New Business Tax System (Taxation of Financial Arrangements) Act (No. 1) 2003

No. 133, 2003

An Act to amend the law relating to taxation, and for related purposes

Contents

1 Short title

2 Commencement

3 Schedule(s)

4 Amendment of assessments

Schedule 1—Removal of taxing point on conversion or exchange of traditional securities

Income Tax Assessment Act 1936

Income Tax Assessment Act 1997

Schedule 2—Convertible interests

Income Tax Assessment Act 1997

Schedule 3—Rights

Income Tax Assessment Act 1997

Schedule 4—Foreign currency

Part 1—Amendments

Financial Corporations (Transfer of Assets and Liabilities) Act 1993

Income Tax Assessment Act 1936

Income Tax Assessment Act 1997

Taxation Administration Act 1953

Part 2—Transitional provisions

New Business Tax System (Taxation of Financial Arrangements) Act (No. 1) 2003

No. 133, 2003

An Act to amend the law relating to taxation, and for related purposes

[Assented to 17 December 2003]

The Parliament of Australia enacts:

1  Short title

  This Act may be cited as the New Business Tax System (Taxation of Financial Arrangements) Act (No. 1) 2003.

2  Commencement

  This Act commences on the day on which it receives the Royal Assent.

3  Schedule(s)

  Each Act that is specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this Act has effect according to its terms.

4  Amendment of assessments

  Section 170 of the Income Tax Assessment Act 1936 does not prevent the amendment of an assessment made before the commencement of this section for the purposes of giving effect to this Act.

Schedule 1—Removal of taxing point on conversion or exchange of traditional securities

Income Tax Assessment Act 1936

1  Subsection 26BB(1)

Insert:

connected entity has the same meaning as in the Income Tax Assessment Act 1997.

2  At the end of section 26BB

Add:

 (4) Subsection (2) does not apply to a gain on the disposal or redemption of a traditional security if:

 (a) the disposal or redemption occurs because the traditional security is converted into ordinary shares in a company that is:

 (i) the issuer of the traditional security; or

 (ii) a connected entity of the issuer of the traditional security; and

 (b) the traditional security was issued on the basis that it will or may convert into ordinary shares in:

 (i) the issuer of the traditional security; or

 (ii) the connected entity.

 (5) Subsection (2) does not apply to a gain on the disposal or redemption of a traditional security if:

 (a) the disposal or redemption is in exchange for ordinary shares in a company that is neither:

 (i) the issuer of the traditional security; nor

 (ii) a connected entity of the issuer of the traditional security; and

 (b) in the case of a disposal—the disposal is to:

 (i) the issuer of the traditional security; or

 (ii) a connected entity of the issuer of the traditional security; and

 (c) the traditional security was issued on the basis that it will or may be:

 (i) disposed of to the issuer of the traditional security or to the connected entity; or

 (ii) redeemed;

  in exchange for ordinary shares in the company.

3  After subsection 70B(2A)

Insert:

 (2B) A deduction is not allowable under subsection (2) for a loss on the disposal or redemption of a traditional security if:

 (a) the disposal or redemption occurs because the traditional security is converted into ordinary shares in a company that is:

 (i) the issuer of the traditional security; or

 (ii) a connected entity of the issuer of the traditional security; and

 (b) the traditional security was issued on the basis that it will or may convert into ordinary shares in:

 (i) the issuer of the traditional security; or

 (ii) the connected entity.

 (2C) A deduction is not allowable under subsection (2) for a loss on the disposal or redemption of a traditional security if:

 (a) the disposal or redemption is in exchange for ordinary shares in a company that is neither:

 (i) the issuer of the traditional security; nor

 (ii) a connected entity of the issuer of the traditional security; and

 (b) in the case of a disposal—the disposal is to:

 (i) the issuer of the traditional security; or

 (ii) a connected entity of the issuer of the traditional security; and

 (c) the traditional security was issued on the basis that it will or may be:

 (i) disposed of to the issuer of the traditional security or to the connected entity; or

 (ii) redeemed;

  in exchange for ordinary shares in the company.

Income Tax Assessment Act 1997

4  Section 109‑55 (after table item 11)

Insert:

5  After section 112‑75

Insert:

112‑77  Exchangeable interests

6  Paragraph 122‑25(4)(a)

Omit “option or”, substitute “option,”.

7  Paragraph 122‑25(4)(a)

Omit “; and”, substitute “or *exchangeable interest; and”.

8  At the end of paragraph 122‑25(4)(b)

Add “or in exchange for the disposal or redemption of the exchangeable interest”.

9  Paragraph 122‑135(4)(a)

Omit “option or”, substitute “option,”.

10  Paragraph 122‑135(4)(a)

Omit “; and”, substitute “or *exchangeable interest; and”.

11  At the end of paragraph 122‑135(4)(b)

Add “or in exchange for the disposal or redemption of the exchangeable interest”.

12  Paragraph 126‑50(3)(a)

After “134”, insert “, or an *exchangeable interest”.

13  At the end of paragraph 126‑50(3)(b)

Add “or in exchange for the disposal or redemption of the exchangeable interest”.

14  Section 130‑1

Repeal the section, substitute:

130‑1  What this Division is about

15  After section 130‑90

Insert:

Subdivision 130‑E—Exchangeable interests

Table of sections

130‑100 Exchangeable interest

130‑105 Shares acquired in exchange for the disposal or redemption of an exchangeable interest

130‑100  Exchangeable interest

  An exchangeable interest is a *traditional security that:

 (a) was issued on the basis that it will or may be:

 (i) disposed of to the issuer of the traditional security or to a *connected entity of the issuer of the traditional security; or

 (ii) redeemed;

  in exchange for *shares in a company that is neither:

 (iii) the issuer of the traditional security; nor

 (iv) a connected entity of the issuer of the traditional security; and

 (b) was issued on or after 1 July 2001.

130‑105  Shares acquired in exchange for the disposal or redemption of an exchangeable interest

Cost base and reduced cost base

 (1) The table has effect:

 (2) An amount is to be added under this subsection if a *capital gain on the disposal or redemption of the exchangeable interest has been reduced under section 118‑20. This is so even though a capital gain that is made on the disposal or redemption of the exchangeable interest is disregarded under subsection (4). The amount to be added is the amount of the reduction.

 (3) The payment for the exchange can include giving property (see section 103‑5).

Other CGT consequences

 (4) The table has effect:

Application

 (5) This section applies to the disposal or redemption of an *exchangeable interest on or after 1 July 2001.

16  Subsection 995‑1(1)

Insert:

exchangeable interest has the meaning given by section 130‑100.

17  Application of amendments

(1) The amendments of sections 26BB and 70B of the Income Tax Assessment Act 1936 made by this Schedule apply to the disposal or redemption of a traditional security if the traditional security was issued after 7.30 pm, by legal time in the Australian Capital Territory, on 14 May 2002.

(2) The amendments of sections 122‑25, 122‑135 and 126‑50 of the Income Tax Assessment Act 1997 made by this Schedule apply to the disposal or redemption of an exchangeable interest on or after 1 July 2001.

Schedule 2—Convertible interests

Income Tax Assessment Act 1997

1  Paragraph 122‑25(4)(a)

Omit “*convertible note”, substitute “*convertible interest”.

2  Paragraph 122‑25(4)(b)

Omit “convertible note”, substitute “convertible interest”.

3  Paragraph 122‑135(4)(a)

Omit “*convertible note”, substitute “*convertible interest”.

4  Paragraph 122‑135(4)(b)

Omit “convertible note”, substitute “convertible interest”.

5  Paragraph 126‑50(3)(a)

Omit “*convertible note”, substitute “*convertible interest”.

6  Paragraph 126‑50(3)(b)

Omit “convertible note”, substitute “convertible interest”.

7  Subsection 130‑60(1) (table)

Repeal the table, substitute:

8  After subsection 130‑60(1A)

Insert:

 (1B) The payment to convert the convertible interest can include giving property (see section 103‑5).

9  Application of amendments

The amendments made by this Schedule apply to the conversion of a convertible interest on or after 1 July 2001.

Schedule 3—Rights

Income Tax Assessment Act 1997

1  Subsection 130‑40(6) (table)

Repeal the table, substitute:

2  Application of amendment

The amendment made by this Schedule applies to the exercise of a right on or after 1 July 2001.

Schedule 4—Foreign currency

Part 1—Amendments

Financial Corporations (Transfer of Assets and Liabilities) Act 1993

1  Paragraph 15(1)(a)

Omit “, 82Y”.

2  Paragraph 15(1)(a)

Omit “or 15‑15”, substitute “, 15‑15 or 775‑15”.

3  Paragraph 15(1)(b)

Omit “, 82Z”.

4  Paragraph 15(1)(b)

After “8‑1”, insert “or 775‑30”.

5  Paragraph 15(3)(a)

Omit “or 82Y”.

6  Paragraph 15(3)(a)

Omit “or 15‑15”, substitute “, 15‑15 or 775‑15”.

7  Paragraph 15(3)(b)

Omit “or 82Z”.

8  Paragraph 15(3)(b)

After “8‑1”, insert “or 775‑30”.

9  At the end of section 15

Add:

Note: For transitional provisions about former sections 82Y and 82Z of the Income Tax Assessment Act 1936, see Part 2 of Schedule 4 to the New Business Tax System (Taxation of Financial Arrangements) Act (No. 1) 2003.

10  Paragraph 16(1)(a)

Omit “or 82Y”.

11  Paragraph 16(1)(a)

After “6‑5”, insert “or 775‑15”.

12  Paragraph 16(1)(b)

Omit “or 82Z”.

13  Paragraph 16(1)(b)

After “8‑1”, insert “or 775‑30”.

14  Subsection 16(2)

Omit “or 82Y”.

15  Subsection 16(2)

After “6‑5”, insert “or 775‑15”.

16  Paragraph 16(3)(a)

Omit “or 82Y”.

17  Paragraph 16(3)(a)

After “6‑5”, insert “or 775‑15”.

18  Paragraph 16(3)(b)

Omit “or 82Z”.

19  Paragraph 16(3)(b)

After “8‑1”, insert “or 775‑30”.

20  At the end of section 16

Add:

Note: For transitional provisions about former sections 82Y and 82Z of the Income Tax Assessment Act 1936, see Part 2 of Schedule 4 to the New Business Tax System (Taxation of Financial Arrangements) Act (No. 1) 2003.

Income Tax Assessment Act 1936

21  Section 20

Repeal the section.

22  Division 3B of Part III

Repeal the Division.

23  Subsection 102AAW(1)

Omit “20,”.

24  Section 102AAX

Repeal the section.

25  Subsection 170(10)

Omit “, 82SA(2) or 82Z(3) or (4)”, substitute “or 82SA(2)”.

26  Subparagraph 177C(2)(a)(i)

Omit “or 170‑B”, substitute “, 170‑B or 960‑D”.

27  Subparagraph 177C(2)(b)(i)

After “this Act”, insert “or the Income Tax Assessment Act 1997, except one under Subdivision 960‑D of the Income Tax Assessment Act 1997”.

28  Subparagraph 177C(2)(c)(i)

Omit “or 170‑B”, substitute “, 170‑B or 960‑D”.

29  Paragraph 389(a)

Omit “20,”.

30  Section 391

Repeal the section.

31  Subsection 57‑25(6) in Schedule 2D (table item 4)

Before “Division 3B”, insert “the former”.

32  Subsection 57‑25(6) in Schedule 2D (table item 6)

Before “subsection 82Z(1)”, insert “the former”.

33  Subsection 57‑25(6) in Schedule 2D (at the end of the table)

Add:

34  After subsection 57‑25(6) in Schedule 2D

Insert:

 (6A) For the purposes of the application of subsection (5) to the transition taxpayer, a provision covered by item 7 or 8 of the table in subsection (6) is taken to have commenced at the start of the taxpayer’s applicable commencement date (within the meaning of Division 775 of the Income Tax Assessment Act 1997).

Note: For applicable commencement date, see section 775‑155 of the Income Tax Assessment Act 1997.

 (6B) The rule in subsection (5) does not apply, and is taken never to have applied, to the transition taxpayer in relation to a provision covered by item 7 or 8 of the table in subsection (6) if the taxpayer makes an election under section 775‑150 of the Income Tax Assessment Act 1997.

35  Subsection 57‑30(4) in Schedule 2D (table item 1)

Before “Division 3B”, insert “the former”.

36  Subsection 57‑30(4) in Schedule 2D (table item 2)

Before “subsection 82Z(1)”, insert “the former”.

37  At the end of section 57‑30 in Schedule 2D

Add:

 (5) A provision listed in subsection (6) only applies to a liability of the transition taxpayer at the transition time if the taxpayer first assumed the liability on or after the taxpayer’s applicable commencement date (within the meaning of Division 775 of the Income Tax Assessment Act 1997).

Note: For applicable commencement date, see section 775‑155 of the Income Tax Assessment Act 1997.

 (6) The provisions are listed in the table below. Provisions of the Income Tax Assessment Act 1997 are identified in normal text.

 (7) The rule in subsection (5) does not apply, and is taken never to have applied, to the transition taxpayer if the taxpayer makes an election under section 775‑150 of the Income Tax Assessment Act 1997.

Income Tax Assessment Act 1997

38  Section 10‑5 (table item headed “foreign exchange”)

Omit “82Y”, substitute “775‑15”.

39  Section 12‑5 (table item headed “foreign exchange”)

Omit “82U to 82ZB”, substitute “775‑30”.

40  Section 12‑5 (table item headed “losses”)

Omit “82U to 82ZB”, substitute “775‑30”.

41  Subsection 20‑30(1) (at the end of the table)

Add:

42  Subsection 20‑30(2) (table item 2.16)

Repeal the item.

43  Subsection 40‑35(1)

Omit “Division 328”, substitute “Divisions 328 and 775”.

44  Paragraph 40‑75(2)(f)

Omit “27‑90(3).”, substitute “27‑90(3); or”.

45  After paragraph 40‑75(2)(f)

Insert:

 (g) for which there is a reduction in the asset’s opening adjustable value under section 775‑70; or

 (h) for which there is an increase in the asset’s opening adjustable value under section 775‑75.

46  Subsection 40‑85(2) (note)

Repeal the note, substitute:

Note: The opening adjustable value of a depreciating asset may be modified by one of these provisions:

•   Subdivision 27‑B;
•   subsection 40‑90(3);
•   subsection 40‑285(4);
•   paragraph 40‑365(5)(b);
•   section 775‑70;
•   section 775‑75.

47  Section 40‑175 (note)

Repeal the note, substitute:

Note: The cost of a depreciating asset may be modified by one of these provisions:

•   Subdivision 27‑B;
•   subsection 40‑90(2);
•   paragraph 40‑365(5)(a);
•   section 775‑70;
•   section 775‑75.

48  Section 103‑20

Repeal the section.

49  Section 104‑5 (after table item relating to CGT event K9)

Insert:

50  After section 104‑255

Insert:

104‑260  Certain short‑term forex realisation gains: CGT event K10

 (1) CGT event K10 happens if:

 (a) you make a *forex realisation gain as a result of forex realisation event 2; and

 (b) item 1 of the table in subsection 775‑70(1) applies.

 (2) The time of the event is when the forex realisation event happens.

 (3) You make a capital gain equal to the *forex realisation gain.

Note: You cannot make a capital loss under CGT event K10. However, if you make a forex realisation loss covered by item 1 of the table in subsection 775‑75(1), you will make a capital loss under CGT event K11 (see section 104‑265).

104‑265  Certain short‑term forex realisation losses: CGT event K11

 (1) CGT event K11 happens if:

 (a) you make a *forex realisation loss as a result of forex realisation event 2; and

 (b) item 1 of the table in subsection 775‑75(1) applies.

 (2) The time of the event is when the forex realisation event happens.

 (3) You make a capital loss equal to the *forex realisation loss.

Note: You cannot make a capital gain under CGT event K11. However, if you make a forex realisation gain covered by item 1 of the table in subsection 775‑70(1), you will make a capital gain under CGT event K10 (see section 104‑260).

51  Section 110‑10 (after table item relating to CGT event K9)

Insert:

52  Section 112‑97 (at the end of the table)

Add:

53  Section 115‑5 (note)

Omit “and 115‑45”, substitute “, 115‑45 and 775‑70”.

54  At the end of subsection 115‑25(3)

Add:

 (i) *CGT event K10.

55  At the end of section 134‑1

Add:

 (6) This Division does not apply to:

 (a) an option to the extent that the option binds the grantor to *dispose of *foreign currency; or

 (b) an option to the extent that the option binds the grantor to *acquire *foreign currency.

56  Section 136‑10 (after table item relating to CGT event K8)

Insert:

57  Section 376‑60

Repeal the section.

58  After Part 4‑5 (heading) (before the link note)

Insert:

[The next Division is Division 775]

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

Subdivision 775‑A—Objects of this Division

Table of sections

775‑10 Objects of this Division

775‑10  Objects of this Division

  The objects of this Division are as follows:

 (a) to recognise *foreign currency gains and losses for income tax purposes;

 (b) to quantify those gains and losses by reference to the change in the Australian dollar value of rights and obligations;

 (c) to treat certain foreign currency denominated financing facilities that are the economic equivalent of a loan as if the relevant facility were a loan;

 (d) to reduce compliance costs by not requiring the recognition of certain low‑value foreign currency gains and losses that involve substantial calculations.

Subdivision 775‑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:

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:

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:

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:

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 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:

Forward contracts

 (3) The following table applies to a contract to buy a particular *foreign currency in return for another foreign currency:

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:

Additional result where forex realisation gain exceeds cost etc.

 (2) The following table has effect:

 (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:

 (2) To the extent that:

 (a) section 775‑30 would have allowed you a deduction for a *forex realisation loss if this section had not been enacted; and

 (b) apart from this subsection, another provision of this Act would allow you a deduction for the loss;

you cannot deduct the loss under that other provision.

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

 (1) You may choose not to have sections 775‑70 and 775‑75 apply to you.

 (2) A choice must be in writing.

 (3) A choice must be made:

 (a) if you were in existence at the start of the applicable commencement date:

 (i) within 90 days after the applicable commencement date; or

 (ii) within 30 days after the commencement of this subsection; or

 (b) if you came into existence within 90 days after the start of the applicable commencement date:

 (i) within 90 days after you came into existence; or

 (ii) within 30 days after the commencement of this subsection; or

 (c) if the Commissioner allows a longer period—within that longer period.

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

 (4) A choice has effect from the start of the applicable commencement date.

 (5) A choice may not be revoked.

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

  The forex cost base of a right, or a part of a right, to receive *foreign currency is the total of:

 (a) the money you:

 (i) paid; or

 (ii) are required to pay; or

 (iii) would be required to pay in the event of the exercise of an option;

  in respect of acquiring the right or part of the right; and

 (b) the *market value of any *non‑cash benefit you:

 (i) provided; or

 (ii) are required to provide; or

 (iii) would be required to provide in the event of the exercise of an option;

  in respect of acquiring the right or part of the right;

reduced by any amounts that are deductible under a provision of this Act other than this Division.

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

  The forex entitlement base of a right, or a part of a right, to pay *foreign currency is the total of:

 (a) the money you:

 (i) are entitled to receive; or

 (ii) would be entitled to receive in the event of the exercise of an option;

  in respect of the discharge or satisfaction of the right or the part of the right; and

 (b) the *market value of any *non‑cash benefit you:

 (i) are entitled to acquire or obtain; or

 (ii) would be entitled to acquire or obtain in the event of the exercise of an option;

  in respect of the discharge or satisfaction of the right or the part of the right;

reduced by:

 (c) any amounts that you paid to acquire the right or the part of the right, where the amounts are not deductible under a provision of this Act other than this Division; and

 (d) the market value of any non‑cash benefit that you provided to acquire the right or the part of the right, where the market value is not deductible under a provision of this Act other than this Division.

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

  For the purposes of this Division, the proceeds of assuming an obligation, or a part of an obligation, to pay *foreign currency are the total of:

 (a) the money you:

 (i) received; or

 (ii) are entitled to receive; or

 (iii) would be entitled to receive in the event of the exercise of an option;

  in return for incurring the obligation or the part of the obligation; and

 (b) the *market value of any *non‑cash benefit you:

 (i) acquired or obtained; or

 (ii) are entitled to acquire or obtain; or

 (iii) would be entitled to acquire or obtain in the event of the exercise of an option;

  in return for incurring the obligation or the part of the obligation;

reduced by any amounts that are included in assessable income under a provision of this Act other than this Division.

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

 (1) For the purposes of this Division, the net costs of assuming an obligation, or a part of an obligation, to receive *foreign currency are the total of:

 (a) the money you:

 (i) are required to pay; or

 (ii) would be required to pay in the event of the exercise of an option;

  in respect of the fulfilment of the obligation or the part of the obligation; and

 (b) the *market value of any *non‑cash benefit you:

 (i) are required to provide; or

 (ii) would be required to provide in the event of the exercise of an option;

  in respect of the fulfilment of the obligation or the part of the obligation;

reduced by the amount worked out under subsection (2).

 (2) The amount worked out under this subsection is the total of:

 (a) the money you:

 (i) received; or

 (ii) are entitled to receive;

  because you incurred the obligation or the part of the obligation; and

 (b) the *market value of any *non‑cash benefit you:

 (i) received or obtained; or

 (ii) are entitled to receive or obtain;

  because you incurred the obligation or the part of the obligation;

reduced by any amounts that are included in assessable income under a provision of this Act other than this Division.

 (3) To avoid doubt, paragraphs (2)(a) and (b) do not apply to money or a *non‑cash benefit that you:

 (a) received or obtained; or

 (b) are entitled to receive or obtain;

because of the fulfilment of the obligation or the part of the obligation.

775‑105  Currency 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

 (c) a fungible obligation, or a part of a fungible obligation, to pay foreign currency;

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

 (c) a fungible obligation, or a part of a fungible obligation, to pay foreign currency;

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:

 (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 (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:

If you choose roll‑over relief for a facility 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

[This is the end of the Guide.]

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:

 (c) up to the foreign currency amount specified in the agreement; and

 (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

 (c) the economic effect of the agreement is to enable you to obtain finance in a particular *foreign currency:

 (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

 (c) within 30 days after the commencement of this subsection.

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:

 (c) the start of the applicable commencement date;

 (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

 (c) that is taken to be attached to 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:

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

 (c) you have made a choice for roll‑over relief for the facility agreement, and that choice is in effect;

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