑55... Application of translation rules...................................................... 341

Subdivision 960‑D—Functional currency 342

Guide to Subdivision 960‑D 342

960‑56... What this Subdivision is about....................................................... 342

Operative provisions 343

960‑59... Object of this Subdivision.............................................................. 343

960‑60... You may choose a functional currency........................................... 343

960‑61... Functional currency for calculating capital gains and losses on indirect Australian real property interests 347

960‑65... Backdated startup choice................................................................ 348

960‑70... What is the applicable functional currency?................................... 352

960‑75... What is a transferor trust?.............................................................. 353

960‑80... Translation rules............................................................................. 353

960‑85... Special rule about translation—events that happened before the current choice took effect 360

960‑90... Withdrawal of choice...................................................................... 362

Subdivision 960‑E—Entities 364

960‑100. Entities............................................................................................ 365

960‑105. Certain entities treated as agents.................................................... 366

Subdivision 960‑F—Distribution by corporate tax entities 366

960‑115. Meaning of corporate tax entity...................................................... 366

960‑120. Meaning of distribution.................................................................. 367

Subdivision 960‑G—Membership of entities 368

960‑130. Members of entities........................................................................ 368

960‑135. Membership interest in an entity................................................... 369

960‑140. Ordinary membership interest........................................................ 369

Subdivision 960‑GP—Participation interests in entities 369

960‑180. Total participation interest............................................................. 369

960‑185. Indirect participation interest......................................................... 370

960‑190. Direct participation interest........................................................... 370

960‑195. Non‑portfolio interest test............................................................. 372

Subdivision 960‑H—Abnormal trading in shares or units 372

960‑220. Meaning of trading......................................................................... 372

960‑225. Abnormal trading............................................................................ 373

960‑230. Abnormal trading—5% of shares or units in one transaction......... 374

960‑235. Abnormal trading—suspected 5% of shares or units in a series of transactions 374

960‑240. Abnormal trading—suspected acquisition or merger...................... 374

960‑245. Abnormal trading—20% of shares or units traded over 60 day period 374

Subdivision 960‑M—Indexation 375

Guide to Subdivision 960‑M 375

960‑260. What this Subdivision is about....................................................... 375

960‑265. The provisions for which indexation is relevant............................. 375

Operative provisions 376

960‑270. Indexing amounts............................................................................ 376

960‑275. Indexation factor............................................................................. 376

960‑280. Index number.................................................................................. 377

Subdivision 960‑Q—Small business taxpayers 378

Guide to Subdivision 960‑Q 378

960‑330. What this Subdivision is about....................................................... 378

Operative provisions 378

960‑335. Meaning of small business taxpayer............................................... 378

960‑340. Meaning of average turnover......................................................... 379

960‑345. Meaning of group turnover............................................................ 379

960‑350. Recalculating average turnover for opening years........................... 380

960‑355. Winding up a business.................................................................... 381

Subdivision 960‑S—Market value 381

Guide to Subdivision 960‑S 381

960‑400. What this Subdivision is about....................................................... 381

Operative provisions 382

960‑405. Effect of GST on market value of an asset..................................... 382

960‑410. Market value of non‑cash benefits................................................. 382

Division 974—Debt and equity interests 383

Subdivision 974‑A—General 383

Guide to Division 974 383

974‑1..... What this Division is about............................................................ 383

974‑5..... Overview of Division..................................................................... 384

Operative provisions 385

974‑10... Object............................................................................................. 385

Subdivision 974‑B—Debt interests 387

974‑15... Meaning of debt interest................................................................. 388

974‑20... The test for a debt interest............................................................. 390

974‑25... Exceptions to the debt test............................................................. 391

974‑30... Providing a financial benefit............................................................ 392

974‑35... Valuation of financial benefits—general rules................................. 393

974‑40... Valuation of financial benefits—rights and options to terminate early 395

974‑45... Valuation of financial benefits—convertible interests.................... 396

974‑50... Valuation of financial benefits—value in present value terms........ 396

974‑55... The debt interest and its issue........................................................ 397

974‑60... Debt interest arising out of obligations owed by a number of entities 398

974‑65... Commissioner’s power................................................................... 399

Subdivision 974‑C—Equity interests in companies 400

974‑70... Meaning of equity interest in a company........................................ 401

974‑75... The test for an equity interest........................................................ 403

974‑80... Equity interest arising from arrangement funding return through connected entities 406

974‑85... Right or return contingent on economic performance..................... 408

974‑90... Right or return at discretion of company or connected entity....... 408

974‑95... The equity interest......................................................................... 408

Subdivision 974‑D—Common provisions 409

974‑100. Treatment of convertible and converting interests......................... 409

974‑105. Effect of action taken in relation to interest arising from related schemes 410

974‑110. Effect of material change................................................................. 410

974‑112. Determinations by Commissioner.................................................. 413

Subdivision 974‑E—Non‑share distributions by a company 415

974‑115. Meaning of non‑share distribution................................................. 415

974‑120. Meaning of non‑share dividend...................................................... 415

974‑125. Meaning of non‑share capital return.............................................. 415

Subdivision 974‑F—Related concepts 415

974‑130. Financing arrangement.................................................................... 416

974‑135. Effectively non‑contingent obligation............................................. 417

974‑140. Ordinary debt interest.................................................................... 419

974‑145. Benchmark rate of return................................................................ 419

974‑150. Schemes.......................................................................................... 420

974‑155. Related schemes.............................................................................. 421

974‑160. Financial benefit.............................................................................. 421

974‑165. Convertible and converting interests.............................................. 422

Division 975—Concepts about companies 423

Subdivision 975‑A—General 423

975‑150. Position to affect rights in relation to a company........................... 423

975‑155. When is an entity a controller (for CGT purposes) of a company? 424

975‑160. When an entity has an associate‑inclusive control interest............ 424

Subdivision 975‑G—What is a company’s share capital account? 425

975‑300. Meaning of share capital account................................................... 425

Subdivision 975‑W—Wholly‑owned groups of companies 426

975‑500. Wholly‑owned groups.................................................................... 426

975‑505. What is a 100% subsidiary?........................................................... 426

Division 976—Imputation 428

976‑1..... Franked part of a distribution......................................................... 428

976‑5..... Unfranked part of a distribution..................................................... 428

976‑10... The part of a distribution that is franked with an exempting credit 428

976‑15... The part of a distribution that is franked with a venture capital credit 428

Division 977—Realisation events, and the gains and losses they realise for income tax purposes 429

CGT assets 429

977‑5..... Realisation event............................................................................. 429

977‑10... Loss realised for income tax purposes............................................ 429

977‑15... Gain realised for income tax purposes............................................ 430

Trading stock 430

977‑20... Realisation event............................................................................. 430

977‑25... Disposal of trading stock: loss realised for income tax purposes... 430

977‑30... Ending of an income year: loss realised for income tax purposes... 431

977‑35... Disposal of trading stock: gain realised for income tax purposes... 432

977‑40... Ending of an income year: gain realised for income tax purposes... 432

Revenue assets 433

977‑50... Meaning of revenue asset............................................................... 433

977‑55... Loss or gain realised for income tax purposes................................ 433

Part 6‑5—Dictionary definitions 435

Division 995—Definitions 435

995‑1..... Definitions...................................................................................... 435

Chapter 4—International aspects of income tax

Part 4‑5—General

Division 768—Exempt foreign income and gains

Table of Subdivisions

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

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

768‑R Temporary residents

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

Table of sections

768‑100 Foreign government officials in Australia

768‑105 Compensation arising out of Second World War

768‑100 Foreign government officials in Australia

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

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

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

Exempt amounts
Item	If you are:	the following amounts are exempt from income tax:	subject to these exceptions and special conditions:
1	(a) a representative in Australia of the government of a foreign country; or (b) a member of the official staff of such a representative; and you are neither an Australian citizen nor ordinarily resident in Australia	(a) your official salary; and (b) your ^ordinary income, and your ^statutory income, from a source outside Australia	(a) no Convention listed in subsection (2) applies to the representative; and (b) the country concerned grants in relation to Australia exemptions from taxes on income that correspond with the exemption in this item
2	(a) an officer of the government of a ^Commonwealth of Nations country; and (b) temporarily in Australia to render service on behalf of that country, or an ^Australian government agency, in accordance with an ^*arrangement between the governments of that country and of the Commonwealth or of a State or Territory	(a) your official salary; and (b) your ^ordinary income, and your ^statutory income, from a source outside Australia	that country exempts from income tax the salaries of officers of the government of the Commonwealth temporarily in that country for similar purposes in accordance with a similar arrangement

(2) The Conventions are:

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

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

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

768‑105 Compensation arising out of Second World War

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

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

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

(i) any wrong or injury; or

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

(iii) any other detriment;

suffered by you or another individual as a result of:

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

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

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

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

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

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

Duration of Second World War

(2) Subsection (1) applies to:

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

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

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

Regimes associated with an enemy of the Commonwealth

(3) This subsection covers a regime that was:

(a) in alliance with; or

(b) occupied by; or

(d) under duress from; or

(e) surrounded by;

either or both of the following:

(f) the National Socialist regime of Germany;

(g) any other enemy of the Commonwealth.

Legal personal representative

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

(a) your ^*legal personal representative; or

(b) a trust established by your will;

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

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

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

Guide to Subdivision 768‑G

768‑500 What this Subdivision is about

If:

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

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

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

Table of sections

Operative provisions

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

Active foreign business asset percentage

768‑510 Active foreign business asset percentage

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

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

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

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

768‑535 Modified rules for foreign wholly‑owned groups

Types of assets of a foreign company

768‑540 Active foreign business assets of a foreign company

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

Voting percentages in a company

768‑550 Direct voting percentage in a company

768‑555 Indirect voting percentage in a company

768‑560 Total voting percentage in a company

Operative provisions

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

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

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

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

(ii) ended no later than that time; and

(b) the share is not:

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

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

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

Active foreign business asset percentage

768‑510 Active foreign business asset percentage

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

Market value method

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

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

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

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

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

Book value method

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

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

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

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

Default method

(4) Otherwise, that percentage is:

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

(b) zero (in any other case).

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

Choice for market value method

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

Choice for book value method

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

Method of making choice

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

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

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

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

Method statement

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

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

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

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

Step 5. The active foreign business asset percentage is:

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

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

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

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

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

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

(b) the subsidiary company is a foreign resident;

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

Market value of a share in subsidiary company
Item	If:	treat the market value of the share as:
1	(a) the foreign company has a ^direct voting percentage of 10% or more in the subsidiary company at that time; and (b) the holding company has a ^total voting percentage of 10% or more in the subsidiary company at that time	the ^share’s ^market value at that time, multiplied by the ^*active foreign business asset percentage of the subsidiary company in relation to the holding company at that time
2	item 1 does not apply	zero

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

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

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

Method statement

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

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

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

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

Step 5. The active foreign business asset percentage is:

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

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

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

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

Method statement

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

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

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

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

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

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

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

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

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

Method statement

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

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

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

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

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

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

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

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

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

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

Value of a share in subsidiary company
Item	If:	treat the value of the share as:
1	(a) the foreign company has a ^direct voting percentage of 10% or more in the subsidiary company at that time; and (b) the holding company has a ^total voting percentage of 10% or more in the subsidiary company at that time	the ^share’s value (see subsection (5)) at that time, multiplied by the ^active foreign business asset percentage of the subsidiary company in relation to the holding company at that time
2	item 1 does not apply	zero

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

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

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

(6) The result of:

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

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

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

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

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

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

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

(a) paragraphs 768‑510(3)(b) and (c);

(b) section 768‑525.

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

Modifications for foreign life insurance companies and foreign general insurance companies
Item	The result of this step:	is increased by the amount applicable under subsection (4) for this statutory accounting period:
1	step 2 of the method statement in subsection 768‑520(1)	the most recent ^*statutory accounting period of the foreign company ending at or before the time mentioned in that step
2	step 1 of the method statement in subsection 768‑525(3)	the ^*statutory accounting period mentioned in that step (as modified by subsection (2) of this section)
3	step 2 of the method statement in subsection 768‑525(3)	the ^*statutory accounting period mentioned in that step (as modified by subsection (2) of this section)

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

where:

active insurance amount means:

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

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

total insurance assets means:

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

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

value of non‑active foreign business assets means:

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

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

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

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

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

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

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

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

Active insurance amount for foreign general insurance company

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

where:

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

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

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

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

768‑535 Modified rules for foreign wholly‑owned groups

(1) This section applies if:

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

(b) the top foreign company is not:

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

(ii) a ^*foreign life insurance company; or

(iii) a ^*foreign general insurance company; and

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Types of assets of a foreign company

768‑540 Active foreign business assets of a foreign company

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

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

(b) the asset satisfies any of these conditions:

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

(ii) the asset is goodwill;

(iii) the asset is a ^*share; and

(i) ^*taxable Australian property;

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

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

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

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

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

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

(a) a financial instrument (other than a ^*share or a trade debt); or

(b) either:

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

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

(d) a ^*life insurance policy; or

(e) a right or option in respect of:

(i) a financial instrument; or

(ii) an interest in a company, trust or partnership; or

(iii) a life insurance policy; or

(f) cash or cash equivalent; or

(g) an asset whose main use in the course of carrying on the ^*business mentioned in subparagraph (1)(b)(i) is to ^*derive interest, an ^*annuity, rent, ^*royalties or foreign exchange gains unless:

(i) the asset is an intangible asset and has been substantially developed, altered or improved by the foreign company so that its ^*market value has been substantially enhanced; or

(ii) its main use for deriving rent was only temporary.

(3) If, at the time mentioned in subsection (1), the foreign company is an AFI subsidiary (within the meaning of Part X of the Income Tax Assessment Act 1936) whose sole or principal business is financial intermediary business (within the meaning of that Part), subsection (2) operates as if:

(a) paragraphs (2)(a) and (f) were omitted; and

(b) paragraph (2)(g) did not contain a reference to interest, an ^*annuity or foreign exchange gains; and

(i) a financial instrument, other than an asset mentioned in paragraph 450(1)(b) of the Income Tax Assessment Act 1936; or

(4) The asset is covered under this subsection if:

(a) all of these conditions are satisfied:

(i) the asset is an asset mentioned in subparagraph 450(4)(b)(i) or (ii) of the Income Tax Assessment Act 1936;

(ii) the asset was acquired from another entity;

(iii) either of the conditions mentioned in subparagraph 450(6)(c)(i) and (ii) of the Income Tax Assessment Act 1936 were satisfied in relation to the other entity at the time of the acquisition; or

(b) both of these conditions are satisfied:

(i) the asset relates to a debt to which factoring income (within the meaning of Part X of the Income Tax Assessment Act 1936) of the foreign company relates;

(ii) the condition in paragraph 450(8)(b) of the Income Tax Assessment Act 1936 is satisfied in relation to the debt.

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

(1) At a particular time, an asset is an asset included in the total assets of a company (the foreign company) that is a foreign resident if:

(a) the asset is a ^*CGT asset at that time; and

(b) the foreign company owns the asset at that time; and

(c) if at that time the foreign company is not an AFI subsidiary (within the meaning of Part X of the Income Tax Assessment Act 1936) whose sole or principal business is financial intermediary business (within the meaning of that Part)—the asset is not a foreign company derivative asset covered by subsection (2).

(2) An asset is a foreign company derivative asset covered by this subsection if:

(a) the asset is an ^*arrangement covered by subsection (3), unless the regulations declare the asset not to be a foreign company derivative asset covered by this subsection; or

(b) the regulations declare the asset to be a foreign company derivative asset covered by this subsection.

(3) An ^*arrangement is covered by this subsection if:

(a) under the arrangement, a party to the arrangement must, or may be required to, provide at some future time consideration of a particular kind or kinds to someone; and

(b) that future time is not less than the number of days, prescribed by regulations made for the purposes of paragraph 761D(1)(b) of the Corporations Act 2001, after the day on which the arrangement is entered into; and

(c) the amount of the consideration, or the value of the arrangement, is ultimately determined, ^*derived from or varies by reference to (wholly or in part) the value or amount of something else (of any nature whatsoever and whether or not deliverable), including, for example, one or more of the following:

(i) an asset;

(ii) a rate (including an interest rate or exchange rate);

(iii) an index;

(iv) a commodity; and

(d) subsection (4) does not apply in relation to the arrangement.

(4) An ^*arrangement under which one person has an obligation to buy, and another person has an obligation to sell, property is not an arrangement covered by subsection (3) merely because the arrangement provides for the consideration to be varied by reference to a general inflation index such as the Consumer Price Index.

Voting percentages in a company

768‑550 Direct voting percentage in a company

(1) An entity’s direct voting percentage at a particular time in a company is:

(a) if the entity has a voting interest (within the meaning of section 160AFB of the Income Tax Assessment Act 1936) in the foreign company at that time amounting to a percentage of the voting power (within the meaning of that section) of the company—that percentage; or

(b) otherwise—zero.

(2) In applying section 160AFB of the Income Tax Assessment Act 1936 for the purposes of subsection (1) of this section, assume that:

(a) the entity is a company; and

(b) the entity is not the beneficial owner of a ^*share in the company if a trust or partnership is interposed between the entity and the company.

768‑555 Indirect voting percentage in a company

(1) An entity’s indirect voting percentage at a particular time in a company (the subsidiary company) is worked out by multiplying:

(a) the entity’s ^*direct voting percentage (if any) in another company (the intermediate company) at that time;

by:

(b) the sum of:

(i) the intermediate company’s direct voting percentage (if any) in the subsidiary company at that time; and

(ii) the intermediate company’s indirect voting percentage (if any) in the subsidiary company at that time (as worked out under one or more other applications of this section).

(2) If there is more than one intermediate company to which subsection (1) applies at that time, the entity’s indirect voting percentage is the sum of the percentages worked out under subsection (1) in relation to each of those intermediate companies.

768‑560 Total voting percentage in a company

An entity’s total voting percentage at a particular time in a company is the sum of:

(a) the entity’s ^*direct voting percentage in the company at that time; and

(b) the entity’s ^*indirect voting percentage in the company at that time.

Subdivision 768‑R—Temporary residents

Guide to Subdivision 768‑R

768‑900 What this Subdivision is about

This Subdivision modifies the general tax rules for people in Australia who are temporary residents, whether Australian residents or foreign residents.

Generally foreign income derived by temporary residents is non‑assessable non‑exempt income and capital gains and losses they make are also disregarded for CGT purposes. There are some exceptions for employment‑related income and capital gains on shares and rights acquired under employee share schemes.

Temporary residents are also partly relieved of record‑keeping obligations in relation to the controlled foreign company and foreign investment fund rules.

Interest paid by temporary residents is not subject to withholding tax and may be non‑assessable non‑exempt income for a foreign resident.

Table of sections

Operative provisions

768‑905 Objects

768‑910 Income derived by temporary resident

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

768‑920 Capital gains and losses on employee shares and rights where taxation of discount not deferred

768‑925 Notional gain or loss

768‑930 Adjustment to notional gain or loss

768‑935 Adjustment for share or right acquired under employee share scheme

768‑940 Adjustment for derived share

768‑945 Amending assessment to take account of effect on capital gain or loss of recalculating discount

768‑950 Individual becoming an Australian resident

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

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

768‑965 Exemption of temporary resident from taxation in respect of foreign investment fund income

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

768‑975 Calculation of beneficiary’s share of net income of non‑resident trust estate

768‑980 Interest paid by temporary resident

Operative provisions

768‑905 Objects

The objects of this Subdivision are to:

(a) provide ^*temporary residents with tax relief on most foreign source income and capital gains; and

(b) relieve the burdens associated with complying with certain record‑keeping obligations and interest withholding tax obligations.

768‑910 Income derived by temporary resident

(1) The following are ^*non‑assessable non‑exempt income:

(a) the ^*ordinary income you ^*derive directly or indirectly from a source other than an ^*Australian source if you are a ^*temporary resident when you derive it;

(b) your ^*statutory income (other than a ^*net capital gain) from a source other than an Australian source if you are a temporary resident when you derive it.

This subsection has effect subject to subsections (3) and (5).

Note: A capital gain or loss you make may be disregarded under section 768‑915.

(2) For the purposes of paragraph (1)(b):

(a) if you have statutory income because a particular circumstance occurs, you derive the statutory income at the time when the circumstance occurs; and

(b) if you have statutory income because a number of circumstances occur, you derive the statutory income at the time when the last of those circumstances occurs.

Exception to subsection (1)

(3) However, the following are not ^*non‑assessable non‑exempt income under subsection (1):

(a) the ^*ordinary income you ^*derive directly or indirectly from a source other than an ^*Australian source to the extent that it is remuneration, for employment undertaken, or services provided, while you are a ^*temporary resident;

(b) your ^*statutory income (other than a ^*net capital gain) from a source other than an Australian source to the extent that it relates to employment undertaken, or services provided, while you are a temporary resident;

(d) an amount that, but for subsection (1), would be included in your assessable income under Division 13A of Part III of the Income Tax Assessment Act 1936.

Note: This subsection only makes an amount not non‑assessable non‑exempt income under subsection (1). It does not prevent that amount from being non‑assessable non‑exempt income under some other provision of this Act or the Income Tax Assessment Act 1936.

Section 26AAC employee share schemes

(4) This subsection applies if:

(a) an amount would otherwise be included in your assessable income under section 26AAC of the Income Tax Assessment Act 1936 (about shares and rights acquired by employees); and

(b) the applicable time mentioned in subsection 26AAC(15) of that Act for the relevant ^*share occurs while you are a ^*temporary resident.

(5) If subsection (4) applies, the amount is ^*non‑assessable non‑exempt income to the extent to which you acquired the relevant ^*share under a scheme for the acquisition of shares by employees in respect of, or for or in relation (directly or indirectly) to:

(a) any employment you undertook outside Australia; or

(b) any services you provided outside Australia;

prior to becoming a ^*temporary resident.

(6) Subsection (5) does not limit paragraph (1)(b).

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

A ^*capital gain or ^*capital loss you make from a ^*CGT event is disregarded if:

(a) you are a ^*temporary resident when, or immediately before, the CGT event happens; and

(b) you would not make a capital gain or loss from the CGT event, or the capital gain or loss from the CGT event would have been disregarded under Division 855, if you were a foreign resident when, or immediately before, the CGT event happens.

768‑920 Capital gains and losses on employee shares and rights where taxation of discount not deferred

When this section applies

(1) This section applies to a ^*share or right if:

(a) you ^*acquire the share or right under an ^*employee share scheme; and

(b) you engage in employment, or render services, that affect the holding or acquisition of the shares or rights while you are a ^*temporary resident; and

(d) either:

(i) the share or right is not a ^*qualifying share or ^*qualifying right; or

(ii) the share or right is a qualifying share or qualifying right and you have made an election under section 139E of the Income Tax Assessment Act 1936 covering the share or right; and

(e) a ^*CGT event happens in relation to the share or right; and

(f) if the CGT event is CGT event I1—you are not a temporary resident immediately before the event happens; and

(g) you would make a ^*capital gain or ^*capital loss from the CGT event, and the capital gain or capital loss would not be disregarded, if you were an Australian resident (but not a temporary resident) when the CGT event happens; and

(h) this section has not previously applied to you in relation to a CGT event in relation to the share or right.

Note: Paragraph (a)—section 139DQ of the Income Tax Assessment Act 1936 applies for the purposes of this Subdivision to treat a matching share or right issued as part of a 100% takeover or restructure as a continuation of the share or right it matches.

(2) This section also applies to a ^*share (the derived share) if:

(a) you ^*acquire a right (the original right) under an ^*employee share scheme; and

(b) you engage in employment, or render services, that affect the holding or acquisition of the original right, or the derived share, while you are a ^*temporary resident; and

(d) the derived share is not ^*taxable Australian property; and

(e) either:

(i) the original right is not a ^*qualifying right; or

(ii) the original right is a qualifying right and you have made an election under section 139E of the Income Tax Assessment Act 1936 covering the original right; and

(f) a ^*CGT event happens in relation to the derived share; and

(g) if the CGT event is CGT event I1—you are not a temporary resident immediately before the event happens; and

(h) you would make a ^*capital gain or ^*capital loss from the CGT event, and the capital gain or capital loss would not be disregarded, if you were an Australian resident (but not a temporary resident) when the CGT event happens; and

(i) this section has not previously applied to you in relation to the original right or the derived share.

(3) To avoid doubt, paragraph (1)(e) or (2)(f) applies:

(a) even if you are not a ^*temporary resident when the ^*CGT event happens; and

(b) whether you are an Australian resident or a foreign resident when the CGT event happens.

Capital gain or loss

(4) If you are a ^*temporary resident or a foreign resident when the ^*CGT event happens, you make a ^*capital gain or ^*capital loss from the CGT event.

Note: If you are an Australian resident (but not a temporary resident) when the CGT event occurs, neither section 768‑915 nor Division 855 prevents you having a capital gain or capital loss.

(5) Subsection (4) has effect despite section 768‑915 and Division 855.

Amount of capital gain or capital loss for temporary residents and foreign residents

(6) If you are a ^*temporary resident or a foreign resident when the ^*CGT event happens, the amount of the ^*capital gain or ^*capital loss is the amount of your adjusted notional gain or loss worked out under subsection (9).

Amount of capital gain or capital loss for Australian residents

(7) If you are an Australian resident (but not a ^*temporary resident) when the ^*CGT event happens, the amount of the ^*capital gain or ^*capital loss is the sum of:

(a) the amount that would be the amount of your capital gain or capital loss if this section did not apply to you; and

(b) the amount of your adjusted notional gain or loss worked out under subsection (9).

Example: George, a New Zealander, is granted shares (with a total market value at the time of $100,000) under an employee share scheme on 20 January 2006. He comes to Australia as a temporary resident on 1 January 2007 and completes the rest of the employment to which the shares relate in Australia. George elects to have the discount assessed in that income year. He then ceases to be a temporary resident but remains an Australian resident on 8 May 2008. At that time the shares have a market value of $80,000. George disposes of the shares on 30 June 2009 for $115, 000. George’s capital gain for the purpose of paragraph (a) would be $35,000. Assume that the amount of the loss that accrued up to 8 May 2008 that is to be counted for the purpose of paragraph (b) is $9,000. For the year ending 30 June 2009, George would, as a result of subsection (7), make a capital gain of $26,000 (being $35,000 less $9,000).

(8) If subsection (7) applies to the ^*CGT event, subsections 768‑955(3) and 855‑45(3) do not apply for the purposes of applying Division 115 in relation to the CGT event.

Adjusted notional gain or loss

(9) To work out your adjusted notional gain or loss:

(a) work out your notional gain or loss using section 768‑925; and

(b) adjust your notional gain or loss using sections 768‑930, 768‑935 and 768‑940.

768‑925 Notional gain or loss

(1) Your notional gain or loss is the ^*capital gain or ^*capital loss you would have had in relation to the ^*CGT event if, for the whole of the period set by subsections (2) and (3), you:

(a) had been an Australian resident; and

(b) had not been a ^*temporary resident.

(2) The period starts:

(a) in the case of section 768‑920 applying to the ^*share or right in relation to which the ^*CGT event happens because of subsection 768‑920(1):

(i) if the share or right was acquired from an ^*employee share trust—when you first acquired a beneficial interest in the share or right; or

(ii) if subparagraph (i) does not apply—when you ^*acquired that share or right; and

(b) in the case of section 768‑920 applying to the ^*share in relation to which the ^*CGT event happens because of subsection 768‑920(2):

(i) if the share was acquired from an ^*employee share trust—when you first acquired a beneficial interest in the original right; or

(ii) if subparagraph (i) does not apply—when you ^*acquired the original right.

(3) The period ends when the ^*CGT event happens.

(4) If you are an Australian resident (but not a ^*temporary resident) when the ^*CGT event happens, your notional gain or loss is reduced by the amount of the ^*capital gain or ^*capital loss that you would have made in relation to the ^*CGT event if section 768‑920 did not apply to you.

768‑930 Adjustment to notional gain or loss

(1) If section 768‑920 applies to the ^*share or right in relation to which the ^*CGT event happens because of subsection 768‑920(1), adjust your notional gain or loss by:

(a) firstly, applying the factor worked out under subsection 768‑935(1), (2) or (3) to the amount of your notional gain or loss; and

(b) secondly, applying the factor worked out under subsection 768‑935(4) to the amount worked out under paragraph (a).

(2) If section 768‑920 applies to the ^*share in relation to which the ^*CGT event happens because of subsection 768‑920(2), adjust your notional gain or loss by:

(a) firstly, applying the factor worked out under subsection 768‑940(1), (2) or (3) to the amount of your notional gain or loss; and

(b) secondly, applying the factor worked out under subsection 768‑940(4) to the amount worked out under paragraph (a).

768‑935 Adjustment for share or right acquired under employee share scheme

(1) If:

(a) the ^*CGT event happens on or after the ^*cessation time for the share or right; and

(b) when, or immediately before, the CGT event happens you are either:

(i) a foreign resident; or

(ii) an Australian resident who is a temporary resident;

the factor to be applied for the purposes of paragraph 768‑930(1)(a) is:

where:

days before cessation time is the number of days in the period that:

(a) starts on the day on which you ^*acquired the ^*share or right or, if you acquired the share or right from an ^*employee share trust, on the day on which you first acquired a beneficial interest in the share or right; and

(b) ends on the ^*cessation time for the share or right.

days before CGT event is the number of days in the period that:

(b) ends on the day on which the ^*CGT event happens.

(2) If:

(a) the ^*CGT event happens on or after the ^*cessation time for the share or right; and

(b) when, or immediately before, the CGT event happens you are an Australian resident (but not a ^*temporary resident);

the factor to be applied for the purposes of paragraph 768‑930(1)(a) is:

where:

days before cessation time is the number of days in the period that:

(b) ends on the ^*cessation time for the share or right.

days before ceasing to be a temporary resident is the number of days in the period that:

(b) ends on the day on which you cease to be a ^*temporary resident.

(3) The factor to be applied for the purposes of paragraph 768‑930(1)(a) is 1 if:

(a) the CGT event happens before the ^*cessation time for the ^*share or right; or

(b) you became an Australian resident who was not a ^*temporary resident before the cessation time for the share or right.

(4) The factor to be applied for the purposes of paragraph 768‑930(1)(b) is:

where:

assessable part of discount is the amount of the discount that:

(a) was included in your assessable income under Division 13A of Part III of the Income Tax Assessment Act 1936 in relation to the ^*share or right; or

(b) would have been included in your assessable income under that Division in relation to the share or right if subsection 139BA(2) of that Act were disregarded.

discount is the amount of the discount.

768‑940 Adjustment for derived share

(1) If:

(a) the ^*CGT event happens on or after the ^*cessation time for the original right; and

(b) when, or immediately before, the CGT event happens you are either:

(i) a foreign resident; or

(ii) an Australian resident who is a ^*temporary resident;

the factor to be applied for the purposes of paragraph 768‑930(2)(a) is:

where:

days before cessation time is the number of days in the period that:

(a) starts on the day on which you ^*acquired the original right or, if you acquired the ^*share from an ^*employee share trust, on the day on which you first acquired a beneficial interest in the original right; and

(b) ends on the ^*cessation time for the original right.

days before CGT event is the number of days in the period that:

(b) ends on the day on which the ^*CGT event happens.

(2) If:

(a) the ^*CGT event happens on or after the ^*cessation time for the original right; and

(b) when, or immediately before, the CGT event happens you are an Australian resident (but not a ^*temporary resident);

the factor to be applied for the purposes of paragraph 768‑930(2)(a) is:

where:

days before cessation time is the number of days in the period that:

(b) ends on the ^*cessation time for the original right.

days before ceasing to be a temporary resident is the number of days in the period that:

(b) ends on the day on which you cease to be a ^*temporary resident.

(3) The factor to be applied for the purposes of paragraph 768‑930(2)(a) is 1 if:

(a) the ^*CGT event happens before the ^*cessation time for the original right; or

(b) you became an Australian resident who was not a ^*temporary resident before the cessation time for the original right.

(4) The factor to be applied for the purposes of paragraph 768‑930(2)(b) is:

where:

assessable part of discount is the amount of the discount that:

(a) was included in your assessable income under Division 13A of Part III of the Income Tax Assessment Act 1936 in relation to the original right; or

(b) would have been included in your assessable income under that Division in relation to the original right if subsection 139BA(2) of that Act were disregarded.

discount is the amount of the discount.

768‑945 Amending assessment to take account of effect on capital gain or loss of recalculating discount

(1) This section applies if:

(a) an amount is included in your assessable income, or you have a net capital loss, for a particular income year; and

(b) that amount is reduced, or increased, because of a change in the extent (if any) to which any of the following provisions of the Income Tax Assessment Act 1936 apply in relation to the amount during a subsequent income year:

(i) section 23AF;

(ii) section 23AG;

(iii) subsection 139B(1A).

(2) In paragraph (1)(b):

(a) the reference to an amount being reduced includes a reference to the amount being reduced to a nil amount; and

(b) the reference to an amount being increased includes a reference to the amount being increased from a nil amount.

(3) Section 170 of the Income Tax Assessment Act 1936 does not prevent the amendment of an assessment to take account of the effect that the reduction or increase has on the determination of the amount of a ^*capital gain or ^*capital loss under subsection 768‑920(6) or (7).

(4) If section 768‑920 applies to the ^*share or right in relation to which the ^*CGT event occurs because of subsection 768‑920(1), the amendment must be made before the end of the period of 4 years starting immediately after the income year during which the period of employment or service relating to the ^*acquisition of the share or right ends.

(5) If section 768‑920 applies to the ^*share or right in relation to which the ^*CGT event occurs because of subsection 768‑920(2), the amendment must be made before the end of the period of 4 years starting immediately after the income year during which the period of employment or service relating to the ^*acquisition of the original right ends.

768‑950 Individual becoming an Australian resident

Section 855‑45 does not apply to your becoming an Australian resident if you are a ^*temporary resident immediately after you become an Australian resident.

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

(1) If you are a ^*temporary resident and you then cease to be a temporary resident (but remain, at that time, an Australian resident), there are rules relevant to each ^*CGT asset that:

(a) you owned just before you ceased to be a temporary resident; and

(b) is not ^*taxable Australian property; and

(2) The first element of the ^*cost base and ^*reduced cost base of the asset (at the time you cease to be a ^*temporary resident) is its ^*market value at that time. This subsection has effect despite Subdivision 130‑D.

(3) Also, Parts 3‑1 and 3‑3 apply to the asset as if you had ^*acquired it at the time you ceased to be a ^*temporary resident.

(4) This section does not apply to a ^*share or right if:

(a) it is a ^*qualifying share or a ^*qualifying right; and

(b) you have not made an election under section 139E of the Income Tax Assessment Act 1936 covering the share or right; and

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

For the purposes of Part X of the Income Tax Assessment Act 1936 (which deals with the attribution of income in respect of controlled foreign companies), you are taken not to be an ^*attributable taxpayer in relation to a ^*CFC or ^*CFT at any time you are a ^*temporary resident.

768‑965 Exemption of temporary resident from taxation in respect of foreign investment fund income

If you are a ^*temporary resident at the end of an income year, section 529 and Division 22 of Part XI of the Income Tax Assessment Act 1936 do not apply to you in relation to a ^*FIF or ^*FLP in respect of the notional accounting period of the FIF or FLP that ends in that income year.

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

At any time when you are a ^*temporary resident, you are taken not to be a resident for the purposes of section 102AAZD of the Income Tax Assessment Act 1936.

768‑975 Calculation of beneficiary’s share of net income of non‑resident trust estate

At any time when you are a ^*temporary resident, you are taken not to be a resident for the purposes of subsection 96C(6) of the Income Tax Assessment Act 1936.

768‑980 Interest paid by temporary resident

Interest that is paid by a ^*temporary resident:

(a) is an amount to which section 128B (liability to withholding tax) of the Income Tax Assessment Act 1936 does not apply; and

(b) is ^*non‑assessable non‑exempt income if the interest is:

(i) ^*derived by a foreign resident; and

(ii) is not derived from carrying on ^*business in Australia at or through a ^*permanent establishment in Australia.

Division 775—Foreign currency gains and losses

Table of Subdivisions

Guide to Division 775

775‑A Objects of this Division

775‑B Realisation of forex gains or losses

775‑C Roll‑over relief for facility agreements

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

775‑E Retranslation for qualifying forex accounts

Guide to Division 775

775‑5 What this Division is about

Your assessable income includes a forex realisation gain you make as a result of a forex realisation event.

You can deduct a forex realisation loss that you make as a result of a forex realisation event.

There are 5 main types of forex realisation events:

(a) forex realisation event 1 happens if you dispose of foreign currency, or a right to receive foreign currency, to another entity;

(b) forex realisation event 2 happens if you cease to have a right to receive foreign currency (otherwise than because you disposed of the right to another entity);

(d) forex realisation event 4 happens if you cease to have an obligation to pay foreign currency;

(e) forex realisation event 5 happens if you cease to have a right to pay foreign currency.

There are special rules for certain short‑term forex realisation gains and losses.

You may choose roll‑over relief for certain facility agreements.

You may elect to receive concessional tax treatment for a qualifying forex account that passes the limited balance test.

You may choose retranslation for a qualifying forex account.

Subdivision 775‑A—Objects of this Division

Table of sections

775‑10 Objects of this Division

The objects of this Division are as follows:

(a) to recognise ^*foreign currency gains and losses for income tax purposes;

(b) to quantify those gains and losses by reference to the change in the Australian dollar value of rights and obligations;

(c) to treat certain foreign currency denominated financing facilities that are the economic equivalent of a loan as if the relevant facility were a loan;

(d) to reduce compliance costs by not requiring the recognition of certain low‑value foreign currency gains and losses that involve substantial calculations.

Subdivision 775‑B—Realisation of forex gains or losses

Table of sections

775‑15 Forex realisation gains are assessable

775‑20 Certain forex realisation gains are exempt income

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

775‑30 Forex realisation losses are deductible

775‑35 Certain forex realisation losses are disregarded

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

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

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

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

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

775‑65 Only one forex realisation event to be counted

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

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

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

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

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

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

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

775‑105 Currency exchange rate effect

775‑110 Constructive receipts and payments

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

775‑120 Non‑arm’s length transactions

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

775‑130 Certain deductions not allowable

775‑135 Right to receive or pay foreign currency

775‑140 Obligation to pay or receive foreign currency

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

775‑150 Transitional election

775‑155 Applicable commencement date

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

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

775‑170 Exemption for ADIs and non‑ADI financial institutions

775‑175 Application to things happening before commencement

775‑15 Forex realisation gains are assessable

Basic rule

(1) Your assessable income for an income year includes a ^*forex realisation gain you make as a result of a ^*forex realisation event that happens during that year.

Exceptions

(2) However, your assessable income does not include a ^*forex realisation gain to the extent that it:

(a) is a gain of a private or domestic nature; and

(b) is not covered by an item of the table:

Forex realisation gains to which this subsection does not apply
Item	You make the forex realisation gain as a result of this event...	happening to...	and the following condition is satisfied...
1	forex realisation event 1	^*foreign currency or a right, or a part of a right, to receive foreign currency	a gain that would result from the occurrence of a ^*realisation event in relation to the foreign currency, or to the right, or the part of the right, would, apart from this Division, be taken into account under Part 3‑1 or 3‑3
2	forex realisation event 2	a right, or a part of a right, created or acquired in return for the occurrence of a ^realisation event in relation to a ^CGT asset you own, where subparagraph 775‑45(1)(b)(iv) applies	a gain or loss that would result from the occurrence of the realisation event in relation to the CGT asset would be taken into account for the purposes of Part 3‑1 or 3‑3
3	forex realisation event 4	an obligation, or a part of an obligation, you incurred in return for the acquisition of a ^*CGT asset	a gain or loss that would result from the occurrence of a ^*realisation event in relation to the CGT asset would be taken into account for the purposes of Part 3‑1 or 3‑3

Note: Parts 3‑1 and 3‑3 deal with capital gains and losses.

(3) Section 775‑70 provides for additional exceptions.

Note: Section 775‑70 is about the tax consequences of certain short‑term forex realisation gains.

No double taxation

(4) To the extent that a ^*forex realisation gain would be included in your assessable income under this section and another provision of this Act, the gain is only included in your assessable income under this section.

775‑20 Certain forex realisation gains are exempt income

A ^*forex realisation gain you make is exempt income to the extent that, if it had been a ^*forex realisation loss, it would have been made in gaining or producing exempt income.

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

A ^*forex realisation gain you make is non‑assessable non‑exempt income to the extent that, if it had been a ^*forex realisation loss, it would have been made in gaining or producing non‑assessable non‑exempt income.

775‑30 Forex realisation losses are deductible

Basic rule

(1) You can deduct from your assessable income for an income year a ^*forex realisation loss that you make as a result of a ^*forex realisation event that happens during that year.

Exceptions

(2) However, you cannot deduct a ^*forex realisation loss under this section to the extent that it:

(a) is a loss of a private or domestic nature; and

(b) is not covered by an item of the table:

Forex realisation losses to which this subsection does not apply
Item	You make the forex realisation loss as a result of this event...	happening to...	and the following condition is satisfied...
1	forex realisation event 2	a right, or a part of a right, created or acquired in return for the occurrence of a ^realisation event in relation to a ^CGT asset you own, where subparagraph 775‑45(1)(b)(iv) applies	a gain or loss that would result from the occurrence of the realisation event in relation to the CGT asset would be taken into account for the purposes of Part 3‑1 or 3‑3
2	forex realisation event 4	an obligation, or a part of an obligation, you incurred in return for the acquisition of a ^*CGT asset	a gain or loss that would result from the occurrence of a ^*realisation event in relation to the CGT asset would be taken into account for the purposes of Part 3‑1 or 3‑3

Note: Parts 3‑1 and 3‑3 deal with capital gains and losses.

(3) Section 775‑75 provides for additional exceptions.

Note: Section 775‑75 is about the tax consequences of certain short‑term forex realisation losses.

No double deductions

(4) To the extent that this section and another provision of this Act would allow you a deduction for a ^*forex realisation loss, you can only deduct the loss under this section.

775‑35 Certain forex realisation losses are disregarded

(1) A ^*forex realisation loss you make as a result of forex realisation event 1, 2 or 5 is disregarded to the extent that it is made in gaining or producing exempt income.

(2) A ^*forex realisation loss you make as a result of forex realisation event 3, 4 or 6 is disregarded to the extent that:

(a) it is made in gaining or producing exempt income or non‑assessable non‑exempt income; and

(b) the obligation, or the part of the obligation, does not give rise to a deduction.

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

Forex realisation event 1

(1) Forex realisation event 1 is ^*CGT event A1 that happens if you dispose of:

(a) ^*foreign currency; or

(b) a right, or a part of a right, to receive foreign currency.

Note: For extended meaning of right to receive foreign currency, see section 775‑135.

Disposal

(2) For the purposes of this section, use subsection 104‑10(2) to work out whether you have disposed of:

(a) ^*foreign currency; or

(b) a right, or a part of a right, to receive foreign currency.

Note: Under subsection 104‑10(2), a disposal requires a change of ownership.

Time of event

(3) For the purposes of this section, subsection 104‑10(3) is modified so that the time of the event is when:

(a) the ^*foreign currency is disposed of; or

(b) the right, or the part of the right, is disposed of.

Forex realisation gain

(4) You make a forex realisation gain if:

(a) you make a ^*capital gain from the event; and

(b) some or all of the capital gain is attributable to a ^*currency exchange rate effect.

The amount of the forex realisation gain is so much of the capital gain as is attributable to a currency exchange rate effect.

Note: For currency exchange rate effect, see section 775‑105.

(5) For the purposes of paragraph (4)(a), Part 3‑1 is modified so that section 118‑20 is disregarded in working out the ^*capital gain.

Note: Section 118‑20 deals with reducing capital gains if an amount is otherwise assessable.

Forex realisation loss

(6) You make a forex realisation loss if:

(a) you make a ^*capital loss from the event; and

(b) some or all of the capital loss is attributable to a ^*currency exchange rate effect.

The amount of the forex realisation loss is so much of the capital loss as is attributable to a currency exchange rate effect.

Note: For currency exchange rate effect, see section 775‑105.

No indexation of cost base

(7) For the purposes of this section, disregard Division 114.

Note: Division 114 deals with indexation of the cost base.

Foreign currency hedging gains and losses

(8) For the purposes of this section, disregard section 118‑55.

Note: Section 118‑55 deals with foreign currency hedging gains and losses.

Capital proceeds

(9) For the purposes of this section, if the ^*capital proceeds from the event are more or less than the ^*market value of:

(a) the ^*foreign currency; or

(b) the right, or the part of the right;

the capital proceeds from the event are taken to be the market value. (The market value is worked out as at the time of the event.)

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

Forex realisation event 2

(1) Forex realisation event 2 happens if:

(a) you cease to have a right, or a part of a right, to receive ^*foreign currency; and

(b) the right, or the part of the right, is one of the following:

(i) a right, or a part of a right, to receive, or that represents, ^*ordinary income or ^*statutory income (other than statutory income that is assessable under this Division or Division 102);

(ii) a right, or a part of a right, created or acquired in return for your ceasing to ^*hold a ^*depreciating asset;

(iii) a right, or a part of a right, created or acquired in return for your paying, or agreeing to pay, an amount of Australian currency or foreign currency;

(iv) a right, or a part of a right, created or acquired in return for the occurrence of a ^*realisation event in relation to a ^*CGT asset you own, and none of subparagraphs (i), (ii) and (iii) applies; and

(c) you did not cease to have the right, or the part of the right, because you disposed of the right or the part of the right (within the meaning of section 775‑40).

Note 1: Disposals are dealt with by section 775‑40 (forex realisation event 1).

Note 2: For extended meaning of right to receive foreign currency, see section 775‑135.

Time of event

(2) The time of the event is when you cease to have the right or the part of the right.

Forex realisation gain

(3) You make a forex realisation gain if:

(a) the amount you receive in respect of the event happening exceeds the ^*forex cost base of the right or the part of the right (the forex cost base is worked out as at the tax recognition time); and

(b) some or all of the excess is attributable to a ^*currency exchange rate effect.

The amount of the forex realisation gain is so much of the excess as is attributable to a currency exchange rate effect.

Note 1: For forex cost base, see section 775‑85.

Note 2: For tax recognition time, see subsection (7).

Note 3: For currency exchange rate effect, see section 775‑105.

Forex realisation loss

(4) You make a forex realisation loss if:

(a) the amount you receive in respect of the event happening falls short of the ^*forex cost base of the right or the part of the right (the forex cost base is worked out as at the tax recognition time); and

(b) some or all of the shortfall is attributable to a ^*currency exchange rate effect.

The amount of the forex realisation loss is so much of the shortfall as is attributable to a currency exchange rate effect.

Note 1: For forex cost base, see section 775‑85.

Note 2: For tax recognition time, see subsection (7).

Note 3: For currency exchange rate effect, see section 775‑105.

(5) You make a forex realisation loss if:

(a) the event happens because an option to buy ^*foreign currency expires without having been exercised, or is cancelled, released or abandoned; and

(b) you were capable of exercising the option immediately before the event happened.

The amount of the forex realisation loss is the amount you paid in return for the grant or acquisition of the option.

Non‑cash benefit

(6) The amount you receive in respect of the event happening can include a ^*non‑cash benefit. Use the ^*market value of the benefit to work out the amount you receive.

Tax recognition time

(7) For the purposes of this section, the tax recognition time is worked out using the table:

Tax recognition time
Item	If the right, or part of the right, is...	*the tax recognition time* is...**
1	a right, or a part of a right, to receive, or that represents, ^ordinary income or ^statutory income (other than statutory income that is assessable under this Division or Division 102)	(a) in the case of ordinary income—when the ordinary income is ^*derived; or (b) in the case of statutory income—when the requirement first arose to include the statutory income in your assessable income.
2	a right, or a part of a right, created or acquired in return for your ceasing to ^hold a ^depreciating asset	when you stop holding the asset.
3	a right, or a part of a right, referred to in subsection 775‑165(3) (which deals with extensions of loans)	the extension time referred to in that subsection.
4	a right, or a part of a right, created or acquired in return for your paying, or agreeing to pay, an amount of Australian currency, where item 3 does not apply	when the amount is paid.
5	a right, or a part of a right, created or acquired in return for your paying, or agreeing to pay, an amount of ^*foreign currency, where item 3 does not apply	when the amount is paid.
6	a right, or a part of a right, created in return for the occurrence of a ^realisation event in relation to a ^CGT asset you own, and none of the above items apply	when the realisation event occurs.

Note: Subsection 775‑260(1) modifies the tax recognition time if forex realisation event 2 happens in relation to a qualifying forex account that has ceased to pass the limited balance test.

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

Forex realisation event 3

(1) Forex realisation event 3 happens if:

(a) you cease to have an obligation, or a part of an obligation, to receive ^*foreign currency; and

(b) the obligation, or the part of the obligation, is one of the following:

(i) an obligation, or a part of the obligation, incurred in return for the creation or acquisition of a right to pay foreign currency;

(ii) an obligation, or a part of the obligation, incurred in return for the creation or acquisition of a right to pay Australian currency.

Note 1: For extended meaning of obligation to receive foreign currency, see section 775‑140.

Note 2: For extended meaning of right to pay foreign currency, see section 775‑135.

Time of event

(2) The time of the event is when you cease to have the obligation or the part of the obligation.

Forex realisation gain

(3) You make a forex realisation gain if:

(a) the amount you receive in respect of the event happening exceeds the net costs of assuming the obligation or the part of the obligation (the net costs are worked out as at the tax recognition time); and

(b) some or all of the excess is attributable to a ^*currency exchange rate effect.

The amount of the forex realisation gain is so much of the excess as is attributable to a currency exchange rate effect.

Note 1: For net costs of assuming the obligation, see section 775‑100.

Note 2: For tax recognition time, see subsection (7).

Note 3: For currency exchange rate effect, see section 775‑105.

(4) You make a forex realisation gain if:

(a) the event happens because an option to sell ^*foreign currency expires without having been exercised, or is cancelled, released or abandoned; and

(b) if the option had been exercised immediately before the event, you would have been obliged to buy the foreign currency.

The amount of the forex realisation gain is the amount you received in return for granting or assuming obligations under the option.

Forex realisation loss

(5) You make a forex realisation loss if:

(a) the amount you receive in respect of the event happening falls short of the net costs of assuming the obligation or the part of the obligation (the net costs are worked out as at the tax recognition time); and

(b) some or all of the shortfall is attributable to a ^*currency exchange rate effect.

The amount of the forex realisation loss is so much of the shortfall as is attributable to a currency exchange rate effect.

Note 1: For net costs of assuming the obligation, see section 775‑100.

Note 2: For tax recognition time, see subsection (7).

Note 3: For currency exchange rate effect, see section 775‑105.

Non‑cash benefit

(6) The amount you receive in respect of the event happening can include a ^*non‑cash benefit. Use the ^*market value of the benefit to work out the amount you receive.

Tax recognition time

(7) For the purposes of this section, the tax recognition time is the time when you received an amount in respect of the event happening.

Right to pay Australian currency

(8) To avoid doubt, for the purposes of this section, a right to pay Australian currency includes a right to pay Australian currency, where the right is subject to a contingency.

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

Forex realisation event 4

(1) Forex realisation event 4 happens if:

(a) you cease to have an obligation, or a part of an obligation, to pay ^*foreign currency; and

(b) any of the following applies:

(i) the obligation, or the part of the obligation, is an expense or outgoing that you deduct;

(ii) the obligation, or the part of the obligation, is an element in the calculation of a net amount included in your assessable income (other than under this Division or Division 102 of this Act or Division 5 or 6 of Part III of the Income Tax Assessment Act 1936);

(iii) the obligation, or the part of the obligation, is an element in the calculation of a net amount that is deductible (other than under Division 5 of Part III of the Income Tax Assessment Act 1936);

(iv) you incurred the obligation, or the part of the obligation, in return for the acquisition of a ^*CGT asset;

(v) you incurred the obligation, or the part of the obligation, as the second, third, fourth or fifth element of the ^*cost base of a CGT asset;

(vi) you incurred the obligation, or the part of the obligation, in return for your starting to hold a ^*depreciating asset, and you deduct an amount under Division 40 or 328 for the depreciating asset;

(vii) you incurred the obligation, or the part of the obligation, as the second element of the ^*cost of a depreciating asset, and you deduct an amount under Division 40 or 328 for the depreciating asset;

(viii) you incurred the obligation, or the part of the obligation, as a ^*project amount;

(ix) you incurred the obligation, or the part of the obligation, in return for receiving an amount of Australian currency or foreign currency;

(x) you incurred the obligation, or the part of the obligation, in return for the creation or acquisition of a right to receive an amount of Australian currency or foreign currency.

Note: For extended meaning of obligation to pay foreign currency, see section 775‑140.

Time of event

(2) The time of the event is when you cease to have the obligation or the part of the obligation.

Forex realisation gain

(3) You make a forex realisation gain if:

(a) the amount you paid in respect of the event happening falls short of the proceeds of assuming the obligation or the part of the obligation (the proceeds are worked out as at the tax recognition time); and

(b) some or all of the shortfall is attributable to a ^*currency exchange rate effect.

The amount of the forex realisation gain is so much of the shortfall as is attributable to a currency exchange rate effect.

Note 1: For proceeds of assuming the obligation, see section 775‑95.

Note 2: For tax recognition time, see subsection (7).

Note 3: For currency exchange rate effect, see section 775‑105.

(4) You make a forex realisation gain if:

(a) the event happens because an option to sell ^*foreign currency expires without having been exercised, or is cancelled, released or abandoned; and

(b) if the option had been exercised immediately before the event, you would have been obliged to sell the foreign currency.

The amount of the forex realisation gain is the amount you received in return for granting or assuming obligations under the option.

Forex realisation loss

(5) You make a forex realisation loss if:

(a) the amount you paid in respect of the event happening exceeds the proceeds of assuming the obligation or the part of the obligation (the proceeds are worked out as at the tax recognition time); and

(b) some or all of the excess is attributable to a ^*currency exchange rate effect.

The amount of the forex realisation loss is so much of the excess as is attributable to a currency exchange rate effect.

Note 1: For proceeds of assuming the obligation, see section 775‑95.

Note 2: For tax recognition time, see subsection (7).

Note 3: For currency exchange rate effect, see section 775‑105.

Non‑cash benefit

(6) The amount you paid in respect of the event happening can include a ^*non‑cash benefit. Use the ^*market value of the benefit to work out the amount you paid.

Tax recognition time

(7) For the purposes of this section, the tax recognition time is worked out using the table:

Tax recognition time
Item	In this case...	*the tax recognition time* is...**
1	(a) the obligation, or the part of the obligation, is an expense or outgoing that you deduct; and (b) the obligation, or the part of the obligation, was not incurred: (i) in return for the acquisition of an item of ^trading stock; or (ii) in return for your starting to hold a ^depreciating asset; and (c) the obligation, or the part of the obligation, was not incurred as the second element of the cost of a depreciating asset	the time when the expense or outgoing became deductible.
2	(a) the obligation, or the part of the obligation, is an expense or outgoing that you deduct; and (b) the obligation, or the part of the obligation, was incurred in return for the acquisition of an item of ^*trading stock	the time when the item becomes part of your trading stock on hand.
3	the obligation, or the part of the obligation, is an element in the calculation of a net amount included in your assessable income (other than under this Division or Division 102 of this Act or Division 5 or 6 of Part III of the Income Tax Assessment Act 1936)	the time of the determination of the exchange rate used to translate the element for the purpose of calculating the net amount.
4	the obligation, or the part of the obligation, is an element in the calculation of a net amount that is deductible (other than under Division 5 of Part III of the Income Tax Assessment Act 1936)	the time of the determination of the exchange rate used to translate the element for the purpose of calculating the net amount.
5	(a) you incurred the obligation, or the part of the obligation: (i) in return for your starting to hold a ^*depreciating asset; or (ii) as the second element of the cost of a depreciating asset; and (b) you deduct an amount under Division 40 or 328 for the depreciating asset	(a) in the case of the acquisition of a depreciating asset—when you began to hold the depreciating asset (worked out under Division 40); or (b) in the case of the second element of the cost of a depreciating asset—when you incurred the relevant expenditure.
6	you incurred the obligation, or the part of the obligation, as a ^*project amount	the first time when any part of the amount became deductible.
7	the obligation, or the part of the obligation, is referred to in subsection 775‑165(5) (which deals with extension of loans)	the extension time referred to in that subsection.
8	you incurred the obligation, or the part of the obligation, in return for: (a) receiving Australian currency or ^*foreign currency; or (b) the creation or acquisition of a right to receive an amount of Australian currency or foreign currency; where item 7 does not apply	the time when you received the currency.
9	(a) you incurred the obligation, or the part of the obligation, in return for the acquisition of a ^*CGT asset; and (b) none of the above items apply	the time when you acquired the CGT asset (worked out under Division 109).
10	(a) you incurred the obligation, or the part of the obligation, as the second, third, fourth or fifth element of the ^*cost base of a CGT asset; and (b) none of the above items apply	the time of the transaction under which you incurred the obligation.

Note 1: Foreign currency is a CGT asset. If you acquire foreign currency as the borrower under a loan, item 8 will apply to your obligation to repay the foreign currency borrowed under the loan.

Note 2: If you have made a choice for roll‑over relief for a facility agreement, and forex realisation event 7 (material variation of a facility agreement) happens, subsection 775‑220(6) modifies the tax recognition time for an obligation under a security that was in existence under the agreement at the time of that event.

Note 3: Subsection 775‑260(2) modifies the tax recognition time if forex realisation event 4 happens in relation to a qualifying forex account that has ceased to pass the limited balance test.

Note 4: If you have made a choice for roll‑over relief for a facility agreement, a forex realisation gain or forex realisation loss you make under the agreement as a result of forex realisation event 4 is disregarded—see section 775‑200.

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

Forex realisation event 5

(1) Forex realisation event 5 happens if:

(a) you cease to have a right, or a part of a right, to pay ^*foreign currency; and

(b) the right, or the part of the right, is one of the following:

(i) a right, or a part of a right, created or acquired in return for the assumption of an obligation to pay foreign currency;

(ii) a right, or a part of a right, created or acquired in return for the assumption of an obligation to pay Australian currency.

Note 1: For extended meaning of right to pay foreign currency, see section 775‑135.

Note 2: For extended meaning of obligation to pay foreign currency, see section 775‑140.

Time of event

(2) The time of the event is when you cease to have the right or the part of the right.

Forex realisation gain

(3) You make a forex realisation gain if:

(a) the amount you pay in respect of the event happening falls short of the ^*forex entitlement base of the right or the part of the right (the forex entitlement base is worked out as at the tax recognition time); and

(b) some or all of the shortfall is attributable to a ^*currency exchange rate effect.

The amount of the forex realisation gain is so much of the shortfall as is attributable to a currency exchange rate effect.

Note 1: For forex entitlement base, see section 775‑90.

Note 2: For tax recognition time, see subsection (7).

Note 3: For currency exchange rate effect, see section 775‑105.

Forex realisation loss

(4) You make a forex realisation loss if:

(a) the amount you pay in respect of the event happening exceeds the ^*forex entitlement base of the right or the part of the right (the forex entitlement base is worked out as at the tax recognition time); and

(b) some or all of the excess is attributable to a ^*currency exchange rate effect.

The amount of the forex realisation loss is so much of the excess as is attributable to a currency exchange rate effect.

Note 1: For forex entitlement base, see section 775‑90.

Note 2: For tax recognition time, see subsection (7).

Note 3: For currency exchange rate effect, see section 775‑105.

(5) You make a forex realisation loss if:

(a) the event happens because an option to sell ^*foreign currency expires without having been exercised, or is cancelled, released or abandoned; and

(b) you were capable of exercising the option immediately before the event happened.

The amount of the forex realisation loss is the amount you paid in return for the grant or acquisition of the option.

Non‑cash benefit

(6) The amount you pay in respect of the event happening can include a ^*non‑cash benefit. Use the ^*market value of the benefit to work out the amount you pay.

Tax recognition time

(7) For the purposes of this section, the tax recognition time is the time when you pay an amount in respect of the event happening.

Obligation to pay Australian currency

(8) To avoid doubt, for the purposes of this section, an obligation to pay Australian currency includes an obligation to pay Australian currency, where the obligation is subject to a contingency.

775‑65 Only one forex realisation event to be counted

Option to buy foreign currency

(1) The following table applies to an option to buy a particular ^*foreign currency if the exercise price is payable in another foreign currency:

Option to buy foreign currency
Item	If you are...	and both of these events happen when the option is exercised...	this is the result...
1	the entity who is capable of exercising the option	(a) forex realisation event 1; (b) forex realisation event 4	ignore forex realisation event 4.
2	the entity who is capable of exercising the option	(a) forex realisation event 2; (b) forex realisation event 4	ignore forex realisation event 4.
3	the entity who granted the option	(a) forex realisation event 3; (b) forex realisation event 4	ignore forex realisation event 3.

Option to sell foreign currency

(2) The following table applies to an option to sell a particular ^*foreign currency if the exercise price is payable in another foreign currency:

Option to sell foreign currency
Item	If you are...	and both of these events happen when the option is exercised...	this is the result...
1	the entity who is capable of exercising the option	(a) forex realisation event 3; (b) forex realisation event 5	ignore forex realisation event 3.
2	the entity who granted the option	(a) forex realisation event 3; (b) forex realisation event 4	ignore forex realisation event 3.

Forward contracts

(3) The following table applies to a contract to buy a particular ^*foreign currency in return for another foreign currency:

Forward contracts
Item	If both of these events happen when the contract is carried out...	this is the result...
1	(a) forex realisation event 1; (b) forex realisation event 4	ignore forex realisation event 4.
2	(a) forex realisation event 2; (b) forex realisation event 4	ignore forex realisation event 4.

Residual rule

(4) If:

(a) 2 or more of forex realisation events 1, 2, 3, 4 and 5 happen to you at the same time in relation to the same rights and/or obligations; and

(b) none of the above subsections applies;

apply the forex realisation event that is most appropriate, and ignore the remaining event or events.

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

(1) The following table has effect unless you have made a choice under section 775‑80:

Tax consequences of certain short‑term forex realisation gains
Item	In this case...	this is the result...
1	you make a ^forex realisation gain as a result of forex realisation event 2, and: (a) the right to receive ^foreign currency was created in return for the occurrence of a ^realisation event in relation to a ^CGT asset you own; and (b) item 6 of the table in subsection 775‑45(7) applies; and (c) the foreign currency became due for payment within 12 months after the occurrence of the realisation event	(a) the forex realisation gain is not included in your assessable income under section 775‑15; and (b) CGT event K10 happens.
2	you make a ^forex realisation gain as a result of forex realisation event 4, and: (a) the obligation to pay ^foreign currency was incurred: (i) in return for the acquisition of a ^CGT asset; or (ii) as the second, third, fourth or fifth element of the ^cost base of a CGT asset; and (b) item 9 of the table in subsection 775‑55(7) applies; and (c) the foreign currency became due for payment within 12 months after the time when: (i) if subparagraph (a)(i) applies—you acquired the CGT asset (worked out under Division 109); or (ii) if subparagraph (a)(ii) applies—you incurred the relevant expenditure	(a) the forex realisation gain is not included in your assessable income under section 775‑15; and (b) both the ^cost base and the ^reduced cost base of the CGT asset are reduced by an amount equal to the forex realisation gain.
3	you make a ^forex realisation gain as a result of forex realisation event 4, and: (a) the obligation to pay ^foreign currency was incurred: (i) in return for your starting to hold a ^*depreciating asset; or (ii) as the second element of the cost of a depreciating asset; and (b) if subparagraph (a)(i) applies—the foreign currency became due for payment within the 24‑month period that began 12 months before the time when you began to hold the depreciating asset (worked out under Division 40); and (c) if subparagraph (a)(ii) applies—the foreign currency became due for payment within 12 months after the time when you incurred the relevant expenditure	(a) the forex realisation gain is not included in your assessable income under section 775‑15; and (b) if: (i) the forex realisation event happens in the income year in which the asset’s ^start time occurs; and (ii) the asset is not allocated to a pool under Subdivision 40‑E or 328‑D; the asset’s ^cost is reduced (but not below zero) by an amount equal to the forex realisation gain; and (c) if: (i) the forex realisation event happens in an income year that is later than the one in which the asset’s ^start time occurs; and (ii) the asset is not allocated to a pool under Subdivision 40‑E or 328‑D; the depreciating asset’s ^opening adjustable value for the income year in which the forex realisation event happens is reduced (but not below zero) by an amount equal to the forex realisation gain; and (d) if the asset is allocated to a pool under Subdivision 40‑E or 328‑D—the opening pool balance of the pool for the income year in which the forex realisation event happens is reduced (but not below zero) by an amount equal to the forex realisation gain.
4	you make a ^forex realisation gain as a result of forex realisation event 4, and: (a) the obligation to pay ^foreign currency was incurred as a project amount; and (b) the foreign currency became due for payment within 12 months after the time when you incurred the project amount; and (c) the project amount is allocated to a project pool	(a) the forex realisation gain is not included in your assessable income under section 775‑15; and (b) the pool value of the project pool for the income year in which you incurred the project amount is reduced (but not below zero) by an amount equal to the forex realisation gain.

Additional result where forex realisation gain exceeds cost etc.

(2) The following table has effect:

Additional result where forex realisation gain exceeds cost etc.
Item	If...	and the following conditions are satisfied...	this is the result...
1	item 3 of the table in subsection (1) applies in relation to a ^*depreciating asset	(a) the forex realisation event happens in the income year in which the asset’s ^start time occurs; and (b) the asset is not allocated to a pool under Subdivision 40‑E or 328‑D; and (c) the forex realisation gain exceeds the asset’s ^cost	the excess is included in your assessable income.
2	item 3 of the table in subsection (1) applies in relation to a ^*depreciating asset	(a) the forex realisation event happens in an income year that is later than the one in which the asset’s ^start time occurs; and (b) the asset is not allocated to a pool under Subdivision 40‑E or 328‑D; and (c) the forex realisation gain exceeds the asset’s ^opening adjustable value for the income year in which the forex realisation event happens	the excess is included in your assessable income.
3	item 3 of the table in subsection (1) applies in relation to a ^*depreciating asset	(a) the asset is allocated to a pool under Subdivision 40‑E or 328‑D; and (b) the forex realisation gain exceeds the opening pool balance of the pool for the income year in which the forex realisation event happens	the excess is included in your assessable income.
4	item 4 of the table in subsection (1) applies in relation to a project amount	the forex realisation gain exceeds the pool value of the project pool for the income year in which you incurred the project amount	the excess is included in your assessable income.

(3) To the extent that a ^*forex realisation gain:

(a) would have been included in your assessable income under section 775‑15 if this section had not been enacted; and

(b) would, apart from this subsection, be included in your assessable income under another provision of this Act;

the gain is not included in your assessable income under that other provision.

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

(1) The following table has effect unless you have made a choice under section 775‑80:

Tax consequences of certain short‑term forex realisation losses
Item	In this case...	this is the result...
1	you make a ^forex realisation loss as a result of forex realisation event 2, and: (a) the right to receive ^foreign currency was created in return for the occurrence of a ^realisation event in relation to a ^CGT asset you own; and (b) item 6 of the table in subsection 775‑45(7) applies; and (c) the foreign currency became due for payment within 12 months after the occurrence of the realisation event	(a) the forex realisation loss is not deductible under section 775‑30; and (b) CGT event K11 happens.
2	you make a ^forex realisation loss as a result of forex realisation event 4, and: (a) the obligation to pay ^foreign currency was incurred: (i) in return for the acquisition of a ^CGT asset; or (ii) as the second, third, fourth or fifth element of the ^cost base of a CGT asset; and (b) item 9 of the table in subsection 775‑55(7) applies; and (c) the foreign currency became due for payment within 12 months after the time when: (i) if subparagraph (a)(i) applies—you acquired the CGT asset (worked out under Division 109); or (ii) if subparagraph (a)(ii) applies—you incurred the relevant expenditure	(a) the forex realisation loss is not deductible under section 775‑30; and (b) both the ^cost base and the ^reduced cost base of the CGT asset are increased by an amount equal to the ^*forex realisation loss.
3	you make a ^forex realisation loss as a result of forex realisation event 4, and: (a) the obligation to pay ^foreign currency was incurred: (i) in return for your starting to hold a ^*depreciating asset; or (ii) as the second element of the cost of a depreciating asset; and (b) if subparagraph (a)(i) applies—the foreign currency became due for payment within the 24‑month period that began 12 months before the time when you began to hold the depreciating asset (worked out under Division 40); and (c) if subparagraph (a)(ii) applies—the foreign currency became due for payment within 12 months after the time when you incurred the relevant expenditure	(a) the forex realisation loss is not deductible under section 775‑30; and (b) if: (i) the forex realisation event happens in the income year in which the asset’s ^start time occurs; and (ii) the asset is not allocated to a pool under Subdivision 40‑E or 328‑D; the asset’s ^cost is increased by an amount equal to the forex realisation loss; and (c) if: (i) the forex realisation event happens in an income year that is later than the one in which the asset’s ^start time occurs; and (ii) the asset is not allocated to a pool under Subdivision 40‑E or 328‑D; the depreciating asset’s ^opening adjustable value for the income year in which the forex realisation event happens is increased by an amount equal to the forex realisation loss; and (d) if the asset is allocated to a pool under Subdivision 40‑E or 328‑D—the opening pool balance of the pool for the income year in which the forex realisation event happens is increased by an amount equal to the forex realisation loss.
4	you make a ^forex realisation loss as a result of forex realisation event 4, and: (a) the obligation to pay ^foreign currency was incurred as a project amount; and (b) the foreign currency became due for payment within 12 months after the time when you incurred the project amount	(a) the forex realisation loss is not deductible under section 775‑30; and (b) the pool value of the project pool for the income year in which you incurred the project amount is increased by an amount equal to the forex realisation loss.

(2) To the extent that:

(a) section 775‑30 would have allowed you a deduction for a ^*forex realisation loss if this section had not been enacted; and

(b) apart from this subsection, another provision of this Act would allow you a deduction for the loss;

you cannot deduct the loss under that other provision.

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

(1) You may choose not to have sections 775‑70 and 775‑75 apply to you.

(2) A choice must be in writing.

(3) A choice must be made:

(a) if you were in existence at the start of the applicable commencement date:

(i) within 90 days after the applicable commencement date; or

(ii) within 30 days after the commencement of this subsection; or

(b) if you came into existence within 90 days after the start of the applicable commencement date:

(i) within 90 days after you came into existence; or

(ii) within 30 days after the commencement of this subsection; or

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

(4) A choice has effect from the start of the applicable commencement date.

(5) A choice may not be revoked.

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

The forex cost base of a right, or a part of a right, to receive ^*foreign currency is the total of:

(a) the money you:

(i) paid; or

(ii) are required to pay; or

(iii) would be required to pay in the event of the exercise of an option;

in respect of acquiring the right or part of the right; and

(b) the ^*market value of any ^*non‑cash benefit you:

(i) provided; or

(ii) are required to provide; or

(iii) would be required to provide in the event of the exercise of an option;

in respect of acquiring the right or part of the right;

reduced by any amounts that are deductible under a provision of this Act other than this Division.

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

The forex entitlement base of a right, or a part of a right, to pay ^*foreign currency is the total of:

(a) the money you:

(i) are entitled to receive; or

(ii) would be entitled to receive in the event of the exercise of an option;

in respect of the discharge or satisfaction of the right or the part of the right; and

(b) the ^*market value of any ^*non‑cash benefit you:

(i) are entitled to acquire or obtain; or

(ii) would be entitled to acquire or obtain in the event of the exercise of an option;

in respect of the discharge or satisfaction of the right or the part of the right;

reduced by:

(c) any amounts that you paid to acquire the right or the part of the right, where the amounts are not deductible under a provision of this Act other than this Division; and

(d) the market value of any non‑cash benefit that you provided to acquire the right or the part of the right, where the market value is not deductible under a provision of this Act other than this Division.

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

For the purposes of this Division, the proceeds of assuming an obligation, or a part of an obligation, to pay ^*foreign currency are the total of:

(a) the money you:

(i) received; or

(ii) are entitled to receive; or

(iii) would be entitled to receive in the event of the exercise of an option;

in return for incurring the obligation or the part of the obligation; and

(b) the ^*market value of any ^*non‑cash benefit you:

(i) acquired or obtained; or

(ii) are entitled to acquire or obtain; or

(iii) would be entitled to acquire or obtain in the event of the exercise of an option;

in return for incurring the obligation or the part of the obligation;

reduced by any amounts that are included in assessable income under a provision of this Act other than this Division.

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

(1) For the purposes of this Division, the net costs of assuming an obligation, or a part of an obligation, to receive ^*foreign currency are the total of:

(a) the money you:

(i) are required to pay; or

(ii) would be required to pay in the event of the exercise of an option;

in respect of the fulfilment of the obligation or the part of the obligation; and

(b) the ^*market value of any ^*non‑cash benefit you:

(i) are required to provide; or

(ii) would be required to provide in the event of the exercise of an option;

in respect of the fulfilment of the obligation or the part of the obligation;

reduced by the amount worked out under subsection (2).

(2) The amount worked out under this subsection is the total of:

(a) the money you:

(i) received; or

(ii) are entitled to receive;

because you incurred the obligation or the part of the obligation; and

(b) the ^*market value of any ^*non‑cash benefit you:

(i) received or obtained; or

(ii) are entitled to receive or obtain;

because you incurred the obligation or the part of the obligation;

reduced by any amounts that are included in assessable income under a provision of this Act other than this Division.

(3) To avoid doubt, paragraphs (2)(a) and (b) do not apply to money or a ^*non‑cash benefit that you:

(a) received or obtained; or

(b) are entitled to receive or obtain;

because of the fulfilment of the obligation or the part of the obligation.

775‑105 Currency exchange rate effect

(1) A currency exchange rate effect is:

(a) any currency exchange rate fluctuations; or

(b) a difference between:

(i) an expressly or implicitly agreed currency exchange rate for a future date or time; and

(ii) the applicable currency exchange rate at that date or time.

(2) To work out whether there is a currency exchange rate effect and (if so), the extent of that effect, use whichever of the following translation rules is applicable to you:

(a) the translation rules in section 960‑50 (the standard rules);

(b) the translation rules in section 960‑80 (the functional currency rules).

775‑110 Constructive receipts and payments

For the purposes of this Subdivision, if an entity (the payer) did not actually pay an amount to another entity (the recipient), but the amount was applied or dealt with in any way on the recipient’s behalf or as the recipient directs (including by discharging all or a part of an obligation owed by the recipient), then:

(a) the payer is taken to have paid the amount as soon as it is applied or dealt with; and

(b) the recipient is taken to have received the amount as soon as it is applied or dealt with.

Note: The set‑off of an obligation to pay an amount against a right to receive an amount is an example of how this section would operate.

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

If the economic effect of an ^*arrangement is to provide for the set‑off, in whole or in part, of one or more amounts against one or more other amounts, this Subdivision applies as if:

(a) the parties to the arrangement had the respective rights and obligations that they would have had if the provision for economic set‑off were structured as a provision for legal set‑off of rights and obligations; and

(b) if the economic set‑off happens—the parties were taken, under section 775‑110, to have paid and received the respective amounts that they would have paid and received if the economic set‑off were structured as a legal set‑off of rights and obligations.

775‑120 Non‑arm’s length transactions

If:

(a) you and another entity did not deal with each other at arm’s length in connection with a transaction that is relevant to working out:

(i) whether you make a ^*forex realisation gain or a ^*forex realisation loss; or

(ii) the amount of any ^*forex realisation gain or a ^*forex realisation loss made by you; and

(b) apart from this section, a particular amount is more or less than it would have been if you and the other entity had been dealing with each other at arm’s length;

this Subdivision applies to you as if that amount were the amount it would have been if you and the other entity had been dealing with each other at arm’s length.

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

If you acquire ^*foreign currency as a result of forex realisation event 2 or 3:

(a) the first element of the foreign currency’s ^*cost base is replaced by the foreign currency’s ^*market value at the time you received the foreign currency; and

(b) the first element of the foreign currency’s ^*reduced cost base is replaced by the foreign currency’s market value at the time you received the foreign currency.

775‑130 Certain deductions not allowable

If:

(a) an amount is included in your assessable income under this Division; and

(b) if this Division had not been enacted, the amount would not have been included in your assessable income under any other provision of this Act (other than Division 102); and

(c) if this section had not been enacted, a deduction would be allowable to you under a provision listed in the table in subsection 51AAA(2) of the Income Tax Assessment Act 1936; and

(d) if the amount had not been included in your assessable income under this Division, the deduction would not be allowable;

the deduction is not allowable.

775‑135 Right to receive or pay foreign currency

Extended meaning of right to receive foreign currency

(1) For the purposes of this Division, a right to receive foreign currency includes a right to receive an amount calculated by reference to a currency exchange rate effect, even if that amount is not an amount of ^*foreign currency.

(2) To avoid doubt, for the purposes of this Division, a right to receive foreign currency includes a right to receive ^*foreign currency, where the right is subject to a contingency.

Extended meaning of right to pay foreign currency

(3) For the purposes of this Division, a right to pay foreign currency includes a right to pay an amount calculated by reference to a currency exchange rate effect, even if that amount is not an amount of ^*foreign currency.

(4) To avoid doubt, for the purposes of this Division, a right to pay foreign currency includes a right to pay ^*foreign currency, where the right is subject to a contingency.

775‑140 Obligation to pay or receive foreign currency

Extended meaning of obligation to pay foreign currency

(1) For the purposes of this Division, an obligation to pay foreign currency includes an obligation to pay an amount calculated by reference to a currency exchange rate effect, even if that amount is not an amount of ^*foreign currency.

(2) To avoid doubt, for the purposes of this Division, an obligation to pay foreign currency includes an obligation to pay ^*foreign currency, where the obligation is subject to a contingency.

Extended meaning of obligation to receive foreign currency

(3) For the purposes of this Division, an obligation to receive foreign currency includes an obligation to receive an amount calculated by reference to a currency exchange rate effect, even if that amount is not an amount of ^*foreign currency.

(4) To avoid doubt, for the purposes of this Division, an obligation to receive foreign currency includes an obligation to receive ^*foreign currency, where the obligation is subject to a contingency.

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

(1) Forex realisation event 1, 2 or 4 applies in relation to:

(a) ^*foreign currency; or

(b) a fungible right, or a part of a fungible right, to receive foreign currency; or

on a first‑in first‑out basis.

(2) The regulations may provide that any or all of forex realisation events 1, 2 and 4 apply, or apply in specified circumstances, to:

(a) ^*foreign currency; or

(b) a fungible right, or a part of a fungible right, to receive foreign currency; or

on a weighted average basis (despite subsection (1)).

(3) The circumstances that may be specified for the purposes of subsection (2) include the circumstance that you have made an election to use a weighted average basis.

(4) Subsection (3) does not limit subsection (2).

775‑150 Transitional election

(1) You may elect to have this section apply to you.

Note: For the consequences of an election, see sections 775‑160 and 775‑165.

(2) An election must be in writing.

(3) An election must be made:

(a) within 60 days after the applicable commencement date; or

(b) within 30 days after the commencement of this subsection.

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

(4) An election may not be revoked.

775‑155 Applicable commencement date

For the purposes of this Division, your applicable commencement date is:

(a) the first day of the 2003‑04 income year; or

(b) if that day is earlier than 1 July 2003—the first day of the 2004‑05 income year.

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

(1) A ^*forex realisation gain or ^*forex realisation loss you make as a result of forex realisation event 1, 2, 3, 4 or 5 is disregarded if the event happened before the applicable commencement date.

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

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

(a) you have made an election under section 775‑150; and

(b) the Commissioner is satisfied that the event happened under, or as a result of, an ^*arrangement that was entered into or carried out for the purpose, or for purposes that included the purpose, of obtaining the benefit of the operation of subsection (1).

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

Exception—foreign currency acquired before the applicable commencement date

(1) A ^*forex realisation gain or ^*forex realisation loss you make on the disposal of ^*foreign currency as a result of forex realisation event 1 is disregarded if:

(a) the foreign currency was acquired before the applicable commencement date; and

(b) you have not made an election under section 775‑150.

For the purposes of paragraph (a), the time of acquisition is worked out under Division 109.

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

Exception—right acquired before the applicable commencement date

(2) A ^*forex realisation gain or ^*forex realisation loss you make as a result of forex realisation event 1, 2 or 5 happening to a right or a part of a right is disregarded if:

(a) the right, or the part of the right;

(i) was acquired before the applicable commencement date; or

(ii) arose under an eligible contract (within the meaning of the former Division 3B of Part III of the Income Tax Assessment Act 1936) that was entered into before the applicable commencement date; and

(b) you have not made an election under section 775‑150.

For the purposes of subparagraph (a)(i), the time of acquisition is worked out under Division 109.

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

(3) If:

(a) at a particular time (the extension time) on or after the applicable commencement date and under a contract that was entered into before the applicable commencement date, the period for which money has been lent is extended; and

(b) either:

(i) the contract is separate from the original loan contract; or

(ii) the extension amounts to a variation of the original loan contract;

subparagraph (2)(a)(ii) does not apply to a right, or a part of a right, that arises after the extension time and relates to the loan.

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

Exception—obligation incurred before the applicable commencement date

(4) A ^*forex realisation gain or ^*forex realisation loss you make as a result of forex realisation event 3 or 4 happening to an obligation or a part of an obligation is disregarded if:

(a) either:

(i) you incurred the obligation, or the part of the obligation, before the applicable commencement date; or

(ii) the obligation, or the part of the obligation, arose under an eligible contract (within the meaning of the former Division 3B of Part III of the Income Tax Assessment Act 1936) that was entered into before the applicable commencement date; and

(b) you have not made an election under section 775‑150.

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

(5) If:

(b) either:

(i) the contract is separate from the original loan contract; or

(ii) the extension amounts to a variation of the original loan contract;

subparagraph (4)(a)(ii) does not apply to an obligation, or a part of an obligation, that arises after the extension time and relates to the loan.

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

775‑170 Exemption for ADIs and non‑ADI financial institutions

This Division does not apply to a ^*forex realisation gain or a ^*forex realisation loss made by an ^*ADI or a ^*non‑ADI financial institution.

775‑175 Application to things happening before commencement

The use of the present tense in a provision of this Division does not imply that the provision does not apply to things happening before the commencement of this Division.

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

Guide to Subdivision 775‑C

775‑180 What this Subdivision is about

A facility agreement is an agreement where:

(a) you have a right to issue eligible securities and another entity or entities must acquire the securities; and

(b) the economic effect of the agreement is to enable you to obtain finance in a particular foreign currency.

If you choose roll‑over relief for a facility agreement:

(a) a forex realisation gain or a forex realisation loss you make as a result of forex realisation event 4 is disregarded if the event happens because you discharge your obligation under an eligible security issued by you under the agreement; and

(b) if you issue an eligible security under the agreement otherwise than as a result of a roll‑over—you are taken to have been given a loan (the notional loan); and

(c) if an eligible security is rolled‑over under the agreement—the period of the notional loan is extended by the term of the new security; and

(d) forex realisation event 6 happens if you discharge your obligation under the notional loan; and

(e) forex realisation event 7 happens if a material variation is made to the agreement.

Table of sections

Operative provisions

775‑185 What is a facility agreement?

775‑190 What is an eligible security?

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

775‑200 Forex realisation event 4 does not apply

775‑205 What is a roll‑over?

775‑210 Notional loan

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

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

Operative provisions

775‑185 What is a facility agreement?

A facility agreement is an agreement between an entity (the first entity) and another entity or entities under which:

(a) the first entity has a right to issue ^*eligible securities; and

(b) an entity or entities must acquire the securities;

where the economic effect of the agreement is to enable the first entity to obtain finance in a particular ^*foreign currency:

(d) during the term of the agreement.

775‑190 What is an eligible security?

An eligible security is:

(a) a bill of exchange, or a promissory note, that is:

(i) non‑interest bearing; and

(ii) issued at a discount to face value; and

(iii) denominated in a particular ^*foreign currency; and

(iv) for a fixed term; or

(b) a security that is:

(i) specified in the regulations; and

(ii) denominated in a foreign currency; and

(iii) for a fixed term.

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

(1) You may choose roll‑over relief for a ^*facility agreement if:

(a) you have entered into the agreement; and

(b) you have a right to issue ^*eligible securities under the agreement; and

(i) up to the foreign currency amount specified in the agreement; and

(ii) during the term of the agreement.

(2) A choice must be made:

(a) within 90 days after the first time you issue an ^*eligible security under the ^*facility agreement; or

(b) within 90 days after the applicable commencement date; or

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

(3) If you make a choice within 90 days after the first time you issue an ^*eligible security under the ^*facility agreement, the choice is taken to have been in effect throughout the period that began immediately before the first time you issued an eligible security under the facility agreement.

(4) If:

(a) you make a choice:

(i) within 90 days after the applicable commencement date; or

(ii) within 30 days after the commencement of this subsection; and

(b) subsection (3) does not apply;

the choice is taken to have been in effect throughout the period that began at whichever is the later of the following times:

(d) the first time you issued an ^*eligible security under the ^*facility agreement.

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

(5) A choice must be in writing.

(6) A choice continues to apply until the ^*facility agreement ends.

Note: If forex realisation event 7 happens (material variation of facility agreement), subsection 775‑220(5) terminates your choice.

(7) A choice may not be revoked.

(8) An ^*ADI or a ^*non‑ADI financial institution is not entitled to make a choice under this section.

775‑200 Forex realisation event 4 does not apply

A ^*forex realisation gain or a ^*forex realisation loss you make as a result of forex realisation event 4 is disregarded to the extent to which the event happens because:

(a) you discharge your obligation under an ^*eligible security issued by you under a ^*facility agreement; and

(b) you have made a choice for roll‑over relief for the facility agreement, and that choice is in effect.

775‑205 What is a roll‑over?

A roll‑over happens under a ^*facility agreement if:

(a) you discharge your obligation under an ^*eligible security issued by you under the agreement (the rolled‑over security); and

(b) at the same time, you issue a new eligible security (the new security) under the agreement; and

(c) the issue of the new security is related to the discharge of your obligation under the rolled‑over security in one of the following ways:

(i) your obligation under the rolled‑over security is wholly or partly set‑off against your right to receive the ^*foreign currency issue price of the new security;

(ii) your obligation under the rolled‑over security is wholly or partly satisfied by the issue of the new security; and

(d) you have made a choice for roll‑over relief for the agreement, and that choice is in effect; and

(e) the new security is issued on or after the applicable commencement date; and

(f) if you have not made an election under section 775‑150—the rolled‑over security is issued on or after the applicable commencement date.

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

775‑210 Notional loan

(1) The rules in this section have effect only for the purposes of this Subdivision.

Notional loan

(2) If you issue an ^*eligible security under a ^*facility agreement otherwise than as a result of a roll‑over, you are taken to have been given a loan (the notional loan):

(a) of a ^*foreign currency principal amount equal to the foreign currency face value of the security; and

(b) for a period equal to the term of the security; and

(d) the start time of which is the time when you issued the security.

Note 1: The period of the notional loan may be extended as the result of a later roll‑over—see subsection (3).

Note 2: The notional loan may become attached to a later security as the result of a roll‑over—see subsection (3).

Note 3: The foreign currency principal amount of the notional loan may remain the same, or may fall (but not rise), as a result of a later roll‑over—see subsection (3).

Note 4: If, at a later time, the security is rolled‑over, and the foreign currency face value of the new security exceeds the foreign currency face value of the rolled‑over security, you are taken to have been given an additional notional loan of a foreign currency principal amount equal to the excess—see subsection (3).

Effect of roll‑over

(3) The table has effect if an ^*eligible security is rolled‑over under a ^*facility agreement:

Roll‑over of eligible security
Item	If the foreign currency face value of the new security...	this is the result...
1	equals the ^*foreign currency face value of the rolled‑over security	(a) the period of each notional loan attached to the rolled‑over security is extended by the term of the new security; and (b) each notional loan attached to the rolled‑over security is taken to be attached to the new security.
2	exceeds the ^*foreign currency face value of the rolled‑over security	(a) you are taken to have been given an additional notional loan: (i) of a foreign currency principal amount equal to the excess; and (ii) for a period equal to the term of the new security; and (iii) that is taken to be attached to the new security; and (iv) the start time of which is the time when you issued the new security; and (b) the period of each notional loan attached to the rolled‑over security is extended by the term of the new security; and (c) each notional loan attached to the rolled‑over security is taken to be attached to the new security.
3	falls short of the ^*foreign currency face value of the rolled‑over security, and there is only one notional loan attached to the rolled‑over security	(a) you are taken to have paid a foreign currency amount equal to the shortfall in order to discharge so much of your obligation to pay the foreign currency principal amount of the notional loan as equals the shortfall; and (b) the period of the notional loan is extended by the term of the new security; and (c) the notional loan is taken to be attached to the new security.
4	falls short of the ^*foreign currency face value of the rolled‑over security, and there are 2 or more notional loans attached to the rolled‑over security	(a) you are taken to have paid a foreign currency amount equal to the shortfall in order to discharge your obligation to pay so much of the total foreign currency principal amounts of the notional loans as equals the shortfall, and to have done so on a first‑in first‑out basis, that is to say: (i) first, by fully or partly discharging (as the case requires) your obligation to pay the foreign currency principal amount of the notional loan with the earliest start date; and (ii) second, if your obligation to pay the foreign currency principal amount of the notional loan with the earliest start date is fully discharged—by fully or partly discharging (as the case requires) your obligation to pay the foreign currency principal amount of the notional loan with the next start date, and so on; and (b) the period of each notional loan attached to the rolled‑over security that is not fully discharged is extended by the term of the new security; and (c) each notional loan attached to the rolled‑over security that is not fully discharged is taken to be attached to the new security.

Consequences if security is not rolled‑over

(4) If:

(a) you discharge your obligation under an ^*eligible security issued under a ^*facility agreement; and

(b) the security is not rolled‑over at the time of discharge; and

then, for each notional loan attached to the security, you are taken to have paid a ^*foreign currency amount equal to the foreign currency principal amount of the notional loan in order to discharge your obligation to pay the foreign currency principal amount of the notional loan.

Foreign currency

(5) For the purposes of the application of this section to a particular ^*facility agreement that provides for the issue of ^*eligible securities, foreign currency is the ^*foreign currency in which the securities are denominated.

Note: Section 960‑50 (Australian currency translation rule) does not affect the operation of this section—see subsection 960‑50(10). You translate to Australian currency when you apply section 775‑215 (forex realisation event 6).

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

Forex realisation event 6

(1) Forex realisation event 6 happens if:

(a) you discharge an obligation, or a part of an obligation, to pay the ^*foreign currency principal amount of a notional loan attached to an ^*eligible security issued by you under a ^*facility agreement; and

(b) you have made a choice for roll‑over relief for the agreement, and that choice is in effect.

Time of event

(2) The time of the event is when you discharge the obligation or the part of the obligation.

Forex realisation gain

(3) You make a forex realisation gain if:

(a) the amount of the obligation, or the part of the obligation, at the start time of the notional loan, exceeds the amount you paid in order to discharge the obligation or the part of the obligation; and

(b) some or all of the excess is attributable to a ^*currency exchange rate effect.

The amount of the forex realisation gain is so much of the excess as is attributable to a currency exchange rate effect.

Note: For currency exchange rate effect, see section 775‑105.

Forex realisation loss

(4) You make a forex realisation loss if:

(a) the amount of the obligation, or the part of the obligation, at the start time of the notional loan, falls short of the amount you paid in order to discharge the obligation or the part of the obligation; and

(b) some or all of the shortfall is attributable to a ^*currency exchange rate effect.

The amount of the forex realisation loss is so much of the shortfall as is attributable to a currency exchange rate effect.

Note: For currency exchange rate effect, see section 775‑105.

Exempt income etc.

(5) For the purposes of the application of sections 775‑20, 775‑25 and 775‑35 to the event, assume that the notional loan had been an actual loan.

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

Forex realisation event 7

(1) Forex realisation event 7 happens if:

(a) a material variation is made to the terms or conditions of a ^*facility agreement; or

(b) a material variation is made to the effect of a facility agreement; or

so long as you have made a choice for roll‑over relief for the facility agreement, and that choice is in effect.

Note: See also subsections (7) and (8).

Time of the event

(2) The time of the event is when the material variation happens.

Forex realisation gain

(3) You make a forex realisation gain if:

(a) the total of the forex realisation gains that you would have made as a result of forex realisation event 6 if you had, at the time of forex realisation event 7:

(i) discharged your liabilities under each of the notional loans to which the agreement relates; and

(ii) not rolled‑over any ^*eligible security;

exceeds:

(b) the total of the forex realisation losses that you would have made as a result of forex realisation event 6 if you had, at the time of forex realisation event 7:

(i) discharged your liabilities under each of the notional loans to which the agreement relates; and

(ii) not rolled‑over anyeligible security.

The amount of the forex realisation gain is the amount of the excess.

Note: See also subsection (9).

Forex realisation loss

(4) You make a forex realisation loss if:

(a) the total of the forex realisation losses that you would have made as a result of forex realisation event 6 if you had, at the time of forex realisation event 7:

(i) discharged your liabilities under each of the notional loans to which the agreement relates; and

(ii) not rolled‑over any ^*eligible security;

exceeds:

(b) the total of the forex realisation gains that you would have made as a result of forex realisation event 6 if you had, at the time of forex realisation event 7:

(i) discharged your liabilities under each of the notional loans to which the agreement relates; and

(ii) not rolled‑over anyeligible security.

The amount of the forex realisation loss is the amount of the excess.

Note: See also subsection (9).

Termination of choice

(5) If forex realisation event 7 happens in relation to a ^*facility agreement:

(a) your choice for roll‑over relief for the facility agreement ceases to have effect immediately after the event; and

(b) you are not entitled to make a fresh choice for roll‑over relief for the facility agreement.

Modification of tax recognition time

(6) If:

(a) forex realisation event 7 happens in relation to a ^*facility agreement; and

(b) an ^*eligible security issued by you under the facility agreement was in existence at the time of that event; and

(c) at a later time, forex realisation event 4 happens because you cease to have an obligation, or a part of an obligation, to pay ^*foreign currency under the security;

section 775‑55 applies to you as if the tax recognition time for the obligation, or the part of the obligation, were the time of forex realisation event 7 (despite subsection 775‑55(7)).

Material variation

(7) To avoid doubt, if a variation to:

(a) the terms or conditions of a facility agreement; or

(b) the effect of a facility agreement;

results in the agreement ceasing to be a facility agreement, the variation is taken to be a material variation for the purposes of subsection (1).

(8) The regulations may provide that a specified kind of variation is taken to be a material variation for the purposes of subsection (1).

Total amount

(9) To avoid doubt, the total amount referred to in paragraph (3)(b) or (4)(b) may be zero.

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

Guide to Subdivision 775‑D

775‑225 What this Subdivision is about

You may elect to have this Subdivision apply to one or more qualifying forex accounts held by you.

If you elect to have this Subdivision apply to an account, a forex realisation gain or a forex realisation loss you make in relation to the account as a result of forex realisation event 2 or 4 is disregarded if the account passes the limited balance test.

For an account to pass the limited balance test, the combined balance of all the accounts covered by your election must not be more than the foreign currency equivalent of $250,000.

The limited balance test includes a buffer provision which allows the combined balance to be more than the foreign currency equivalent of $250,000, but not more than the foreign currency equivalent of $500,000, for not more than 2 15‑day periods in any income year.

Table of sections

Operative provisions

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

775‑235 Variation of election

775‑240 Withdrawal of election

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

775‑250 Tax consequences of passing the limited balance test

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

775‑260 Modification of tax recognition time

Operative provisions

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

(1) You may elect to have this Subdivision apply to one or more ^*qualifying forex accounts held by you.

(2) An election must be in writing.

(2A) If:

(a) you make an election within 30 days after the commencement of this subsection; and

(b) the election is expressed to have come into effect on a specified day; and

(i) beginning on 1 July 2003; and

(ii) ending on the day on which the election is made;

the election is taken to have come into effect on the specified day.

(3) An election continues in effect, in relation to a particular account, until:

(a) you cease to hold the account; or

(b) the account ceases to be a ^*qualifying forex account; or

(d) a withdrawal of the election takes effect;

whichever happens first.

Note 1: For variation of election, see section 775‑235.

Note 2: For withdrawal of election, see section 775‑240.

(4) If an election made by you under this section is in effect, you are not entitled to make another election under this section.

(5) An ^*ADI or a ^*non‑ADI financial institution is not entitled to make an election under this section.

775‑235 Variation of election

(1) If you have made an election under section 775‑230, you may vary your election by:

(a) adding one or more ^*qualifying forex accounts; or

(b) removing one or more qualifying forex accounts.

(2) A variation must be in writing.

(3) Removing an account does not prevent you from adding the account in a future variation.

775‑240 Withdrawal of election

(1) If you have made an election under section 775‑230, you may withdraw your election.

(2) A withdrawal must be in writing.

(3) Withdrawing an election does not prevent you from making a fresh election under section 775‑230 in relation to any or all of the same accounts.

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

Basic rule

(1) For the purposes of this Subdivision, a ^*qualifying forex account that you hold passes the limited balance test at a particular time if, at that time:

(a) an election made by you under section 775‑230 has effect in relation to:

(i) the account; or

(ii) the account and one or more other ^*qualifying forex accounts; and

(b) the total of the credit balances of the account and each of those other accounts (if any) is not more than the ^*foreign currency equivalent of $250,000; and

(c) the total of the debit balances of the account and each of those other accounts (if any) is not more than the foreign currency equivalent of $250,000.

Note: For buffering during an increased balance period, see subsections (2) and (3).

Buffering during first and second increased balance period

(2) For the purposes of this section, an increased balance period is a continuous period consisting of:

(a) an income year; or

(b) a particular part of an income year;

where, at each time during the period, either or both of the following conditions is satisfied:

(c) the total of the credit balances of the account or accounts covered by your section 775‑230 election is more than the ^*foreign currency equivalent of $250,000, but not more than the foreign currency equivalent of $500,000;

(d) the total of the debit balances of the account or accounts covered by your section 775‑230 election is more than the foreign currency equivalent of $250,000, but not more than the foreign currency equivalent of $500,000.

(3) The table has effect:

Increased balance period
Item	In this case...	this is the result...
1	(a) an increased balance period is the first or only increased balance period that occurs in a particular income year; and (b) the duration of the period is 15 days or less; and (c) it is not the case that: (i) the period began at the start of the income year; and (ii) another increased balance period ended at the end of the previous income year	paragraphs (1)(b) and (c) do not apply during the first‑mentioned increased balance period.
2	(a) an increased balance period is the first or only increased balance period that occurs in a particular income year; and (b) both: (i) the period began at the start of the income year; and (ii) another increased balance period ended at the end of the previous income year; and (c) the total duration of those increased balance periods is 15 days or less	paragraphs (1)(b) and (c) do not apply during those increased balance periods.
3	(a) an increased balance period is the first or only increased balance period that occurs in a particular income year; and (b) the duration of the period is more than 15 days; and (c) it is not the case that: (i) the period began at the start of the income year; and (ii) another increased balance period ended at the end of the previous income year	paragraphs (1)(b) and (c) do not apply during the first 15 days of the first‑mentioned increased balance period.
4	(a) an increased balance period is the first or only increased balance period that occurs in a particular income year; and (b) both: (i) the period began at the start of the income year; and (ii) another increased balance period ended at the end of the previous income year; and (c) the total duration of those increased balance periods is more than 15 days	paragraphs (1)(b) and (c) do not apply during the first 15 days of the period that consists of those increased balance periods.
5	(a) an increased balance period is the second increased balance period that occurs in a particular income year; and (b) the duration of the period is 15 days or less; and (c) item 1 or 2 applies to the first increased balance period that occurred in the income year	paragraphs (1)(b) and (c) do not apply during the first‑mentioned increased balance period.
6	(a) an increased balance period is the second increased balance period that occurs in a particular income year; and (b) the duration of the period is more than 15 days; and (c) item 1 or 2 applies to the first increased balance period that occurred in the income year	paragraphs (1)(b) and (c) do not apply during the first 15 days of the first‑mentioned increased balance period.

Translation of foreign currency

(4) For the purposes of the application of section 960‑50 to this section, work out the ^*foreign currency equivalent of an amount of Australian currency as at a particular time in an income year by translating the foreign currency to Australian currency at the average exchange rate for the third month that preceded the income year.

Debit balances

(5) For the purposes of this section, a debit balance is to be expressed as a positive amount.

Note: For example, if you owe $1,100 on a credit card account, the debit balance of that account is $1,100.

775‑250 Tax consequences of passing the limited balance test

(1) A ^*forex realisation gain or a ^*forex realisation loss you make as a result of forex realisation event 2 or 4 is disregarded if the event happens in relation to a ^*qualifying forex account that:

(a) you hold at the time of the event; and

(b) passes the limited balance test at the time of the event.

(2) If CGT event C1 or C2 happens in relation to a ^*qualifying forex account that:

(a) you hold at the time of the event; and

(b) passes the limited balance test at the time of the event;

disregard so much of any ^*capital gain or ^*capital loss you make as a result of the event as is attributable to a ^*currency exchange rate effect.

Note: For currency exchange rate effect, see section 775‑105.

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

Credit balance

(1) For the purposes of this Division, if:

(a) you hold a ^*qualifying forex account; and

(b) at a particular time:

(i) the account starts to pass the limited balance test; and

(ii) the account has a credit balance; and

(iii) you have one or more rights to receive a total amount of ^*foreign currency represented by the credit balance of the account;

you are treated as:

(d) having re‑acquired those rights immediately after that time.

Note: