TAX LAWS AMENDMENT (TAXATION OF FINANCIAL ARRANGEMENTS) BILL 2008

i Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008

Contents

Short title ............................................................................................ 1

Commencement .................................................................................. 1

Schedule(s) ......................................................................................... 2

Schedule 1--Amendme nts

Part 1--Main amendments

Income Tax Assessment Act 1997

Part 2--Consequential amendments

141

Income Tax Assessment Act 1936

141

Income Tax Assessment Act 1997

145

Income Tax (Transitional Provisions) Act 1997

156

Taxation Administration Act 1953

157

Part 3--Application and transitional provisions

159

Part 4--Amendments relating to Division 775

166

Income Tax Assessment Act 1997

166

New Business Tax System (Taxation of Financial Arrangements) Act

(No. 1) 2003

167

Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008 1

A Bill for an Act to amend the law relating to

taxation, and for related purposes

The Parliament of Australia enacts:

1 Short title

This Act may be cited as the Tax Laws Amendment (Taxation of

Financial Arrangements) Act 2008.

2 Commence ment

(1) Each provision of this Act specified in column 1 of the table

commences, or is taken to have commenced, in accordance with

column 2 of the table. Any other statement in column 2 has effect

according to its terms.

2 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008

Commencement information

Column 1

Column 2

Column 3

Provision(s)

Commencement

Date/Details

1. Sections 1 to 3

and anything in

this Act not

elsewhere covered

by this table

The day on which this Act receives the

Royal Assent.

2. Schedule 1,

Parts 1, 2 and 3

The day on which this Act receives the

Royal Assent.

3. Schedule 1,

Part 4

Immediately after the commencement of the

New Business Tax System (Taxation of

Financial Arrangements) Act (No. 1) 2003.

17 December

2003

Note:

This table relates only to the provisions of this Act as originally

passed by both Houses of the Parliament and assented to. It will not be

expanded to deal with provisions inserted in this Act after assent.

(2) Column 3 of the table contains additional information that is not

part of this Act. Information in this column may be added to or

edited in any published version of this Act.

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.

Amend ments Schedule 1

Main amendments Part 1

Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008 3

Schedule 1

Amendments

Part 1

Main amendments

Income Tax Assessment Act 1997

1 Before Division 240

Insert:

Division 230--Taxation of financial arrangements

Table of Subdivisions

Guide to Division 230

230-A Core rules

230-B The accruals/realisation methods

230-C Fair value method

230-D Foreign exchange retranslation method

230-E Hedging financial arrangements method

230-F Reliance on financial reports

230-G Balancing adjustment on ceasing to have a financial

arrangement

230-H Exceptions

230-I

Other provisions

230-J Additional operation of Division

Guide to Division 230

230-1 What this Division is about

This Division is about the tax treatment of gains and losses from

your financial arrangements.

You recognise the gains and losses, as appropriate, over the life of

a financial arrangement and ignore distinctions between income

and capital unless specific rules apply.

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If it is sufficiently certain that you will make a gain or loss, you use

a compounding accruals method to recognise the gain or loss.

Otherwise you use a realisation method. Instead of either, you may

be able to choose to use a fair value or hedging method or to rely

on your financial reports. You may also be able to choose to

recognise foreign exchange gains and losses using a retranslation

method.

230-5 Scope of this Division

(1) You have a financial arrangement if you have one or more cash

settlable legal or equitable rights and/or obligations to receive or

provide a financial benefit.

(2) This Division does not apply to all financial arrangements. The

main exceptions are if:

(a) you are:

(i) an individual; or

(ii) a superannuation entity, managed investment scheme or

an entity substantially similar to a managed investment

scheme under foreign law with assets of less than $100

million; or

(iii) an ADI, securitisation vehicle or other financial sector

entity with an aggregated turnover of less than $20

million; or

(iv) another entity with an aggregated turnover of less than

$100 million, financial assets of less than $100 million

and assets of less than $300 million;

and either:

(iv) the arrangement is to end not more than 12 months after

you start to have it; or

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

(b) the arrangement is a financial arrangement under

section 230-50 (equity interests etc.) and neither a fair value

election, a hedging financial arrangement election nor an

election to rely on financial reports applies to the

arrangement.

Note:

Section 230-455 provides for the exceptions referred to in

paragraph (a).

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Subdivision 230-A--Core rules

Table of sections

Objects

230-10

Objects of this Division

Tax treatment of gains and losses from financial arrangements

230-15

Gains are assessable and losses deductible

230-20

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

230-25

Associated financial benefits to be taken into account only once under this

Act

230-30

Treatment of gains and losses related to exempt income and non-assessable

non-exempt income

230-35

Treatment of gains and losses of private or domestic nature

Method to be applied to take account of gain or loss

230-40

Methods for taking gain or loss into account

Financial arrangement concept

230-45

Financial arrangement

230-50

Financial arrangement (equity interest or right or obligation in relation to

equity interest)

230-55

Rights, obligations and arrangements (grouping and disaggregation rules)

General rules

230-60

When financial benefit provided or received under financial arrangement

230-65

Amount of financial benefit relating to more than one financial arrangement

etc.

230-70

Apportionment when financial benefit received or right ceases

230-75

Apportionment when financial benefit provided or obligation ceases

230-80

Consistency in working out gains or losses (integrity measure)

230-85

Rights and obligations include contingent rights and obligations

Objects

230-10 Objects of this Division

The objects of this Division are:

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(a) to minimise the extent to which the tax treatment of gains and

losses from your

financial arrangements distorts, by

providing inappropriate impediments and stimulation, your

trading, financing and investment decisions and your risk

taking and risk management; and

(b) to do so by aligning more closely the tax and commercial

recognition of gains and losses from your financial

arrangements in the following ways:

(i) by allocating the gains and losses to income years

throughout the life of your financial arrangements on a

reasonable basis;

(ii) by generally recognising gains and losses on revenue

rather than capital account; and

compliance costs.

Tax treatment of gains and losses from financial arrangements

230-15 Gains are assessable and losses deductible

Gains

(1) Your assessable income includes a gain you make from a

financial

arrangement.

Note:

This Division does not apply to gains that are subject to exceptions

under Subdivision 230-H.

Losses

(2) You can deduct a loss you make from a

financial arrangement, but

only to the extent that:

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

(b) you necessarily make it in carrying on a

business for the

purpose of gaining or producing your assessable income.

Note:

This Division does not apply to losses that are subject to exceptions

under Subdivision 230-H.

(3) You can also deduct a loss you make from a

financial arrangement

if:

(a) you are an

Australian entity; and

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

and

non-assessable non-exempt income under

section 23AI, 23AJ or 23AK of the Income Tax Assessment

Act 1936; and

(d) the loss is, in whole or in part, a cost in relation to a

debt

interest you issue that is covered by paragraph 820-40(1)(a).

You can deduct the loss only to the extent to which it is a cost in

relation to a

debt interest you issue that is covered by paragraph

820-40(1)(a).

Note:

This Division does not apply to losses that are subject to exceptions

under Subdivision 230-H.

(4) If the

financial arrangement is a

debt interest, the loss is not

prevented from being deductible for an income year under

subsection (2) merely because of either or both of the following:

(a) one or more of the

financial benefits that are taken into

account in working out the amount of the loss are

contingent

on the economic performance (whether past, current or

future) of:

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

(ii) a

connected entity of yours or a part of the activities of

a connected entity of yours;

(b) one or more of the financial benefits that are taken into

account in working out the amount of the loss secure a

permanent or enduring benefit for you or a connected entity

of yours.

(5) Subject to subsection (6), subsection (4) does not apply to the loss

to the extent to which the annually compounded internal rate of

return on the

debt interest exceeds the

benchmark rate of return

for the debt interest increased by 150 basis points.

(6) If:

(a) regulations made for the purposes of subsection 25-85(6)

provide that a specified number of basis points is to apply for

the purposes of applying subsection 25-85(5) in particular

circumstances; and

(b) those circumstances exist in relation to the

debt interest;

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subsection (5) applies as if the reference in that subsection to 150

basis points were a reference to the number of basis points

specified in the regulations.

Division does not affect foreign residence rules

(7) Nothing in this Division affects the operation of the provis ions of

Division 6 that provide for the significance of foreign residence for

the assessability of ordinary and statutory income.

Note 1:

Gains that you make under this Division may be ordinary or statutory

income for the purposes of Division 6.

Note 2:

For the effect of a change of residence during an income year, see

sections 230-485 and 230-490.

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

Act

Application of section

(1) This section applies to the following:

(a) a gain that is included in your assessable income for an

income year under this Division;

(b) a loss that is allowable as a deduction to you for an income

year under this Division;

subsection 230-310(4) in relation to an income year.

Purpose of this section

(2) The purpose of this section is to ensure that your gains and losses,

and

financial benefits, to which this section applies are taken into

account only once under this Act in working out your taxable

income.

Gain or loss to be taken into account only once

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

extent):

(a) included in your assessable income; or

(b) allowable as a deduction to you; or

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

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

extent):

(a) included in your assessable income; or

(b) allowable as a deduction to you;

under any provisions of this Act outside this Division for the same

or any other income year.

Section does not give rise to exempt income

(5) A gain is not to be treated as

exempt income merely because it is

not included in your assessable income under this section.

230-25 Associated financial benefits to be taken into account only

once under this Act

Application of section

(1) This section applies to a

financial benefit whose amount or value

is taken into account in working out whether you make, or the

amount of, a gain or loss to which paragraph 230-20(1)(a), (b) or

Associated financial benefit to be taken into account only once

(2) A

financial benefit to which this section applies is not to be (to

any extent):

(a) included in your assessable income; or

(b) allowable as a deduction to you;

under any provision of this Act outside this Division for the same

or any other income year.

Exception for certain bad debts

(3) If:

(a) a

financial benefit has been included in your assessable

income under a provision of this Act outside this Division;

and

(b) a bad debt deduction would have been allowed under

section 25-35 in relation to the financial benefit;

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subsection (2) does not prevent that bad debt deduction from being

allowed under section 25-35 in relation to the financial benefit as if

the debt were still outstanding.

Section does not give rise to exempt income

(4) A

financial benefit is not to be treated as

exempt income merely

because it is not included in your assessable income under this

section.

230-30 Treatment of gains and losses related to exempt income and

non-assessable non-exempt income

(1) Despite section 230-15, a gain that you make from a

financial

arrangement:

(a) to the extent that it reflects an amount that would be treated,

or would reasonably expected to be treated, as

exempt

income under a provision of this Act if this Division were

disregarded--is exempt income; and

(b) to the extent that it reflects an amount that would be treated

or would reasonably expected to be treated, as

non-assessable non-exempt income under a provision of this

Act if this Division were disregarded--is not assessable

income and is not exempt income.

(2) Despite section 230-15, a gain that you make from a

financial

arrangement:

(a) to the extent that, if it had been a loss, you would have made

it in gaining or producing

exempt income--is exempt

income; and

(b) to the extent to which, if it had been a loss, you would have

made it in gaining or producing

non-assessable non-exempt

income--is not assessable income and is not exempt income.

(3) A loss you make from a

financial arrangement is not allowable as

a deduction to you under any provision of this Act (other than

subsection 230-15(3)) to the extent that you make it in gaining or

producing your:

(a)

exempt income; or

(b)

non-assessable non-exempt income.

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

Borrowings etc. used for private or domestic purpose

(1) Subsections (2) and (3) apply if:

(a) a

borrowing is made by you, or credit is provided to you,

under a

financial arrangement; and

(b) you use some or all of the funds borrowed or the credit

provided for a private or domestic purpose.

(2) This Division does not apply to a gain you make from the

arrangement to the extent that you use the funds raised or the credit

provided for a private or domestic purpose.

(3) A loss you make from the arrangement is not allowable as a

deduction to you under any provision of this Act to the extent that

you use the funds raised or the credit provided for a private or

domestic purpose.

Derivative financial arrangement held for private or domestic

purpose

(4) Subsections (5) and (6) apply if:

(a) you are an individual; and

(b) you make a gain or loss from a

derivative financial

arrangement; and

domestic purpose.

(5) This Division does not apply to a gain you make from the

arrangement to the extent that the arrangement is held or used for a

private or domestic purpose.

(6) A loss you make from the arrangement is not allowable as a

deduction to you under any provision of this Act to the extent that

the arrangement is held or used for a private or domestic purpose.

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Method to be applied to take account of gain or loss

230-40 Methods for taking gain or loss into account

Methods available

(1) The methods that can be applied to take account of a gain or loss

you make from a

financial arrangement are:

(a) the accruals and realisation methods provided for in

Subdivision 230-B; or

(b) the fair value method provided for in Subdivision 230-C; or

Subdivision 230-D; or

(d) the hedging financial arrangement method provided for in

Subdivision 230-E; or

(e) the method of relying on your financial reports provided for

in Subdivision 230-F; or

(f) a balancing adjustment provided for in Subdivision 230-G.

Note:

The methods referred to in paragraphs (b) to (e) only apply if you

make an election under the relevant Subdivision and you must meet

certain requirements before you can make such an election.

(2) A gain or loss is not taken into account under any of the methods

referred to in paragraphs (1)(a), (b), (c) and (e) to the extent to

which it is taken into account under the method referred to in

paragraph (1)(f) (balancing adjustment).

(3) A gain or loss is not taken into account under the method referred

to in paragraph (1)(f) (balancing adjustment) to the extent to which

it is taken into account under the method referred to in

paragraph (1)(d) (hedging financial arrangement method).

Note:

The hedging financial arrangement method may take some account of

the gain or loss by reference to the balancing adjustment method (see

subsection 230-300(5)).

Elections override accruals and realisation methods

(4) Subdivision 230-B (accruals and realisation method) does not

apply to a gain or loss you make from a

financial arrangement:

(a) if Subdivision 230-C (fair value method) applies to the

arrangement; or

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(b) to the extent that Subdivision 230-D (foreign exchange

retranslation method) applies to the gain or loss; or

arrangements method) applies to the arrangement; or

(d) if Subdivision 230-F (method of relying on financial reports)

applies to the arrangement; or

(e) if the arrangement is a financial arrangement under

section 230-50 (equity interests etc.).

Priorities among election methods

(5) Subdivision 230-C (fair value method) does not apply to a gain or

loss you make from a

financial arrangement:

(a) to the extent that Subdivision 230-E (hedging financial

arrangements method) applies to the arrangement; or

(b) if Subdivision 230-F (method of relying on financial reports)

applies to the arrangement.

(6) Subdivision 230-D (foreign exchange retranslation method) does

not apply to a gain or loss you make from a

financial arrangement:

(a) if Subdivision 230-C (fair value method) applies to the

arrangement; or

(b) to the extent that Subdivision 230-E (hedging financial

arrangements method) applies to the arrangement; or

applies to the arrangement.

(7) Subdivision 230-F (method of relying on financial reports) does

not apply to a gain or loss you make from a

financial arrangement

to the extent that Subdivision 230-E (hedging financial

arrangements method) applies to the arrangement.

Financial arrangement concept

230-45 Financial arrangement

(1) You have a financial arrangement if you have, under an

arrangement:

(a) a

cash settlable legal or equitable right to receive a

financial

benefit; or

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(b) a cash settlable legal or equitable obligation to provide a

financial benefit; or

such obligations;

unless:

(d) you also have under the arrangement one or more legal or

equitable rights to receive something and/or one or more

legal or equitable obligations to provide something; and

(e) for one or more of the rights and/or obligations covered by

paragraph (d):

(i) the thing that you have the right to receive, or the

obligation to provide, is not a financial benefit; or

(ii) the right or obligation is not cash settlable; and

(f) the one or more rights and/or obligations covered by

paragraph (e) are not insignificant in comparison with the

right, obligation or combination covered by paragraph (a), (b)

or (c).

The right, obligation or combination covered by paragraph (a), (b)

or (c) constitutes the financial arrangement.

Note 1:

Whether your rights and/or obligations under an arrangement

constitute a financial arrangement can change over time depending on

changes either to the terms of the arrangement or external

circumstances (such as particular rights or obligations under the

arrangement being satisfied by the parties). For example, a contract

may provide for the transfer of a boat in 6 months time and payment

of the contract price at the end of 2 years. Until the boat is delivered,

there is no financial arrangement because of the operation of

paragraphs (d), (e) and (f) above. Once the boat is delivered, there is a

financial arrangement because those paragraphs are no longer

applicable.

Note 2:

The operative provisions of this Division do not apply to all financial

arrangements, and only apply partially to some: see the exceptions in

Subdivision 230-H.

Note 3:

There are some rules in this Division that tell you what happens if an

arrangement ceases to be a financial arrangement (see

Subdivision 230-G and section 230-505).

(2) A right you have to receive, or an obligation you have to provide, a

financial benefit is cash settlable if, and only if:

(a) the benefit is money or a

money equivalent; or

(b) in the case of a right--you intend to satisfy or settle it by

receiving money or a money equivalent or by starting to

have, or ceasing to have, another

financial arrangement; or

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by providing money or a money equivalent or by starting to

have, or ceasing to have, another financial arrangement; or

(d) you have a practice of satisfying or settling similar rights or

obligations as mentioned in paragraph (b) or (c) (whether or

not you intend to satisfy or settle the right or obligation in

that way); or

(e) you deal with the right or obligation, or with similar rights or

obligations, in order to generate a profit from short-term

fluctuations in price, from a dealer's margin, or from both; or

(f) none of paragraphs (a) to (e) applies but you satisfy

subsection (3); or

(g) you are able to settle the right or obligation as mentioned in

paragraph (b) or (c) (whether or not you intend to satisfy or

settle the right or obligation in that way) and you do not have,

as your sole or dominant purpose for entering into the

arrangement under which you are to receive or provide the

financial benefit, the purpose of receiving or delivering the

financial benefit as part of your expected purchase, sale or

usage requirements.

A reference in paragraph (b) or (c) to a financial arrangement does

not include a reference to something that is a financial arrangement

under section 230-50.

Note:

Examples of dealing of the kind covered by paragraph (e) are:

(a) dealing with the right or obligation, or similar rights or

obligations, on a frequent basis, a short-term basis or on a

frequent and short-term basis; and

(b) acquiring the right or obligation, or similar rights or obligations,

and managing the resulting risk by entering into offsetting

arrangements that provide a profit margin.

(3) You satisfy this subsection if:

(a) the

financial benefit is readily convertible into money or a

money equivalent; and

(b) there is a market for the financial benefit that has a high

degree of liquidity; and

(i) the amount of the money or money equivalent referred

to in paragraph (a) is not subject to a substantial risk of

change in value; or

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(ii) your purpose, or one of your purposes, for entering into

the arrangement under which you are to receive or

provide the financial benefit, is to receive or deliver the

financial benefit so that it may be converted or

liquidated into money or a money equivalent (other than

in the ordinary course of business).

230-50 Financial arrangement (equity interest or right or obligation

in relation to equity inte rest)

(1) You also have a financial arrangement if you have an

equity

interest. The equity interest constitutes the financial arrangement.

(2) You also have a financial arrangement if:

(a) you have, under an

arrangement:

(i) a legal or equitable right to receive something that is a

financial arrangement under this section; or

(ii) a legal or equitable obligation to provide something that

is a financial arrangement under this section; or

(iii) a combination of one or more such rights and/or

obligations; and

(b) the right, obligation or combination does not constitute, or

form part of, a financial arrangement under subsection

230-45(1).

The right, obligation or combination referred to in paragraph (a)

constitutes the financial arrangement.

Note 1:

Paragraph 230-40(4)(e) prevents the accruals method or the realisation

method being applied to something that is a financial arrangement

under this section.

Note 2:

Subsection 230-270(1) prevents the retranslation method being

applied to something that is a financial arrangement under this section.

Note 3:

Subsection 230-330(1) prevents the hedging method being applied to

something that is a financial arrangement under this section.

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230-55 Rights, obligations and arrange ments (grouping and

disaggregation rules)

Single right or obligation or multiple rights or obligations?

(1) If you have a right to receive 2 or more

financial benefits, you are

taken, for the purposes of this Division, to have a separate right to

receive each of those financial benefits.

(2) If you have an obligation to provide 2 or more

financial benefits,

you are taken, for the purposes of this Division, to have a separate

obligation to provide each of those financial benefits.

(3) Subsections (1) and (2) apply for the avoidance of doubt.

Matters relevant to determining what rights and/or obligations

constitute particular arrangements

(4) For the purposes of this Division, whether a number of rights

and/or obligations are themselves an

arrangement or are 2 or more

separate arrangements is a question of fact and degree that you

determine having regard to the following:

(a) the nature of the rights and/or obligations;

(b) their terms and conditions (including those relating to any

payment or other consideration for them);

proposed exercise or performance (including what can

reasonably be seen as the purposes of one or more of the

entities involved);

(d) whether they can be dealt with separately or must be dealt

with together;

(e) normal commercial understandings and practices in relation

to them (including whether they are regarded commercially

as separate things or as a group or series that forms a whole);

(f) the objects of this Division.

In applying this subsection, have regard to the matters referred to

in paragraphs (a) to (f) both in relation to the rights and/or

obligations separately and in relation to the rights and/or

obligations in combination with each other.

Example 1: Your rights and obligations under a typical convertible note, including

the right to convert the note into a share or shares, would constitute

one arrangement.

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Example 2: Your rights and obligations under a typical price-linked or

index-linked bond would constitute one arrangement.

Note 1:

If you raised funds by means of a contract that you would not have

entered into without entering into another contract, and neither

contract could be assigned to a third party without the other also being

assigned, this would tend to indicate that your rights and obligations

under the 2 contracts together constitute one arrangement.

Note 2:

If the commercial effect of your individual rights and/or obligations in

a group or series cannot be understood without reference to the group

or series as a whole, this would tend to indicate that all of your rights

and/or obligations in the group or series together constitute one

arrangement.

General rules

230-60 When financial benefit provided or received under financial

arrange ment

Financial benefit provided under financial arrangement

(1) You are taken, for the purposes of this Division, to have (or to have

had) an obligation to provide a

financial benefit under a

financial

arrangement if:

(a) you have (or had) an obligation to provide the financial

benefit in relation to the arrangement; and

(b) the financial benefit would not otherwise be treated as one

that you have (or had) an obligation to provide under the

arrangement; and

(i) whether you make a gain or loss from the arrangement;

(ii) the amount of such a gain or loss.

Paragraph (a) applies even if the entity to which you provide the

financial benefit is not a party to the arrangement.

Note:

This means that the financial benefits you provide to acquire the

financial arrangement (whether to the issuer, a previous holder or a

third party) are taken to be financial benefits you provide under the

arrangement. The financial benefits you provide may include, for

example, fees paid or the forgoing of rights to receive a financial

benefit.

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Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008

Financial benefit received under financial arrangement

(2) You are taken, for the purposes of this Division, to have (or to have

had) a right to receive a

financial benefit under a

financial

arrangement if:

(a) you have (or had) a right to receive the financial benefit in

relation to the arrangement; and

(b) the financial benefit would not otherwise be treated as one

that you have (or had) a right to receive under the

arrangement; and

(i) whether you make a gain or loss from the arrangement;

(ii) the amount of such a gain or loss.

Paragraph (a) applies even if the entity that provides the financial

benefit is not a party to the arrangement.

Note:

The financial benefits you receive may include, for example, the

waiving of an obligation you have to provide a financial benefit.

230-65 Amount of financial benefit relating to more than one

financial arrangement etc.

(1) This section applies if:

(a) a

financial benefit plays the integral role mentioned in

paragraph 230-60(1)(c) or (2)(c) in relation to a

financial

arrangement; and

(b) either or both of the following apply:

(i) the financial benefit plays that role in relation to one or

more other financial arrangements;

(ii) the financial benefit is provided or received for one or

more other things that are not financial arrangements.

(2) For the purposes of this Division, determine the amount of the

financial benefit that plays that role in relation to a particular

financial arrangement by apportioning the actual amount of the

financial benefit, on a reasonable basis, between:

(a) that financial arrangement; and

(b) each other financial arrangement (if any) in relation to which

the benefit plays that role; and

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subparagraph (1)(b)(ii).

230-70 Apportionment whe n financial benefit received or right

ceases

(1) Apply subsection (2) in working out whether you make, or will

make, a gain or loss (and the amount of the gain or loss) at a time

when:

(a) you receive a particular

financial benefit under a

financial

arrangement; or

(b) one of your rights under a financial arrangement

ceases.

The gain or loss is to be calculated in nominal (and not

present

value) terms.

(2) You must have regard to the extent to which the

financial benefits

that you have provided, or are to provide, under the

financial

arrangement are reasonably attributable, at the time mentioned in

subsection (1), to the benefit or right referred to in paragraph (1)(a)

or (b).

(3) Any attribution made under subsection (2) must reflect appropriate

and commercially accepted valuation principles that properly take

into account:

(a) the nature of the rights and obligations under the

financial

arrangement; and

(b) the risks associated with each

financial benefit, right and

obligation under the arrangement; and

(4) Despite subsection (2), no

financial benefit that you have

provided, or are to provide, under the

financial arrangement is to

be attributed to the benefit or right referred to in paragraph (1)(a)

or (b) if:

(a) you are working out the amount of a gain or loss for the

purposes of Subdivision 230-B; and

(b) the gain or loss is not an overall gain or loss from the

arrangement (within the meaning of that Subdivision) at the

time when you start to have the arrangement; and

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amount that represents, or is a right to an amount that

represents:

(i) interest; or

(ii) a

return paid or provided on a

debt interest; or

(iii) something that is in the nature of interest; or

(iv) something that could reasonably be regarded as being a

substitute for interest; or

(v) something prescribed by the regulations for the

purposes of this paragraph.

Note 1:

An example of something in the nature of interest is a discount on a

security.

Note 2:

An example of something that could reasonably be regarded as being a

substitute for interest is a lump sum payment received instead of

payments of interest.

230-75 Apportionment whe n financial benefit provided or obligation

ceases

(1) Apply subsection (2) in working out whether you make, or will

make, a gain or loss (and the amount of the gain or loss) at a time

when:

(a) you provide a particular

financial benefit under the

financial arrangement; or

(b) one of your obligations under a financial arrangement

ceases.

The gain or loss is to be calculated in nominal (and not

present

value) terms.

(2) You must have regard to the extent to which the

financial benefits

that you have received, or are to receive, under the

financial

arrangement are reasonably attributable, at the time mentioned in

subsection (1), to the benefit or obligation referred to in

paragraph (1)(a) or (b).

(3) Any attribution made under subsection (2) must reflect appropriate

and commercially accepted valuation principles that properly take

into account:

(a) the nature of the rights and obligations under the

financial

arrangement; and

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(b) the risks associated with each

financial benefit, right and

obligation under the arrangement; and

(4) Despite subsection (2), no

financial benefit that you have

received, or are to receive, under the

financial arrangement is to

be attributed to the benefit or obligation referred to in

paragraph (1)(a) or (b) if:

(a) you are working out the amount of a gain or loss for the

purposes of Subdivision 230-B; and

(b) the gain or loss is not an overall gain or loss from the

arrangement (within the meaning of that Subdivision) at the

time when you start to have the arrangement; and

is an amount that represents, or is an obligation to provide an

amount that represents:

(i) interest; or

(ii) a

return paid or provided on a

debt interest; or

(iii) something that is in the nature of interest; or

(iv) something that could reasonably be regarded as being a

substitute for interest; or

(v) something prescribed by the regulations for the

purposes of this paragraph.

Note 1:

An example of something in the nature of interest is a discount on a

security.

Note 2:

An example of something that could reasonably be regarded as being a

substitute for interest is a lump sum payment made instead of

payments of interest.

230-80 Consistency in working out gains or losses (integrity

measure)

Object of section

(1) The object of this section is to stop you obtaining an inappropriate

tax benefit from not working out your gains and losses in a

consistent manner.

Consistent treatment for particular financial arrangement

(2) If:

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(a) this Division provides that a particular method applies to

gains or losses you make from a

financial arrangement; and

(b) that method allows you to choose the particular manner in

which you apply that method;

you must use that manner consistently for the arrangement for all

income years.

Consistent treatment for financial arrangements of essentially the

same nature

(3) If:

(a) this Division provides that a particular method applies to

gains or losses you make from 2 or more

financial

arrangements; and

(b) that method allows you to choose the particular manner in

which you apply that method;

you must use that same manner consistently for all of those

financial arrangements that are essentially of the same nature.

230-85 Rights and obligations include contingent rights and

obligations

To avoid doubt:

(a) a right is treated as a right for the purposes of this Division

even it is subject to a contingency; and

(b) an obligation is treated as an obligation for the purposes of

this Division even if it is subject to a contingency.

Subdivision 230-B--The accruals/realisation methods

Table of sections

Guide to Subdivision 230-B

230-90

What this Subdivision is about

Objects of Subdivision

230-95

Objects of this Subdivision

When accruals method or realisation method applies

230-100 When accruals method or realisation method applies

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230-105 Sufficiently certain overall gain or loss

230-110 Sufficiently certain gain or loss from particular event

230-115 Sufficiently certain financial benefits

230-120 Financial arrangements with notional principal

The accruals method

230-125 Overview of the accruals method

230-130 Applying accruals method to work out period over which gain or loss is to

be spread

230-135 How gain or loss is spread

230-140 Method of spreading gain or loss--effective interest method

230-145 Application of effective interest method where differing income and

accounting years

230-150 Election for portfolio treatment of fees

230-155 Election for portfolio treatment of fees where differing income and

accounting years

230-160 Portfolio treatment of fees

230-165 Portfolio treatment of premiums and discounts for acquiring portfolio

230-170 Allocating gain or loss to income years

230-175 Running balancing adjustments

Realisation method

230-180 Realisation method

Reassessment and re-estimation

230-185 Reassessment

230-190 Re-estimation

230-195 Balancing adjustment if rate of return maintained on re-estimation

230-200 Re-estimation if balancing adjustment on partial disposal

Guide to Subdivision 230-B

230-90 What this Subdivision is about

This Subdivision applies the accruals method to determine the

amount and timing of gains and losses from a financial

arrangement if they are sufficiently certain for such accrual to be

done.

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Main amendments Part 1

Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008

This Subdivision applies the realisation method to determine the

amount and timing of gains and losses if they are not sufficiently

certain to be dealt with under the accruals method.

If the accruals method is applied to a gain or loss on the basis of an

estimate of a financial benefit and the benefit when received or

provided is more or less than the estimate, a balancing adjustment

is made to correct for the underestimate or overestimate.

If the accruals method is being applied to gains and losses from the

arrangement and there is a material change to the arrangement, or

the circumstances in which it operates, a reassessment is made of

whether the accruals method or the realisation method should

apply to gains and losses from the arrangement.

A change in circumstances may also cause a re-estimation of gains

and losses that the accruals method is being applied to.

Objects of Subdivision

230-95 Objects of this Subdivision

The objects of this Subdivision are:

(a) to properly recognise gains and losses from

financial

arrangements by allocating them to appropriate periods of

time; and

(b) to reduce compliance costs by reflecting commercial

accounting concepts where appropriate; and

When accruals method or realisation method applies

230-100 When accruals method or realisation method applies

When accruals method applies and when realisation method

applies

(1) This section tells you when to apply the accruals method and when

to apply the realisation method if this Subdivision applies to gains

and losses from a

financial arrangement.

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Accruals method--sufficiently certain overall gain or loss at start

time

(2) The accruals method provided for in this Subdivision applies to a

gain or loss you make from a

financial arrangement if:

(a) the gain or loss is an overall gain or loss from the

arrangement; and

(b) the gain or loss is sufficiently certain at the time when you

start to have the arrangement.

Note:

Subsection 230-105(1) tells you when you have a sufficiently certain

overall gain or loss.

Accruals method--sufficiently certain particular gain or loss

(3) The accruals method provided for in this Subdivision also applies

to a gain or loss you make from a

financial arrangement if:

(a) the gain or loss arises from a

financial benefit that you are to

receive or are to provide under the arrangement; and

(b) the gain or loss:

(i) is sufficiently certain at the time when you start to have

the arrangement and before you are to receive or

provide the benefit; or

(ii) becomes sufficiently certain after the time when you

start to have the arrangement and before you are to

receive or provide the benefit; and

applying:

(i) the accruals method provided for in this Subdivision; or

(ii) the realisation method provided for in this Subdivision;

to another gain or loss from the arrangement.

This subsection has effect subject to subsection (4).

Note:

Subsection 230-110(1) tells you when you have a sufficiently certain

gain or loss at a particular time.

(4) Subsection (3) does not apply to a gain or loss that you make from

financial arrangement if:

(a) you are:

(i) an individual; or

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(ii) an entity (other than an individual) that satisfies

subsection 230-455(2), (3) or (4) for the income year in

which you start to have the arrangement; and

(b) the arrangement is a

qualifying security; and

Realisation method--gain or loss not sufficiently certain

(5) The realisation method provided for in this Subdivision applies to a

gain or loss that you make from a

financial arrangement if the

accruals method provided for in this Subdivision does not apply to

that gain or loss.

Note:

Section 230-180 tells you how to apply the realisation method to the

gain or loss.

230-105 Sufficiently certain overall gain or loss

(1) You have a sufficiently certain overall gain or loss from a

financial arrangement at the time when you start to have the

arrangement only if it is sufficiently certain at that time that you

will make an overall gain or loss from the arrangement of:

(a) a particular amount; or

(b) at least a particular amount.

The amount of the gain or loss is the amount referred to in

paragraph (a) or (b).

Note:

Sections 230-70 and 230-75 (about apportionment of financial

benefits) only apply in working out whether you make, or will make, a

gain or loss (and the amount of the gain or loss) when particular

events happen. They do not apply in working out, at the time when

you start to have a financial arrangement, whether it is sufficiently

certain that you will make an overall gain or loss from the

arrangement.

(2) In applying subsection (1), you must:

(a) assume that you will continue to have the

financial

arrangement for the rest of its life; and

(b) have regard to the extent of the risk that a

financial benefit

that you are not sufficiently certain to provide or receive

under the arrangement may reduce the amount of the gain or

loss.

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230-110 Sufficiently certain gain or loss from particular event

(1) You have a sufficiently certain gain or loss from a

financial

arrangement at a particular time if it is sufficiently certain at that

time that you will make a gain or loss from the arrangement of:

(a) a particular amount; or

(b) at least a particular amount;

when one of the following occurs:

financial benefit under the

arrangement or one of your rights under the arrangement

ceases;

(d) you provide a particular financial benefit under the

arrangement or one of your obligations under the

arrangement ceases.

The amount of the gain or loss is the amount referred to in

paragraph (a) or (b).

(2) In applying subsection (1) to work out whether you have a

sufficiently certain gain or loss at a particular time:

(a) have regard to the extent of the risk that a

financial benefit

that you are not sufficiently certain to provide or receive

under the arrangement may reduce the amount of the gain or

loss; and

(b) disregard any financial benefit that has already been taken

into account in working out the amount of a sufficiently

certain overall gain or loss from the

financial arrangement

under subsection 230-105(1) at the time when you started to

have the arrangement; and

benefit) that has already been taken into account in working

out the amount of a sufficiently certain gain or loss from the

financial arrangement under subsection (1).

Note:

Sections 230-70 and 230-75 allow you to apportion financial benefits

provided and financial benefits received in working out the amount of

a gain or loss.

230-115 Sufficiently certain financial benefits

(1) In deciding for the purposes of this Subdivision whether it is

sufficiently certain at a particular time that you will make a gain or

loss from a

financial arrangement, have regard only to:

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Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008

(a)

financial benefits that you are sufficiently certain to receive;

and

(b) financial benefits that you are sufficiently certain to provide.

Note:

The particular time may be the time at which you start to have the

arrangement.

(2) A

financial benefit that you are to receive or provide is to be

treated as one that you are sufficiently certain to receive or to

provide only if:

(a) it is reasonably expected that you will receive or provide the

financial benefit (assuming that you will continue to have the

financial arrangement for the rest of its life); and

(b) at least some of the amount or value of the benefit is, at that

time, fixed or determinable with reasonable accuracy.

(3) In applying subsection (2) to the

financial benefit:

(a) you must have regard to:

(i) the terms and conditions of the

financial arrangement;

and

(ii) accepted pricing and valuation techniques; and

(iii) the economic or commercial substance and effect of the

arrangement; and

(iv) the contingencies that attach to the other financial

benefits that are to be provided or received under the

arrangement; and

(b) you must treat the financial benefit as if it were not

contingent if it is appropriate to do so having regard to the

contingencies that attach to the other financial benefits that

are to be received or provided under the arrangement.

(4) In applying paragraph (2)(b) at a particular time (the reference

time) to a

financial benefit that depends on a variable that is based

on:

(a) an interest rate; or

(b) a rate that solely or primarily reflects the time value of

money; or

(d) a rate that solely or primarily reflects an index prescribed by

the regulations for the purposes of this paragraph;

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you must assume that that variable will continue to have the value

it has at the reference time.

(5) Despite subsection (4), in applying paragraph (2)(b) at a particular

time to a

financial benefit that depends on a rate of change to a

variable that is based on:

(a) a rate that solely or primarily reflects a consumer price index;

(b) a rate that solely or primarily reflects an index prescribed by

the regulations for the purposes of this paragraph;

you must assume that the rate of change to that variable will

continue to be the rate of change that is current at that time.

(6) If subsection (4) or (5) applies to a gain or loss and you are

determining the amount of the gain or loss at a particular time, you

must also assume that that variable will continue to have the value

that it has at that time.

(7) Subsections (4) and (5) do not limit paragraph (2)(b).

(8) If all of the

financial benefits provided and received under the

financial arrangement are denominated in a particular foreign

currency, those financial benefits are not to be translated into your

applicable functional currency for the purposes of applying

subsection (2) to the arrangement.

(9) To avoid doubt:

(a) a

financial benefit that you have already provided at a

particular time is taken to be one that it is, at that time, a

financial benefit that you are sufficiently certain to provide;

and

(b) a financial benefit that you have already received at a

particular time is taken to be one that it is, at that time, a

financial benefit that you are sufficiently certain to receive.

230-120 Financial arrangements with notional principal

(1) This section applies to a

financial arrangement that you have if, in

substance or effect, and having regard to the pricing, terms and

conditions of the arrangement:

(a) the arrangement consists of these things:

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Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008

(i) a leg, the

financial benefits to be provided or received

in respect of which are calculated by reference to, or are

reasonably related to, a notional principal;

(ii) another leg, the financial benefits to be provided or

received in respect of which also are calculated by

reference to, or are reasonably related to, a notional

principal;

(iii) if the arrangement includes one or more other things--

those things; and

(b) when you start to have the arrangement, the value of the

notional principal in relation to one leg is equal to the value

of the notional principal in relation to the other leg; and

provided or received at a time, regardless of whether that

time is different in relation to each leg.

Example: A swap contract.

(2) To avoid doubt, the

financial benefits mentioned in

subparagraphs (1)(a)(i) and (ii), and the notional principal in

relation to each leg, need not actually be provided or received.

(3) In applying this Subdivision to the

financial arrangement:

(a) work out the

financial benefits from the arrangement as

follows:

(i) work out the financial benefits from each thing of which

the arrangement consists separately from the financial

benefits from each other thing of which the arrangement

consists;

(ii) ensure that results under subparagraph (i) are consistent

with the timing and amount of financial benefits to be

actually provided or received under the arrangement;

and

(b) work out your gains and losses from the arrangement as

follows:

(i) work out the gains and losses from each thing of which

the arrangement consists separately from the gains and

losses from each other thing of which the arrangement

consists;

(ii) treat the gains and losses mentioned in subparagraph (i)

for all of those things as your gains and losses from the

arrangement; and

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subparagraph (b)(i), and, if the accruals method applies to the

gain or loss, how it is to be spread and allocated:

(i) if the thing is a leg--take into account the amount of the

notional principal at a time and in a manner that

properly reflects the way in which the financial benefits

in respect of that leg are calculated; and

(ii) if the thing is not a leg--take into account an amount

relevant to the thing at a time and in a manner that

properly reflects the way in which the financial benefits

in respect of that thing are calculated.

The accruals method

230-125 Overvie w of the accruals method

If the accruals method applies to a gain or loss you make from a

financial arrangement:

(a) you use section 230-130 to work out the period over which

the gain or loss is to be spread; and

(b) you use section 230-135 to work out how to allocate the gain

or loss to particular intervals within the period over which the

gain or loss is to be spread; and

straddles 2 income years, you use section 230-170 to work

out how to allocate that part of the gain or loss allocated

between those 2 income years.

230-130 Applying accruals method to work out period over which

gain or loss is to be spread

Period over which overall gain or loss is to be spread

(1) If you have a sufficiently certain overall gain or loss from a

financial arrangement under subsection 230-105(1), the period

over which the gain or loss is to be spread is the period that:

(a) starts when you start to have the arrangement; and

(b) ends when you will cease to have the arrangement.

In applying paragraph (b), you must assume that you will continue

to have the arrangement for the rest of its life.

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(2) However, if you have sufficiently certain gains or losses from the

arrangement that:

(a) can be spread under subsection (3); and

(b) when considered together, represent adequately the overall

gain or loss mentioned in subsection (1);

you may spread those gains or losses in accordance with

subsection (3) instead of spreading the overall gain or loss in

accordance with subsection (1).

Period over which particular gain or loss is to be spread

(3) If you have a sufficiently certain gain or loss from a

financial

arrangement under subsection 230-110(1), the period over which

the gain or loss is to be spread is the period to which the gain or

loss relates. Have regard to the pricing, terms and conditions of the

arrangement in working out the period to which the gain or loss

relates. This subsection has effect subject to subsections (4) and

(5).

(4) The start of the period over which a gain or loss to which

subsection (3) applies is to be spread must:

(a) not start earlier than the time when you start to have the

financial arrangement; and

(b) not start earlier than the start of the income year during which

it becomes sufficiently certain that you will make the gain or

loss.

(5) The end of the period over which a gain or loss to which

subsection (3) applies is to be spread must:

(a) not end later than the time when you will cease to have the

financial arrangement; and

(b) not end later than the end of the income year during which:

(i) the

financial benefit that gives rise to the gain or loss is

to be received or provided; or

(ii) the right or obligation whose

ceasing gives rise to the

gain or loss is to cease.

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230-135 How gain or loss is spread

How to spread gain or loss

(1) This section tells you how to spread a gain or loss to which the

accruals method applies.

Compounding accruals or approximation

(2) The gain or loss is to be spread using:

(a) compounding accruals; or

(b) a method whose results approximate those obtained using the

method referred to in paragraph (a) (having regard to the

length of the period over which the gain or loss is to be

spread).

(3) The following subsections of this section clarify the way in which

the gain or loss is to be spread in accordance with paragraph (2)(a).

Intervals to which parts of gain or loss allocated

(4) The intervals to which parts of the gain or loss are allocated must:

(a) not exceed 12 months; and

(b) all be of the same length.

Paragraph (b) does not apply to the first and last intervals. These

may be shorter than the other intervals.

Fixing of amount and rate for interval

(5) For each interval:

(a) determine a rate of return; and

(b) determine an amount to which you apply the rate of return.

(6) For the purposes of paragraph (5)(b), in determining the amount to

which you apply the rate of return for an interval, have regard to:

(a) the amount or value; and

(b) the timing;

financial benefits that are to be taken into account in working

out the amount of the gain or loss, and were provided or received

by you during the interval.

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Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008

Assumption of continuing to hold arrangement for rest of its life

(7) The gain or loss is to be spread assuming that you will continue to

have the

financial arrangement for the rest of its life.

Regard to be had to financial benefits provided or received in

interval

(8) In allocating the gain or loss to intervals, have regard to the

financial benefits to be provided or received in each of those

intervals.

230-140 Method of spreading gain or loss--effective interest method

(1) This section clarifies that the method mentioned in subsection (2)

of spreading gains and losses is a method covered by paragraph

230-135(2)(b) (methods approximating compounding accruals).

(2) The method is the effective interest method mentioned in

accounting standard AASB 139 (or another accounting standard

prescribed by the regulations for the purposes of this subsection).

(3) However, this section applies to a particular

financial arrangement

you have only if:

(a) in a case where there is a discount or premium under the

arrangement--when you start to have the arrangement, the

annually compounded rate of return applicable to the

discount or premium does not exceed 1%; and

(b) when you start to have the arrangement, neither the

maximum life of the arrangement (as determined under the

terms and conditions of the arrangement) nor the expected

life of the arrangement exceeds:

(i) unless subparagraph (ii) applies--30 years; or

(ii) if the regulations prescribe a different period for the

purposes of this subparagraph--that period; and

financial benefit that you have an obligation to provide

or a right to receive under the arrangement, and that gives

rise to a gain or loss from the arrangement (other than a gain

or loss that is attributable to any discount or premium):

(i) relates to a period not exceeding 12 months; and

(ii) will be provided or received in the period to which it

relates; and

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Note:

Different financial benefits may relate to different periods.

(d) you prepare a financial report for the year in which you start

to have the arrangement; and

(e) that financial report is:

(i) prepared in accordance with paragraph 230-210(2)(a);

and

(ii) audited in accordance with paragraph 230-210(2)(b);

and

(f) all gains and losses from the arrangement to which the

accrual method applies are spread in a way that is consistent

with that financial report.

(4) For the purposes of paragraph (3)(a), assume that you will continue

to have the arrangement for the rest of its expected life.

230-145 Application of effective inte rest method where differing

income and accounting years

(1) This section applies if:

(a) you prepare a financial report for a year (the first year); and

(b) you prepare a financial report for the subsequent year (the

second year); and

second year; and

(d) both the financial report for the first year and the financial

report for the second year are:

(i) prepared in accordance with paragraph 230-210(2)(a);

and

(ii) audited in accordance with paragraph 230-210(2)(b);

and

(e) the auditor's reports are unqualified for both the financial

report for the first year and the financial report for the second

year.

(2) For the purposes of paragraph 230-140(3)(d), treat yourself as

having prepared a financial report for the income year in which

you start to have the arrangement.

(3) Work out the gain or loss you make from the arrangement for the

income year as follows:

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(a) firstly, work out the gain or loss you make from the

arrangement for the first year in accordance with paragraph

230-140(3)(f) (treating the first year as an income year);

(b) next, work out how much of the gain or loss mentioned in

paragraph (a) is attributable to the income year in accordance

with subsection (4);

arrangement for the second year in accordance with

paragraph 230-140(3)(f) (treating the second year as an

income year);

(d) next, work out how much of the gain or loss mentioned in

paragraph (c) is attributable to the income year in accordance

with subsection (4);

(e) next:

(i) if the amounts worked out under paragraphs (b) and (d)

are both gains--add them together to work out the gain

from the arrangement for the income year; or

(ii) if the amounts worked out under paragraphs (b) and (d)

are both losses--add them together to work out the loss

from the arrangement for the income year; or

(iii) if one of the amounts worked out under paragraphs (b)

and (d) is a loss and the other is a gain--subtract the

loss from the gain. If the result is positive, this is the

gain from the arrangement for the income year. If the

result is negative, this is the loss from the arrangement

for the income year.

(4) For the purposes of paragraphs (3)(b) and (d), work out how much

of the gain or loss is attributable to the income year by:

(a) using a methodology that is reasonable; and

(b) using the same methodology for the first and second years.

(5) For the purposes of paragraph (4)(a), treat a methodology that

attributes the gain or loss on a pro-rata basis as not being

reasonable.

230-150 Election for portfolio treatment of fees

(1) You may make an election for an income year under this section if:

(a) you prepare a financial report for the income year in

accordance with:

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(i) the

accounting standards; or

(ii) if those standards do not apply to the preparation of the

financial report--comparable accounting standards

made under a

foreign law that apply to the preparation

of the financial report under a foreign law; and

(b) the financial report is audited in accordance with:

(i) the

auditing standards; or

(ii) if the auditing standards do not apply to the auditing of

the financial report--comparable auditing standards

made under a foreign law.

(2) An election under this section is irrevocable.

230-155 Election for portfolio treatment of fees where differing

income and accounting years

(1) This section applies if:

(a) you prepare a financial report for a year (the first year); and

(b) you prepare a financial report for the subsequent year (the

second year); and

second year; and

(d) both the financial report for the first year and the financial

report for the second year are:

(i) prepared in accordance with paragraph 230-150(1)(a);

and

(ii) audited in accordance with paragraph 230-150(1)(b);

and

(e) the auditor's reports are unqualified for both the financial

report for the first year and the financial report for the second

year.

(2) Treat yourself as eligible to make an election for the income year

under subsection 230-150(1).

(3) Work out the gain or loss you make from the arrangement for the

income year as follows:

(a) firstly, work out the gain or loss you make from the

arrangement for the first year in accordance with subsections

230-160(3) and (4) or 230-165(3) and (4) (treating the first

year as an income year);

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(b) next, work out how much of the gain or loss mentioned in

paragraph (a) is attributable to the income year in accordance

with subsection (4);

arrangement for the second year in accordance with

subsections 230-160(3) and (4) or 230-165(3) and (4)

(treating the second year as an income year);

(d) next, work out how much of the gain or loss mentioned in

paragraph (c) is attributable to the income year in accordance

with subsection (4);

(e) next:

(i) if the amounts worked out under paragraphs (b) and (d)

are both gains--add them together to work out the gain

from the arrangement for the income year; or

(ii) if the amounts worked out under paragraphs (b) and (d)

are both losses--add them together to work out the loss

from the arrangement for the income year; or

(iii) if one of the amounts worked out under paragraphs (b)

and (d) is a loss and the other is a gain--subtract the

loss from the gain. If the result is positive, this is the

gain from the arrangement for the income year. If the

result is negative, this is the loss from the arrangement

for the income year.

(4) For the purposes of paragraphs (3)(b) and (d), work out how much

of the gain or loss is attributable to the income year by:

(a) using a methodology that is reasonable; and

(b) using the same methodology for the first and second years.

(5) For the purposes of paragraph (4)(a), treat a methodology that

attributes the gain or loss on a pro-rata basis as not being

reasonable.

230-160 Portfolio treatment of fees

(1) This section applies in relation to a

financial arrangement if:

(a) you have made an election under section 230-150 in an

income year; and

(b) you start to have the financial arrangement in that income

year or a later income year; and

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financial arrangements; and

(d) a gain or loss to which subsection 230-130(3) applies arises

in part from fees in respect of the

financial arrangement; and

(e) the fees play an integral role in determining the amount of the

gain or loss; and

(f) the net amount of the fees is not expected to be significant

relative to an overall gain or loss from the arrangement.

(2) For the purposes of this Division, split the gain or loss mentioned

in paragraph (1)(d) as follows:

(a) to the extent that it arises from the fees, treat it as a gain or

loss from the

financial arrangement (the fees gain or loss) to

which subsection 230-130(3) applies;

(b) to the extent that it does not arise from the fees, treat it as a

separate gain or loss from the financial arrangement to which

subsection 230-130(3) applies.

Note:

The separate gain or loss mentioned in paragraph (b) may itself be

split under subsection 230-165(2) (premium/discount gain or loss).

Determination of period for fees gain or loss

(3) The period over which the fees gain or loss is to be spread is the

period that you determine to be the expected life of the portfolio,

if:

(a) the basis on which you determine the period accords with the

spreading of the fees gain or loss for the purposes of the

profit or loss statement of the financial report mentioned in

paragraph 230-150(1)(a); and

(b) the basis on which you determine the period is set and

recorded before any fees in respect of the

financial

arrangement fall due; and

(d) the period is reasonable in the circumstances.

Spreading the fees gain or loss

(4) The method by which the fees gain or loss is to be spread is the

method that you determine, if:

(a) the basis on which you determine the method accords with

the spreading of the fees gain or loss for the purposes of the

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profit or loss statement of the financial report mentioned in

paragraph 230-150(1)(a); and

(b) the method is determined before any fees in respect of the

financial arrangement fall due; and

(d) the method is reasonable in the circumstances.

(5) To avoid doubt, subsections (3) and (4) apply despite

sections 230-130 and 230-135.

230-165 Portfolio treatment of premiums and discounts for

acquiring portfolio

(1) This section applies in relation to a

financial arrangement if:

(a) you have made an election under section 230-150 in an

income year; and

(b) you start to have the financial arrangement in that income

year or a later income year; and

financial arrangements; and

(d) a gain or loss to which subsection 230-130(3) applies arises

in part from a premium or discount in starting to have the

portfolio; and

(e) the gain or loss is not expected to be significant relative to

the amount of the gain or loss on the portfolio.

(2) For the purposes of this Division, split the gain or loss mentioned

in paragraph (1)(d) as follows:

(a) to the extent that it arises from the premium or discount, treat

it as a gain or loss from the

financial arrangement (the

premium/discount gain or loss) to which subsection

230-130(3) applies;

(b) to the extent that it does not arise from the premium or

discount, treat it as a separate gain or loss from the financial

arrangement to which subsection 230-130(3) applies.

Note:

The separate gain or loss mentioned in paragraph (b) may itself be

split under subsection 230-160(2) (portfolio fees gain or loss).

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Determination of period for premium/discount gain or loss

(3) The period over which the premium/discount gain or loss is to be

spread is the period that you determine to be the expected life of

the portfolio, if:

(a) the basis on which you determine the period accords with the

spreading of the premium/discount gain or loss for the

purposes of the profit or loss statement of the financial report

mentioned in paragraph 230-150(1)(a); and

(b) the basis on which you determine the period is set and

recorded before you start to have the

financial arrangement;

and

(d) the period is reasonable in the circumstances.

Spreading the premium/discount gain or loss

(4) The method by which the premium/discount gain or loss is to be

spread is the method that you determine, if:

(a) the basis on which you determine the method accords with

the spreading of the premium/discount gain or loss for the

purposes of the profit or loss statement of the financial report

mentioned in paragraph 230-150(1)(a); and

(b) the method is determined before you start to have the

financial arrangement; and

(d) the method is reasonable in the circumstances.

(5) To avoid doubt, subsections (3) and (4) apply despite

sections 230-130 and 230-135.

230-170 Allocating gain or loss to income years

(1) You are taken, for the purposes of section 230-15, to make, for an

income year, a gain or loss equal to a part of a gain or loss if:

(a) that part of the gain or loss is allocated to an interval under

section 230-135; and

(b) that interval falls wholly within that income year.

(2) If:

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(a) a part of a gain or loss is allocated to an interval under

section 230-135; and

(b) that interval straddles 2 income years;

you are taken, for purposes of section 230-15, to make a gain or

loss equal to so much of that part of the gain or loss as is allocated

between those income years on a reasonable basis.

(3) If:

(a) a

head company of a

consolidated group or

MEC group

has a

financial arrangement; and

(b) a subsidiary member of the group ceases to be a member of

the group at a particular time (the leaving time); and

longer has the arrangement because the subsidiary member

ceased to be a member of the group;

an income year of the group is taken, for the purposes of applying

this section to the group and the arrangement, to end at the leaving

time.

230-175 Running balancing adjustments

Overestimate of financial benefit to be received

(1) You are taken for the purposes of this Division to make a loss from

financial arrangement if:

(a) a provision of this Subdivision has applied on the basis that

you were sufficiently certain, at a particular time, to receive a

financial benefit of, or of at least, a particular amount under

the arrangement; and

(b) when you receive the benefit (or the time comes for you to

receive the benefit), the amount you receive (or are to

receive) is nil or is less than the amount estimated.

The amount of the loss is equal to the difference between the

amount estimated and the amount you receive (or are to receive).

You are taken to have made the loss for the income year in which

you receive the benefit (or in which the time comes for you to

receive the benefit).

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Underestimate of financial benefit to be received

(2) You are taken for the purposes of this Division to make a gain

from a

financial arrangement if:

(a) a provision of this Subdivision has applied on the basis that

you were sufficiently certain at a particular time to receive a

financial benefit of, or of at least, a particular amount under

the arrangement; and

(b) when you receive the benefit, or the time comes for you to

receive the benefit, the amount you receive, or are to receive,

is more than the amount estimated.

The amount of the gain is equal to the difference between the

amount estimated and the amount you receive or are to receive.

You are taken to have made that gain in the income year in which

you receive the benefit or in which the time comes for you to

receive the benefit.

Overestimate of financial benefit to be provided

(3) You are taken for the purposes of this Division to make a gain

from a

financial arrangement if:

(a) a provision of this Subdivision has applied on the basis that

you were sufficiently certain at a particular time to provide a

financial benefit of, or of at least, a particular amount under

the arrangement; and

(b) when you provide the benefit, or the time comes for you to

provide the benefit, the amount you provide, or are to

provide, is nil or is less than the amount estimated.

The amount of the gain is equal to the difference between the

amount estimated and the amount you provide or are to provide.

You are taken to have made that gain in the income year in which

you provide the benefit or in which the time comes for you to

provide the benefit.

Underestimate of financial benefit to be provided

(4) You are taken for the purposes of this Division to make a loss from

financial arrangement if:

(a) a provision of this Subdivision has applied on the basis that

you were sufficiently certain at a particular time to provide a

financial benefit of, or of at least, a particular amount under

the arrangement; and

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(b) when you provide the benefit, or the time comes for you to

provide the benefit, the amount you are to provide is more

than the estimated amount referred to in paragraph (a).

The amount of the loss is equal to the difference between the

amount estimated and the amount you are to provide. You are

taken to have made that loss in the income year in which you

provide the benefit or in which the time comes for you to provide

the benefit.

Realisation method

230-180 Realisation method

(1) If a gain or loss is to be taken into account using the realisation

method, you are taken, for the purposes of section 230-15, to make

the gain or loss for the income year in which the gain or loss

occurs.

Note:

Sections 230-70 and 230-75 allow you to apportion financial benefits

provided and financial benefits received in working out the amount of

the gain or loss.

(2) For the purposes of subsection (1), a gain or loss from a

financial

arrangement is taken to occur at the time at which the last of the

financial benefits taken into account in determining the amount of

the gain or loss:

(a) is provided; or

(b) if the financial benefit is not provided at the time when it is

due to be provided under the arrangement and it is reasonable

to expect that the financial benefit will be provided--is due

to be provided.

This subsection has effect subject to subsection (3).

(3) For the purposes of subsection (1), you make a loss from a

financial arrangement from writing off, as a bad debt, a right to a

financial benefit (or a part of a financial benefit) if:

(a) the financial benefit was taken into account in working out

the amount of a gain from the arrangement and the gain has

been included in your assessable income under this Division;

(b) the right is one in respect of money that you lent in the

ordinary course of your

business of lending money; or

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business of lending money.

(4) The loss referred to in subsection (3) occurs when you write off the

right to the

financial benefit (or the part of the financial benefit) as

a bad debt.

(5) The amount of the loss referred to in subsection (3) is:

(a) if paragraph (3)(a) applies--so much of the gain referred to

in that paragraph as is reasonably attributable to the

financial benefit (or the part of the financial benefit); or

(b) if paragraph (3)(b) applies--the amount of the financial

benefit (or the part of the financial benefit); or

benefit (or the part of the financial benefit) but only up to the

value of the financial benefit you provided to acquire the

right to the financial benefit (or the part of the financial

benefit).

(6) For the purposes of this Act, a deduction for the loss referred to in

subsection (3) is to be treated as a deduction of a bad debt.

Note:

Various provisions in this Act and the Income Tax Assessment Act

1936 restrict the availability of deductions for bad debts and make

provision in relation to the recoupment of amounts in relation to bad

debts that have been written off. These provisions are set out in

subsection 25-35(5).

Reassessment and re-estimation

230-185 Reassessment

(1) You must make a fresh assessment of which gains and losses from

financial arrangement the accruals method should apply to, and

which gains and losses from that arrangement the realisation

method should apply to, if:

(a) the accruals method, or the realisation method, provided for

in this Subdivision applies to gains and losses from the

arrangement; and

(b) there is a material change to:

(i) the terms and conditions of the arrangement; or

(ii) circumstances that affect the arrangement.

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(2) Without limiting subsection (1), the following changes are material

changes to the terms and conditions of, or circumstances that

affect, the

financial arrangement:

(a) a change to the terms or conditions of the arrangement in a

way that alters the essential nature of the arrangement (for

example, by altering it from a

debt interest to an

equity

interest or from an equity interest to a debt interest);

(b) a change to the terms or conditions of the arrangement in a

way that materially affects the contingencies on which

significant obligations and rights under the arrangement are

dependent (for example, by introducing such a contingency

or removing such a contingency);

(i) materially affects significant obligations and rights

under the arrangement; and

(ii) was previously dependent on a contingency;

no longer dependent on a contingency (because, for example,

only one of a number of previously possible contingencies is

realised);

(d) a change to:

(i) the terms on which credit is to be provided to an entity

that is not a party to the arrangement; or

(ii) the credit rating of an entity that is not a party to the

arrangement;

if a significant obligation or right under the arrangement is

dependent on that credit being provided or that rating being

maintained;

(e) if the arrangement is, or includes, a financial asset or

financial liability and you prepare your financial reports in

accordance with:

(i) the

accounting standards; or

(ii) if those standards do not apply to the preparation of the

financial report--comparable accounting standards

made under a

foreign law that apply to the preparation

of the financial report under a foreign law;

a change to the terms or conditions of, or circumstances that

affect, the arrangement that are sufficient for the financial

asset or financial liability to be treated as impaired for the

purposes of those standards.

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(3) You do not need to make a reassessment under this section merely

because of a change in the fair value of the

financial arrangement.

230-190 Re-estimation

When re-estimation necessary

(1) You re-estimate a gain or loss from a

financial arrangement under

subsection (5) if:

(a) the accruals method applies to the gain or loss; and

(b) circumstances arise that materially affect:

(i) the amount or value; or

(ii) the timing;

financial benefits that were taken into account in working

out the amount of the gain or loss; and

section 230-200; and

(d) in a case where the gain or loss is spread using the method

referred to in paragraph 230-135(2)(b) in accordance with

section 230-140 (effective interest method)--the maximum

life of the arrangement (as determined under the terms and

conditions of the arrangement) is more than 12 months.

(2) If subsection (1) applies, you must re-estimate the gain or loss:

(a) unless paragraph (b) applies--as soon as reasonably

practicable after you become aware of the circumstances

referred to in paragraph (1)(b); or

(b) if paragraph (1)(d) is satisfied and the terms and conditions

of the

financial arrangement provide for reset dates to occur

no more than 12 months apart--at the relevant reset date.

(3) Without limiting subsection (1), the following are circumstances of

the kind referred to in paragraph (1)(b):

(a) a material change in market conditions that are relevant to the

amount or value of the

financial benefits to be received or

provided under the

financial arrangement;

(b) cash flows that were previously estimated becoming known

and the difference between the cash flows that become

known and the cash flows that were previously estimates is

not insignificant;

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arrangement is written off as a bad debt;

(d) you have made a reassessment under section 230-185 in

relation to gains or losses under the arrangement and you

have determined on the reassessment under that section that

the accruals method should continue to apply to those gains

or losses.

(4) You do not re-estimate the gain or loss from a

financial

arrangement under subsection (5) merely because of a change in

the credit rating, or the creditworthiness, of a party or parties to the

arrangement.

Nature of re-estimation

(5) Making a re-estimation in relation to a gain or loss under this

subsection involves:

(a) a fresh determination of the amount of the gain or loss; and

(b) a reapplication of the accruals method to the redetermined

gain or loss to make a fresh allocation of the part of the

redetermined gain or loss that has not already been allocated

to intervals ending before the re-estimation is made to

intervals ending after the re-estimation is made.

Basis for re-estimation

(6) You may make the fresh allocation of the gain or loss under

subsection (5) on these bases:

(a) if you satisfy subsection (7) in relation to the

financial

arrangement--by maintaining the rate of return being used

and adjusting the amount to which you apply the rate of

return to the present value of the estimated future cash flows

discounted at the maintained rate of return;

(b) in any case--by adjusting the rate of return and maintaining

the amount to which the adjusted rate of return is to be

applied.

The object to be achieved by both bases is to allow you to bring the

remainder of the gain or loss based on the new estimates properly

to account over the remainder of the period over which you spread

the gain or loss.

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Note:

The amount referred to in paragraph (b) is the amount to which the

previous rate of return was being applied immediately before the

re-estimation.

(7) You satisfy this subsection in relation to a

financial arrangement if

every re-estimation you make under subsection (5) in relation to a

gain or loss from the arrangement is made in accordance with:

(a) financial reports of the kind referred to in paragraph

230-395(2)(a) that are audited as referred to in paragraph

230-395(2)(b) (regardless of whether Subdivision 230-F

(reliance on financial reports method) are to apply to a

particular financial arrangement); and

(b)

accounting standard AASB 139 (or another accounting

standard prescribed by the regulations for the purposes of this

paragraph).

(8) The following subsections apply if the re-estimation arises because

of an impairment (within the meaning of the

accounting

standards) of:

(a) the

financial arrangement; or

(b) a financial asset or financial liability that forms part of the

arrangement.

(9) Despite paragraph (6)(a), you must make the fresh allocation in

accordance with paragraph (6)(b).

(10) To the extent that the impairment results in you making a loss for

an income year under section 230-15, you cannot deduct that loss

for the income year.

230-195 Balancing adjustment if rate of return maintained on

re-estimation

(1) If you make a fresh allocation of the gain or loss on the basis

referred to in paragraph 230-190(6)(a), you must make the

following balancing adjustment:

(a) if you re-estimate a gain and the amount to which you apply

the rate of return increases--you make a gain from the

financial arrangement, for the income year in which you

make the re-estimation, equal to the amount of the increase;

(b) if you re-estimate a gain and the amount to which you apply

the rate of return decreases--you make a loss from the

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arrangement, for the income year in which you make the

re-estimation, equal to the amount of the decrease;

the rate of return increases--you make a loss from the

arrangement, for the income year in which you make the

re-estimation, equal to the amount of the increase;

(d) if you re-estimate a loss and the amount to which you apply

the rate of return decreases--you make a gain from the

arrangement, for the income year in which you make the

re-estimation, equal to the amount of the decrease.

(2) Subsection (3) applies if:

(a) the re-estimation is made wholly or partly on the basis that

you have written off, as a bad debt, a right to receive a

financial benefit (or a part of a financial benefit); and

(b) the right:

(i) is not one in respect of money that you lent in the

ordinary course of your

business of lending money;

and

(ii) is not one that you bought in the ordinary course of your

business of lending money.

(3) The balancing adjustment to be made under paragraph (1)(b), to

the extent that it relates to the writing off of the bad debt, must not

exceed so much of the gain in relation to the

financial

arrangement as:

(a) has been assessed under this Division; and

(b) is reasonably attributable to the

financial benefit (or the part

of the financial benefit).

(4) Subsection (5) applies if:

(a) the re-estimation is made wholly or partly on the basis that

you have written off, as a bad debt, a right to receive a

financial benefit; and

(b) the right is one that you bought in the ordinary course of your

business of lending money.

(5) The balancing adjustment to be made under paragraph (1)(b), to

the extent that it relates to the writing off of the bad debt, must not

exceed the value of the

financial benefit you provided to acquire

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the right to the financial benefit (or the part of the financial

benefit).

(6) For the purposes of this Act, a deduction for the balancing

adjustment referred to in subsection (3) is to be treated as a

deduction of a bad debt.

Note:

Various provisions in this Act and the Income Tax Assessment Act

1936 restrict the availability of deductions for bad debts and make

provision in relation to the recoupment of amounts in relation to bad

debts that have been written off. These provisions are set out in

subsection 25-35(5).

230-200 Re-estimation if balancing adjustment on partial disposal

Re-estimation if balancing adjustment on partial disposal

(1) You also re-estimate a gain or loss from a

financial arrangement

under subsection (2) if:

(a) the accruals method applies to the gain or loss; and

(b) a balancing adjustment is made in relation to the arrangement

under Subdivision 230-G because you transfer to another

entity:

(i) a proportionate share of all of your rights and/or

obligations under the arrangement; or

(ii) a right or obligation that you have under the

arrangement to a specifically identified

financial

benefit; or

(iii) a proportionate share of a right or obligation that you

have under the arrangement to a specifically identified

financial benefit.

You must re-estimate the gain or loss as soon as reasonably

practicable after the transfer occurs.

Nature of re-estimation

(2) Making a re-estimation in relation to a gain or loss under this

subsection involves:

(a) a fresh determination of the amount of the gain or loss

disregarding:

(i)

financial benefits; and

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(ii) amounts of the gain or loss that have already been

allocated to intervals ending before the re-estimation is

made;

to the extent to which they are reasonably attributable to the

proportionate share, or the right or obligation, referred to in

paragraph (1)(b); and

(b) a reapplication of the accruals method to the redetermined

gain or loss to make a fresh allocation of the part of that gain

or loss that has not already been allocated to intervals ending

before the re-estimation is made to intervals ending after the

re-estimation is made.

In applying paragraph (a), disregard subsections 230-70(4) and

230-75(4).

Basis for re-estimation

(3) You make the fresh allocation of the gain or loss under

subsection (2) by maintaining the rate of return being used and

adjusting the amount to which you apply the rate of return to the

present value of the estimated future cash flows discounted at the

maintained rate of return. The object to be achieved by the fresh

allocation is to allow you to bring the redetermined gain or loss

properly to account over the remainder of the period over which

you spread the gain or loss.

Subdivision 230-C--Fair value method

Table of sections

230-205 Objects of this Subdivision

230-210 Fair value election

230-215 Fair value election where differing income and accounting years

230-220 Financial arrangements to which fair value election applies

230-225 Financial arrangements to which election does not apply

230-230 Applying fair value method to gains and losses

230-235 Splitting financial arrangements into 2 financial arrangements

230-240 When election ceases to apply

230-245 Balancing adjustment if election ceases to apply

230-205 Objects of this Subdivision

The objects of this Subdivision are:

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(a) to allow you to align the tax treatment of gains and losses

from

financial arrangements with the accounting treatment

that applies where assets and liabilities are classified or

designated as at fair value through profit or loss; and

(b) to facilitate efficient price-making; and

an inappropriate tax benefit.

230-210 Fair value election

Election

(1) You may make a fair value election under this section if you are

eligible under subsection (2) to make the election for the income

year in which you make the election.

Eligibility to make fair value election for an income year

(2) You are eligible to make a fair value election for an income year

if:

(a) you prepare a financial report for that income year in

accordance with:

(i) the

accounting standards; or

(ii) if those standards do not apply to the preparation of the

financial report--comparable accounting standards

made under a

foreign law that apply to the preparation

of the financial report under a foreign law; and

(b) the financial report is audited in accordance with:

(i) the

auditing standards; or

(ii) if the auditing standards do not apply to the auditing of

the financial report--comparable auditing standards

made under a foreign law.

Note:

Section 230-500 allows regulations to be made specifying particular

foreign accounting and auditing standards as ones that are to be treated

as comparable with Australian accounting and auditing standards for

the purposes of this Division.

Election irrevocable

(3) A

fair value election is irrevocable.

Note:

The election may cease to have effect, or cease to apply to a particular

financial arrangement, under section 230-240.

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230-215 Fair value election where diffe ring income and accounting

years

(1) This section applies if:

(a) you prepare a financial report for a year (the first year); and

(b) you prepare a financial report for the subsequent year (the

second year); and

second year; and

(d) both the financial report for the first year and the financial

report for the second year are:

(i) prepared in accordance with paragraph 230-210(2)(a);

and

(ii) audited in accordance with paragraph 230-210(2)(b);

and

(e) the auditor's reports are unqualified for both the financial

report for the first year and the financial report for the second

year.

(2) Treat yourself as eligible to make an election for the income year

under subsection 230-210(2).

(3) Work out the gain or loss you make from the

financial

arrangement for the income year as follows:

(a) firstly, work out the gain or loss you make from the

arrangement for the first year in accordance with

section 230-230 (treating the first year as an income year);

(b) next, work out how much of the gain or loss mentioned in

paragraph (a) is attributable to the income year in accordance

with subsection (4);

arrangement for the second year in accordance with

section 230-230 (treating the second year as an income year);

(d) next, work out how much of the gain or loss mentioned in

paragraph (c) is attributable to the income year in accordance

with subsection (4);

(e) next:

(i) if the amounts worked out under paragraphs (b) and (d)

are both gains--add them together to work out the gain

from the arrangement for the income year; or

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(ii) if the amounts worked out under paragraphs (b) and (d)

are both losses--add them together to work out the loss

from the arrangement for the income year; or

(iii) if one of the amounts worked out under paragraphs (b)

and (d) is a loss and the other is a gain--subtract the

loss from the gain. If the result is positive, this is the

gain from the arrangement for the income year. If the

result is negative, this is the loss from the arrangement

for the income year.

(4) For the purposes of paragraphs (3)(b) and (d), work out how much

of the gain or loss is attributable to the income year by:

(a) using a methodology that is reasonable; and

(b) using the same methodology for the first and second years.

(5) For the purposes of paragraph (4)(a), treat a methodology that

attributes the gain or loss on a pro-rata basis as not being

reasonable.

230-220 Financial arrangements to which fair value election applies

(1) A

fair value election applies in relation to

financial arrangements

that:

(a) are

Division 230 financial arrangements; and

(b) are recognised in financial reports of the kind referred to in

paragraph 230-210(2)(a) that are audited, or required to be

audited, as referred to in paragraph 230-210(2)(b); and

as a result of a choice you make) by:

(i) the

accounting standards; or

(ii) if those standards do not apply to the preparation of the

financial report--comparable accounting standards that

apply to the preparation of the financial report under a

foreign law;

to classify or designate, in the financial reports, as at fair

value through profit or loss; and

(d) you start to have in the income year in which you make the

election or in a later income year.

This subsection has effect subject to section 230-225.

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(2) If, but for this subsection, paragraphs (1)(b) and (c) would not be

satisfied in relation to a

financial arrangement because the

arrangement is an intra-group transaction for the purposes of:

(a)

accounting standard AASB 127 (or another accounting

standard prescribed by the regulations for the purposes of this

paragraph); or

(b) if that standard does not apply to the preparation of the

financial report--a comparable accounting standard that

applies to the preparation of the financial report under a

foreign law;

paragraphs (1)(b) and (c) are taken to be satisfied in relation to the

arrangement.

Note:

Financial arrangements between members of a consolidated group or

MEC group are not covered by this subsection because the single

entity rule in subsection 701-1(1) operates to treat them as not being

financial arrangements for the purposes of this Division.

(3) If:

(a) the

financial arrangement would not be a financial

arrangement if the following provisions were disregarded:

(i) Division 9A of Part III of the Income Tax Assessment

Act 1936 (which deals with offshore banking units);

(ii) Part IIIB of that Act (which deals with Australian

branches of foreign banks etc.); and

(b) paragraphs (1)(b) and (c) would be satisfied in relation to the

financial arrangement if the arrangement had been between 2

separate entities; and

fair value election is made by:

(i) if section 121EB of the Income Tax Assessment Act

1936 applies--the OBU mentioned in that section

(disregarding the operation of that section); or

(ii) if section 160ZZW of that Act applies--the bank

mentioned in that section (disregarding the operation of

that section);

paragraphs (1)(b) and (c) are taken to be satisfied in relation to the

arrangement.

230-225 Financial arrangements to which election does not apply

(1) A

fair value election does not apply to a

financial arrangement if:

(a) the arrangement is an

equity interest; and

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(b) you are the issuer of the equity interest.

(2) A

fair value election does not apply to a

financial arrangement if:

(a) you are:

(i) an individual; or

(ii) an entity (other than an individual) that satisfies

subsection 230-455(2), (3) or (4) for the income year in

which you start to have the arrangement; and

(b) the arrangement is a

qualifying security; and

(3) A

fair value election does not apply to a

financial arrangement if:

(a) the election is made by the

head company of a

consolidated

group or

MEC group; and

(b) the election specifies that the election is not to apply to

financial arrangements in relation to

life insurance business

carried on by a member of the consolidated group or MEC

group; and

business carried on by a member of the consolidated group or

MEC group.

(4) A

fair value election does not apply to a

financial arrangement if

the arrangement is associated with a business of a kind specified in

regulations made for the purposes of this subsection.

230-230 Applying fair value method to gains and losses

(1) If a

fair value election applies to your

financial arrangement, the

gain or loss you make from the arrangement for an income year is:

(a) the gain or loss that the standards referred to in paragraph

230-210(2)(a) require you to recognise in profit or loss for

the income year from the asset or liability mentioned in

paragraph 230-220(1)(c); or

(b) if subsection 230-220(2) applies to the arrangement--the

gain or loss that the standards referred to in paragraph

230-220(1)(c) would have required you to recognise in profit

or loss for the year from the asset or liability mentioned in

paragraph 230-220(1)(c) if the arrangement had not been an

intra-group transaction for the purposes of the standard

referred to in paragraph 230-220(2)(b); or

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gain or loss that the standards referred to in paragraph

230-220(1)(c) would have required you to recognise in profit

or loss for the year from the asset or liability mentioned in

paragraph 230-220(1)(c) if the arrangement had been

between 2 separate entities.

Note:

Subsection 230-40(7) provides that an election under

Subdivision 230-E (hedging financial arrangements method) or

Subdivision 230-F (method of relying on financial reports) may

override a fair value election.

(2) Subsection (3) applies if:

(a) a

head company of a

consolidated group or

MEC group

has a

financial arrangement; and

(b) a

fair value election applies to the arrangement; and

the group at a particular time (the leaving time); and

(d) immediately after the leaving time, the head company no

longer has the arrangement because the subsidiary member

ceased to be a member of the group.

(3) The gain or loss the group makes from the arrangement for the

income year in which the leaving time occurs is taken to be the

gain or loss that the standards referred to in paragraph

230-210(2)(a) would require the group to recognise as at fair value

through profit or loss for the income year from the asset or liability

mentioned in paragraph 230-220(1)(c) if:

(a) the circumstances that existed in relation to the arrangement

(including its value) immediately before the leaving time had

continued to exist until the end of the income year; and

(b) any circumstances that arise in relation to the financial

arrangement after the leaving time were disregarded.

230-235 Splitting financial arrangements into 2 financial

arrange ments

(1) If:

(a) a

financial arrangement is constituted only in part by an

asset or liability mentioned in paragraph 230-220(1)(c); and

(b) a

fair value election would apply to the arrangement if it

were constituted solely by that asset or liability;

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the provisions of this Division (other than this section) apply to the

arrangement as if it were instead 2 separate financial arrangements.

(2) The 2 separate

financial arrangements are:

(a) one consisting of the part referred to in paragraph (1)(a); and

(b) one consisting of the remaining part.

230-240 When election ceases to apply

(1) A

fair value election ceases to have effect from the start of an

income year if you cease to be eligible under subsection

230-210(2) to make the fair value election for that income year.

(2) Subsection (1) does not prevent you from making a new

fair value

election at a later time if you become, at that later time, eligible

under subsection 230-210(2) to make a fair value election for an

income year.

Note:

The new election will only apply to financial arrangements you start to

have after the start of the income year in which the new election is

made.

(3) A

fair value election ceases to apply to a particular

financial

arrangement from the start of an income year if the arrangement

ceases to satisfy a requirement of paragraph 230-220(1)(b) or (c)

during that income year.

(4) If the election ceases to apply to a particular

financial arrangement

under subsection (3), the election cannot subsequently reapply to

that arrangement (even if the requirements of paragraphs

230-220(1)(b) and (c) are satisfied once more in relation to the

arrangement).

230-245 Balancing adjustment if election ceases to apply

(1) You must make balancing adjustments under subsection (2) if a

fair value election ceases to have effect under subsection

230-240(1).

(2) The balancing adjustments under this subsection are the balancing

adjustments you would make under Subdivision 230-G for each of

the

financial arrangements to which the election applied if you

disposed of the arrangement for its fair value when the election

ceases to have effect.

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(3) You must make a balancing adjustment under subsection (4) if a

fair value election ceases to apply to a particular

financial

arrangement under subsection 230-240(3).

(4) The balancing adjustment under this subsection is the balancing

adjustment you would make under Subdivision 230-G if you

disposed of the

financial arrangement for its fair value when the

election ceases to apply to the arrangement.

(5) If a balancing adjustment is made under subsection (2) or (4) in

relation to a

financial arrangement, you are taken, for the purposes

of this Division, to have reacquired the arrangement at its fair value

immediately after the election ceased to have effect or ceased to

apply to the arrangement.

Subdivision 230-D--Foreign exchange retranslation method

Table of sections

230-250 Objects of this Subdivision

230-255 Foreign exchange retranslation election

230-260 Foreign exchange retranslation election where differing income and

accounting years

230-265 Financial arrangements to which general election applies

230-270 Financial arrangements to which general election does not apply

230-275 Balancing adjustment for election in relation to qualifying forex accounts

230-280 Applying foreign exchange retranslation method to gains and losses

230-285 When election ceases to apply

230-290 Balancing adjustment if election ceases to apply

230-250 Objects of this Subdivision

The objects of this Subdivision are:

(a) to allow you to align the tax treatment of gains and losses

from foreign exchange rate changes with the accounting

treatment of profits and losses from such changes; and

(b) to achieve this without allowing you to obtain an

inappropriate tax benefit.

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230-255 Foreign exchange retranslation election

General election

(1) You may make a foreign exchange retranslation election under

this subsection if you are eligible under subsection (2) to make the

election for the income year in which you make the election.

Eligibility to make election

(2) You are eligible to make a

foreign exchange retranslation election

for an income year if:

(a) you prepare a financial report for that income year in

accordance with:

(i) the

accounting standards; or

(ii) if those standards do not apply to the preparation of the

financial report--comparable accounting standards

made under a

foreign law that apply to the preparation

of the financial report under a foreign law; and

(b) the financial report is audited in accordance with:

(i) the

auditing standards; or

(ii) if the auditing standards do not apply to the auditing of

the financial report--comparable auditing standards

made under a foreign law.

Note:

Section 230-500 allows regulations to be made specifying particular

foreign accounting and auditing standards as ones that are to be treated

as comparable with Australian accounting and auditing standards for

the purposes of this Division.

Election in relation to qualifying forex accounts

(3) You may make a foreign exchange retranslation election under

this subsection in relation to a

financial arrangement if:

(a) the arrangement is a

qualifying forex account; and

(b) you have not made a

foreign exchange retranslation election

under subsection (1) that applies to the account.

You may make the election even if you start to have the

arrangement before you make the election.

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Financial arrangements to which election in relation to qualifying

forex accounts applies

(4) The election under subsection (3) applies to the

financial

arrangement:

(a) from the time when you start to have the arrangement if the

election is made before you start to have the arrangement; or

(b) from the start of the income year in which the election is

made if you make the election after you start to have the

arrangement.

Election irrevocable

(5) A

foreign exchange retranslation election is irrevocable.

Note:

The election may cease to apply under section 230-285.

230-260 Foreign exchange retranslation election whe re differing

income and accounting years

(1) This section applies if:

(a) you prepare a financial report for a year (the first year); and

(b) you prepare a financial report for the subsequent year (the

second year); and

second year; and

(d) both the financial report for the first year and the financial

report for the second year are:

(i) prepared in accordance with paragraph 230-255(2)(a);

and

(ii) audited in accordance with paragraph 230-255(2)(b);

and

(e) the auditor's reports are unqualified for both the financial

report for the first year and the financial report for the second

year.

(2) Treat yourself as eligible to make an election for the income year

under subsection 230-255(2).

(3) Work out the gain or loss you make from the arrangement for the

income year as follows:

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(a) firstly, work out the gain or loss you make from the

arrangement for the first year in accordance with

section 230-280 (treating the first year as an income year);

(b) next, work out how much of the gain or loss mentioned in

paragraph (a) is attributable to the income year in accordance

with subsection (4);

arrangement for the second year in accordance with

section 230-280 (treating the second year as an income year);

(d) next, work out how much of the gain or loss mentioned in

paragraph (c) is attributable to the income year in accordance

with subsection (4);

(e) next:

(i) if the amounts worked out under paragraphs (b) and (d)

are both gains--add them together to work out the gain

from the arrangement for the income year; or

(ii) if the amounts worked out under paragraphs (b) and (d)

are both losses--add them together to work out the loss

from the arrangement for the income year; or

(iii) if one of the amounts worked out under paragraphs (b)

and (d) is a loss and the other is a gain--subtract the

loss from the gain. If the result is positive, this is the

gain from the arrangement for the income year. If the

result is negative, this is the loss from the arrangement

for the income year.

(4) For the purposes of paragraphs (3)(b) and (d), work out how much

of the gain or loss is attributable to the income year by:

(a) using a methodology that is reasonable; and

(b) using the same methodology for the first and second years.

(5) For the purposes of paragraph (4)(a), treat a methodology that

attributes the gain or loss on a pro-rata basis as not being

reasonable.

230-265 Financial arrangements to which general election applies

(1) A

foreign exchange retranslation election under subsection

230-255(1) applies to each of your

financial arrangements:

(a) that are

Division 230 financial arrangements; and

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(b) that are recognised in financial reports of a kind referred to in

paragraph 230-255(2)(a) that are audited, or required to be

audited, as referred to in paragraph 230-255(2)(b); and

(i)

accounting standard AASB 121 (or another accounting

standard prescribed by the regulations for the purposes

of this paragraph); or

(ii) if that standard does not apply to the preparation of the

financial report--a comparable accounting standard that

applies to the preparation of the financial report under a

foreign law;

to recognise, in the financial reports, amounts in profit or loss

(if any) that are attributable to changes in currency exchange

rates; and

(d) that you start to have in the income year in which you make

the election or in a later income year.

This subsection has effect subject to section 230-270.

Note:

The election also has consequences under Subdivision 775-F for

arrangements that are not Division 230 financial arrangements.

(2) If, but for this subsection, paragraphs (1)(b) and (c) would not be

satisfied in relation to a

financial arrangement because the

arrangement is an intra-group transaction for the purposes of:

(a)

accounting standard AASB 127 (or another accounting

standard prescribed by the regulations for the purposes of this

paragraph); or

(b) if that standard does not apply to the preparation of the

financial report--a comparable accounting standard that

applies to the preparation of the financial report under a

foreign law;

paragraphs (1)(b) and (c) are taken to be satisfied in relation to the

arrangement.

Note:

Financial arrangements between members of a consolidated group or

MEC group are not covered by this subsection because the single

entity rule in subsection 701-1(1) operates to treat them as not being

financial arrangements for the purposes of this Division.

(3) If:

(a) the

financial arrangement would not be a financial

arrangement if the following provisions were disregarded:

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(i) Division 9A of Part III of the Income Tax Assessment

Act 1936 (which deals with offshore banking units);

(ii) Part IIIB of that Act (which deals with Australian

branches of foreign banks etc.); and

(b) paragraphs (1)(b) and (c) would be satisfied in relation to the

financial arrangement if the arrangement had been between 2

separate entities; and

foreign exchange retranslation election under subsection

230-255(1) is made by:

(i) if section 121EB of the Income Tax Assessment Act

1936 applies--the OBU mentioned in that section

(disregarding the operation of that section); or

(ii) if section 160ZZW of that Act applies--the bank

mentioned in that section (disregarding the operation of

that section);

paragraphs (1)(b) and (c) are taken to be satisfied in relation to the

arrangement.

230-270 Financial arrangements to which general election does not

apply

(1) For the purposes of this Division, a

foreign exchange retranslation

election under subsection 230-255(1) does not apply to a

financial

arrangement if the arrangement is a financial arrangement under

section 230-50 (equity interests etc.).

(2) For the purposes of this Division, a

foreign exchange retranslation

election under subsection 230-255(1) does not apply to a

financial

arrangement if:

(a) you are:

(i) an individual; or

(ii) an entity (other than an individual) that satisfies

subsection 230-455(2), (3) or (4) for the income year in

which you start to have the arrangement; and

(b) the arrangement is a

qualifying security; and

(3) A

foreign exchange retranslation election under subsection

230-255(1) does not apply to a

financial arrangement if:

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(a) the election is made by the

head company of a

consolidated

group or

MEC group; and

(b) the election specifies that the election is not to apply to

financial arrangements in relation to

life insurance business

carried on by a member of the consolidated group or MEC

group; and

business carried on by a member of the consolidated group or

MEC group.

(4) A

foreign exchange retranslation election does not apply to a

financial arrangement if the arrangement is associated with a

business of a kind specified in regulations made for the purposes of

this subsection.

230-275 Balancing adjustment for election in relation to qualifying

forex accounts

(1) If a

hedging financial arrangement that you have does not (apart

from this section) meet the requirements of sections 230-355 to

230-365, treat it as meeting those requirements if the

Commissioner makes a determination under subsection (2) in

relation to the arrangement.

(2) The Commissioner may make the determination if the

Commissioner considers that this is appropriate, having regard to:

(a) the respects in which the arrangement does not meet those

requirements; and

(b) the extent to which it does not meet those requirements; and

(d) if the Commissioner is considering whether to impose

conditions under subsection (3)--the likelihood that you will

comply with those conditions; and

(e) the objects of this Subdivision.

(3) The balancing adjustment under this subsection is the balancing

adjustment you would make under Subdivision 230-G if you

ceased to have the arrangement for its fair value at the time when

the election started to apply to the arrangement (but only to the

extent to which the balancing adjustment is reasonably attributable

to a

currency exchange rate effect).

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230-280 Applying foreign exchange retranslation method to gains

and losses

General election

(1) You make a gain or loss from a

financial arrangement for an

income year if:

(a) a

foreign exchange retranslation election under subsection

230-255(1) applies to the arrangement; and

(b) any of the following subparagraphs apply:

(i) the standard referred to in paragraph 230-265(1)(c)

requires you to recognise a particular amount in profit

or loss in relation to that arrangement for that income

year;

(ii) if subsection 230-265(2) applies to the arrangement--

the standard referred to in paragraph 230-265(1)(c)

would have required you to recognise a particular

amount in profit or loss in relation to that arrangement

for that income year if the arrangement had not been an

intra-group transaction for the purposes of the standard

referred to in paragraph 230-265(2)(b);

(iii) if subsection 230-265(3) applies to the arrangement--

the standard referred to in paragraph 230-265(1)(c)

would have required you to recognise a particular

amount in profit or loss for the year that is attributable

to currency exchange rates mentioned in paragraph

230-265(1)(c) if the arrangement had been between 2

separate entities.

The amount of the gain or loss is the amount the standard requires,

or would have required, you to recognise.

Note:

See subsection 230-40(6).

Election in relation to qualifying forex accounts

(2) You make a gain or loss from a

financial arrangement for an

income year if:

(a) a

foreign exchange retranslation election under subsection

230-255(3) applies to the arrangement; and

(b) the standard referred to in paragraph 230-265(1)(c):

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(i) requires you to recognise a particular amount in profit

or loss in relation to that arrangement for that income

year; or

(ii) would require you to recognise a particular amount in

profit or loss in relation to that arrangement for that

income year if that standard applied to the arrangement;

(iii) would require you to recognise a particular amount in

profit or loss in relation to that arrangement for that

income year if the arrangement had not been an

intra-group transaction for the purposes of the standard

referred to in paragraph 230-265(2)(b); or

(iv) would require you to recognise a particular amount in

profit or loss in relation to that arrangement for that

income year if the arrangement had not been an

intra-group transaction for the purposes of the standard

referred to in paragraph 230-265(2)(b) and if that

standard applied to the arrangement.

The amount of the gain or loss is the amount the standard requires,

or would require, you to recognise.

Subsidiary leaving group

(3) Subsection (4) applies if:

(a) a

head company of a

consolidated group or

MEC group

has a

financial arrangement; and

(b) a

foreign exchange retranslation election under subsection

230-255(1) or (3) applies to the arrangement; and

the group at a particular time (the leaving time); and

(d) immediately after the leaving time, the head company no

longer has the arrangement because the subsidiary member

ceased to be a member of the group.

(4) The gain or loss the group makes from the

financial arrangement

for the income year in which the leaving time occurs is taken to be

the gain or loss that the standard referred to in paragraph

230-265(1)(c) would require the group to recognise in profit or loss

in relation to the arrangement for that income year if:

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(a) the circumstances that existed in relation to the arrangement

(including its value) immediately before the leaving time had

continued to exist until the end of the income year; and

(b) any circumstances that arise in relation to the arrangement

after the leaving time were disregarded.

230-285 When election ceases to apply

General election

(1) A

foreign exchange retranslation election under subsection

230-255(1) ceases to have effect from the start of an income year if

you cease to be eligible under subsection 230-255(2) to make a

foreign exchange retranslation election under subsection

230-255(1) for that income year.

(2) Subsection (1) does not prevent you from making a new

foreign

exchange retranslation election at a later time if you become, at

that later time, eligible under subsection 230-255(2), to make a

foreign exchange retranslation election under subsection

230-255(1) for that income year.

Note:

The new election will only apply to financial arrangements you start to

have after the start of the income year in which the new election is

made.

(3) A

foreign exchange retranslation election under subsection

230-255(1) ceases to apply to a

financial arrangement from the

start of an income year if the arrangement ceases to satisfy a

requirement of paragraph 230-265(1)(b) or (c) during that income

year.

(4) If the election ceases to apply to a particular

financial arrangement

under subsection (3), the election cannot subsequently reapply to

that arrangement (even if the requirements of paragraphs

230-265(1)(b) and (c) are satisfied once more in relation to the

arrangement).

Election in relation to qualifying forex accounts

(5) A

foreign exchange retranslation election under subsection

230-255(3) ceases to apply to a

financial arrangement from the

start of an income year if the arrangement ceases to satisfy a

requirement of subsection 230-255(3) during that income year.

Amend ments Schedule 1

Main amendments Part 1

Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008

(6) If the election ceases to apply to a particular

financial arrangement

under subsection (5), the election cannot subsequently reapply to

that arrangement (even if the requirements of subsection

230-255(3) are satisfied once more in relation to the arrangement).

230-290 Balancing adjustment if election ceases to apply

(1) You must make balancing adjustments under subsection (2) if a

foreign currency retranslation election ceases to have effect under

subsection 230-285(1).

(2) The balancing adjustments under this subsection are the balancing

adjustments you would make under Subdivision 230-G for each of

the

financial arrangements to which the election applied if you

disposed of the arrangement for its fair value when the election

ceases to have effect (but only to the extent to which the balancing

adjustment is reasonably attributable to a

currency exchange rate

effect).

(3) You must make a balancing adjustment under this section if a

foreign currency retranslation election ceases to apply to a

particular

financial arrangement under subsection 230-285(3) or

(5).

(4) The balancing adjustment under this subsection is the balancing

adjustment you would make under Subdivision 230-G if you

disposed of the

financial arrangement for its fair value when the

election ceases to apply to the arrangement (but only to the extent

to which the balancing adjustment is reasonably attributable to a

currency exchange rate effect).

(5) If a balancing adjustment is made under subsection (2) or (4) in

relation to a

financial arrangement, you are taken, for the purposes

of this Division, to have reacquired the arrangement at its fair value

immediately after the election ceased to have effect or ceased to

apply to the arrangement.

Subdivision 230-E--Hedging financial arrangements method

Table of sections

230-295 Objects of this Subdivision

230-300 Applying hedging financial arrangement method to gains and losses

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230-305 Table of events and allocation rules

230-310 Aligning tax classification of gain or loss from hedging financial

arrangement with tax classification of hedged item

230-315 Hedging financial arrangement election

230-320 Hedging financial arrangement election where differing income and

accounting years

230-325 Hedging financial arrangements to which election applies

230-330 Hedging financial arrangements to which election does not apply

230-335 Hedging financial arrangement and hedged item

230-340 Generally whole arrangement must be financial hedging arrangement

230-345 Requirements not satisfied because of honest mistake or inadvertence

230-350 Derivative financial arrangement and foreign currency hedge

230-355 Recording requirements

230-360 Determining basis for allocating gain or loss

230-365 Effectiveness of the hedge

230-370 When election ceases to apply

230-375 Balancing adjustment if election ceases to apply

230-380 Where requirements not met

230-385 You may be excluded from this Subdivision for deliberate failures to

comply with requirements

230-295 Objects of this Subdivision

The objects of this Subdivision are:

(a) to facilitate the efficient management of financial risk by

reducing after-tax mismatches and better aligning tax

treatment where hedging takes place; and

(b) to minimise tax deferral and tax motivated practices

(including tax deferral arising from such practices as tax

advantaged selection from among possible hedges and

inappropriate selection of tax treatment).

230-300 Applying hedging financial arrangement method to gains

and losses

(1) If you have a

hedging financial arrangement to which a

hedging

financial arrangement election applies, the gain or loss you make

for an income year from the arrangement is worked out under this

section and section 230-310 instead of under Subdivision 230-B,

230-C, 230-D, 230-F or 230-G.

Amend ments Schedule 1

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Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008

(2) Except where subsection (5) applies, the gain or loss you make

from the

hedging financial arrangement is equal to the overall

gain or loss you make from the arrangement.

(3) The gain or loss you make from the

hedging financial

arrangement is allocated over income years according to the

determination referred to in subsection 230-360(1).

Note 1:

The allocation is capable of extending to income years after you cease

to have the hedging financial arrangement (see subsection

230-360(3)).

Note 2:

The determination must be included in the record made under

section 230-355.

(4) If the

hedging financial arrangement is a

foreign currency hedge

and is a

debt interest, split a gain or loss you make from the

arrangement as follows:

(a) to the extent to which the gain or loss represents a

currency

exchange rate effect attributable to the outstanding balance in

relation to the debt interest, treat it as a separate gain or loss

to which subsections (1) and (2) apply;

(b) to the extent that it does not represent that effect, treat it as a

separate gain or loss from the financial arrangement that is

allocated under Subdivision 230-B, 230-F or 230-G.

(5) If an event listed in the table in section 230-305 occurs:

(a) the gain or loss you make from the

hedging financial

arrangement is equal to any gain or loss that you would have

made:

(i) while the arrangement was hedging the

hedged item or

items; and

(ii) on ceasing to have the arrangement;

if you ceased to have the arrangement for its fair value at the

time of the event; and

(b) this Division further applies as if, just after the event, you had

acquired the arrangement for its fair value at the time of the

event.

Despite subsection (3), the gain or loss referred to in paragraph (a)

is allocated over income years according to the table.

(6) The regulations may apply subsection (5) and section 230-305

(with the modifications that are provided for in the regulations) to

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the situation in which you cease to have one or more, but not all, of

the

hedged items.

(7) Subsection (8) applies if the

hedging financial arrangement:

(a) is a

financial arrangement under section 230-50 (equity

interests etc.); and

(b) is a

foreign currency hedge; and

(8) Split a gain or loss you make from the arrangement as follows:

(a) to the extent to which the gain or loss represents a

currency

exchange rate effect, treat it as a separate gain or loss to

which subsections (1) and (2) apply;

(b) to the extent that it does not represent that effect, treat it as a

separate gain or loss from the financial arrangement to which

this Division does not apply.

(9) Subsections (10) and (11) apply if:

(a) a

head company of a

consolidated group or

MEC group

has a

hedging financial arrangement; and

(b) a

hedging financial arrangement election applies to the

arrangement; and

the group at a particular time (the leaving time); and

(d) immediately after the leaving time:

(i) the head company no longer has the arrangement

because the subsidiary member ceased to be a member

of the group; and

(ii) the head company no longer has the

hedged item (or all

of the hedged items) because the subsidiary member

ceased to be a member of the group.

(10) The gain or loss the group makes from the arrangement for the

income year in which the leaving time occurs is taken to be the

gain or loss that would be allocated to the group in accordance with

this section (disregarding subsection (5)) if:

(a) the circumstances that existed in relation to the arrangement

(including its value) immediately before the leaving time had

continued to exist until the end of the income year; and

(b) any circumstances that arise in relation to the

financial

arrangement after the leaving time were disregarded.

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(11) For the purposes of applying paragraph (5)(a) to the

head

company of the group at the leaving time, disregard item 2 of the

table in section 230-305.

230-305 Table of events and allocation rules

For the purposes of paragraph 230-300(5)(a), the following table

lists events and their consequences:

Table of events and allocation rules

Item

If this event occurs ...

Your gain or loss is allocated ...

(a) you revoke the hedging

designation; or

(b) you redesignate your

hedging

financial arrangement; or

requirement of section 230-365

in relation to your hedging

financial arrangement

over income years according to the

basis determined under subsection

230-360(1).

(a) you cease to have the

hedged

item or all of the hedged items;

(b) you cease to expect that the

hedged item or items will co me

into existence; or

have the hedged item or items

to the income year in which the

event occurs.

a risk being hedged by your

hedging financial arrangement

ceases to exist

to the income year in which the risk

ceases to exist.

230-310 Aligning tax classification of gain or loss from hedging

financial arrangement with tax classification of hedged

item

(1) The object of this section is to better align, in particular

circumstances, the tax classification of a gain or loss you make

from a

hedging financial arrangement with the tax classification of

the

hedged item.

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(2) This section applies if:

(a) you make a gain or loss from a

hedging financial

arrangement for an income year; and

(b) a

hedging financial arrangement election applies to the

arrangement.

(3) Subject to subsection (4):

(a) if you make a gain from the arrangement--your assessable

income includes the gain in accordance with subsection

230-15(1); and

(b) if you make a loss from the arrangement--you may deduct

the loss in accordance with subsections 230-15(2) and (3).

Note:

Section 230-300 tells you how to allocate the gain or loss to an income

year or years.

(4) A gain or loss you make from a

hedging financial arrangement, to

the extent to which it is reasonably attributable to a

hedged item

referred to in the following table, is dealt with in the way indicated

in that item:

Special tax classification for g ains and losses

Item

For a hedged item

that is or produces ...

the gain ...

the loss ...

CGT asset any

net

capital gain in relation

to which would be

assessable under

Parts 3-1 and 3-3 in

relation to wh ich a

CGT event (the

hedged item CGT

event) occurs

is treated as a

capital

gain fro m a CGT event

(but only to the extent

to which the gain is

reasonably attributable

to the hedged item

CGT event)

is treated as a

capital

loss from a CGT event

(but only to the extent

to which the loss is

reasonably attributable

to the hedged item

CGT event)

CGT asset that is

taxable Australian

property

is treated as a

capital

gain fro m a

CGT

event for a CGT asset

that is taxable

Australian property

is treated as a

capital

loss from a CGT event

for a CGT asset that is

taxab le Australian

property

CGT asset your

capital gains and losses

in relation to wh ich are

disregarded, or reduced

is disregarded or

reduced by the same

percentage

is disregarded or

reduced by the same

percentage

Amend ments Schedule 1

Main amendments Part 1

Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008

Special tax classification for g ains and losses

Item

For a hedged item

that is or produces ...

the gain ...

the loss ...

by a particular

percentage, under

Div ision 855

exempt income

is treated as exempt

income

is not deductible

non-assessable

non-exempt income of

an Australian resident

is treated as

non-assessable

non-exempt income

is not deductible

a share in a co mpany

that is a foreign

resident if the capital

gain or loss you make

fro m a

CGT event that

happens to the share is

reduced by a particular

percentage under

Subdivision 768-G

is treated as a

capital

gain fro m a CGT event

that is reduced by the

same percentage

is treated as a

capital

loss from a CGT event

that is reduced by the

same percentage

ordinary income o r

statutory income fro m

Australian source

is treated as ordinary

income or statutory

income fro m an

Australian source

is treated as a loss

incurred in gaining or

producing ordinary

income or statutory

income fro m an

Australian source

ordinary income o r

statutory income fro m

a source out of

Australia

is treated as ordinary

income or statutory

income fro m a source

out of Australia

is treated as a loss

incurred in gaining or

producing ordinary

income or statutory

income fro m a source

out of Australia

a loss or outgoing

incurred in gaining or

producing

ordinary

income or

statutory

income fro m a source

out of Australia

is treated as ordinary

income or statutory

income fro m a source

out of Australia

is treated as a loss

incurred in gaining or

producing ordinary

income or statutory

income fro m a source

out of Australia

a loss or outgoing

incurred in gaining or

producing

ordinary

is treated as ordinary

income or statutory

income fro m an

is treated as a loss

incurred in gaining or

producing ordinary

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Special tax classification for g ains and losses

Item

For a hedged item

that is or produces ...

the gain ...

the loss ...

income or

statutory

income fro m an

Australian source

income or statutory

income fro m an

Australian source

a loss or outgoing that

is not allowed as a

deduction

is treated as

non-assessable

non-exempt income

is treated as a loss that

is not allowed as a

deduction

a net investment in a

foreign operation

(within the meaning of

the

accounting

standards) that is not

carried on through:

(a) a co mpany in which

you hold shares; or

(b) a co mpany that is a

subsidiary of yours

(within the meaning

of the Corporations

Act 2001).

(a) to the extent that the

net investment

would give rise to

income that is

non-assessable

non-exempt income

under section 23AH

of the Income Tax

Assessment Act

1936--is treated as

non-assessable

non-exempt

income; and

(b) otherwise--is

treated in

accordance with the

item or items in th is

table that are

applicable to the

gain.

(a) to the extent that the

net investment

would give rise to

income that is

non-assessable

non-exempt income

under section 23AH

of the Income Tax

Assessment Act

1936--is not

deductible; and

(b) otherwise--is

treated in

accordance with the

item or items in th is

table that are

applicable to the

loss.

(5) If:

(a) a

hedged item is your net investment in a foreign operation

(within the meaning of the

accounting standards); and

(b) the foreign operation is carried on through:

(i) a company in which you hold shares; or

(ii) a company that is a subsidiary of yours (within the

meaning of the Corporations Act 2001);

the hedged item is taken, for the purposes of applying the table in

subsection (4), to be the interest you have in the shares of the

company.

Amend ments Schedule 1

Main amendments Part 1

Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008

230-315 Hedging financial arrangement election

Election

(1) You can make a hedging financial arrangement election if you

are eligible under subsection (2) to make the election for the

income year in which you make the election.

Eligibility to make hedging financial arrangement election for an

income year

(2) You are eligible to make a hedging financial arrangement

election for an income year if:

(a) you prepare a financial report for that income year in

accordance with:

(i) the

accounting standards; or

(ii) if those standards do not apply to the preparation of the

financial report--comparable accounting standards

made under a

foreign law that apply to the preparation

of the financial report under a foreign law; and

(b) the financial report is audited in accordance with:

(i) the

auditing standards; or

(ii) if the auditing standards do not apply to the auditing of

the financial report--comparable auditing standards

made under a foreign law.

Note:

Section 230-500 allows regulations to be made specifying particular

foreign accounting and auditing standards as ones that are to be treated

as comparable with Australian accounting and auditing standards for

the purposes of this Division.

Election irrevocable

(3) The

hedging financial arrangement election is irrevocable.

Note:

The election may cease to apply under section 230-385.

230-320 Hedging financial arrangement election whe re differing

income and accounting years

(1) This section applies if:

(a) you prepare a financial report for a year (the first year); and

(b) you prepare a financial report for the subsequent year (the

second year); and

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second year; and

(d) both the financial report for the first year and the financial

report for the second year are:

(i) prepared in accordance with paragraph 230-315(2)(a);

and

(ii) audited in accordance with paragraph 230-315(2)(b);

and

(e) the auditor's reports are unqualified for both the financial

report for the first year and the financial report for the second

year.

(2) Treat yourself as eligible to make an election for the income year

under subsection 230-315(2).

230-325 Hedging financial arrangements to which election applies

(1) A

hedging financial arrangement election applies to a

hedging

financial arrangement if:

(a) you start to have the arrangement in the income year in which

you make the election or in a later income year; and

(b) the requirements in sections 230-355 to 230-365 are met in

relation to the arrangement.

Note:

Paragraph (b)--see section 230-380 for the Commissioner's discretion

in relation to failures to meet the requirements of sections 230-355 to

230-365.

(2) For the purposes of paragraph (1)(b), treat the requirement in

paragraph 230-365(c) as being met even if you do not assess the

hedging of the risk mentioned in that paragraph, but you can

demonstrate that you intend to do so.

(3) This section has effect subject to section 230-330.

230-330 Hedging financial arrangements to which election does not

apply

(1) A

hedging financial arrangement election does not apply to a

financial arrangement if the arrangement is a financial

arrangement under section 230-50 (equity interests etc.).

Amend ments Schedule 1

Main amendments Part 1

Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008

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

hedging financial arrangement

if:

(a) the hedging financial arrangement is a

foreign currency

hedge; and

(b) you issue the hedging financial arrangement.

(3) A

hedging financial arrangement election does not apply to a

financial arrangement if:

(a) you are:

(i) an individual; or

(ii) an entity (other than an individual) that satisfies

subsection 230-455(2), (3) or (4) for the income year in

which you start to have the arrangement; and

(b) the arrangement is a

qualifying security; and

(4) A

hedging financial arrangement election does not apply to a

financial arrangement if:

(a) the election is made by the

head company of a

consolidated

group or

MEC group; and

(b) the election specifies that the election is not to apply to

financial arrangements in relation to

life insurance business

carried on by a member of the consolidated group or MEC

group; and

business carried on by a member of the consolidated group or

MEC group.

(5) A

hedging financial arrangement election does not apply to a

financial arrangement if the arrangement is associated with a

business of a kind specified in regulations made for the purposes of

this subsection.

230-335 Hedging financial arrangement and hedged item

Hedging financial arrangement

(1) A

financial arrangement that you have that is a

derivative

financial arrangement, or is not a derivative financial arrangement

but is a

foreign currency hedge, is a hedging financial

arrangement if:

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(a) you create, acquire or apply the arrangement for the purpose

of hedging a risk or risks in relation to a

hedged item; and

(b) at the time you create, acquire or apply the arrangement, the

arrangement satisfies the requirements of the standards

referred to in paragraph 230-315(2)(a) to be a hedging

instrument; and

(i) your financial report (including documents and records

on which the report is based); or

(ii) if the arrangement hedges a risk in relation to foreign

currency--the financial report of a consolidated entity

in which you are included (including documents and

records on which the report is based);

for the income year in which the rights and/or obligations are

created, acquired or applied.

Note:

For document and record, see section 25 of the Acts

Interpretation Act 1901.

(2) If:

(a) the

financial arrangement would not be a financial

arrangement if the following provisions were disregarded:

(i) Division 9A of Part III of the Income Tax Assessment

Act 1936 (which deals with offshore banking units);

(ii) Part IIIB of that Act (which deals with Australian

branches of foreign banks etc.); and

(b) paragraphs (1)(b) and (c) would be satisfied in relation to the

financial arrangement if the arrangement had been between 2

separate entities;

paragraphs (1)(b) and (c) are taken to be satisfied in relation to the

arrangement.

(3) A

financial arrangement that is a

derivative financial

arrangement, or is not a derivative financial arrangement but is a

foreign currency hedge, is a hedging financial arrangement if:

(a) you create, acquire or apply the arrangement for the purpose

of hedging a risk or risks in relation to something; and

(b) one or more of subsections (4), (5), (6) or (7) is satisfied; and

satisfied:

Amend ments Schedule 1

Main amendments Part 1

Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008

(i) because of the requirements of the standards referred to

in paragraph 230-315(2)(a); and

(ii) not because of any act or omission on your part to

deliberately fail to satisfy those requirements; and

(d) you satisfy the additional recording requirements of

subsection 230-355(5); and

(e) you satisfy the requirements (if any) prescribed by the

regulations for the purposes of this paragraph.

(4) This subsection is satisfied if:

(a) the

financial arrangement hedges a foreign currency risk in

relation to an anticipated dividend from a

connected entity;

and

(b) the dividend is

non-assessable non-exempt income under

section 23AJ of the Income Tax Assessment Act 1936.

(5) This subsection is satisfied if:

(a) you enter into a

financial arrangement with a

connected

entity; and

(b) the standards referred to in paragraph 230-315(2)(a) require

that a consolidated financial report be prepared that deals

with both your affairs and the affairs of the connected entity;

and

(d) the arrangement satisfies the requirements of

paragraph (1)(a); and

(e) the arrangement would satisfy the requirements of

paragraph (1)(b) or (c) but for the fact that the consolidated

report disregards the arrangement.

(6) This subsection is satisfied if:

(a) the period for which the risk or risks are hedged does not

straddle 2 or more income years; and

(b) the

financial arrangement satisfies the requirements of

paragraph (1)(a); and

paragraph (1)(c) if the period for which the risk or risks that

are hedged did straddle 2 or more income years.

(7) This subsection is satisfied if the requirements prescribed by the

regulations for the purposes of this subsection are satisfied.

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Financial arrangement hedging more than one type of risk

(8) A

financial arrangement that hedges more than one type of risk

may only be a hedging financial arrangement if the standards

referred to in paragraph (1)(b) allow the arrangement to be

designated as a hedge of those risks.

More than one financial arrangement hedging the same risk or

risks

(9) If 2 or more

financial arrangements hedge the same risk or risks,

each of the arrangements may only be a hedging financial

arrangement if the standards referred to in paragraph (1)(b) allow

those arrangements to be viewed in combination and jointly

designated as hedging that risk or those risks.

Hedged item

(10) If a

financial arrangement that you have hedges a risk in relation

to:

(a) an asset or a part of an asset; or

(b) a liability or a part of a liability; or

accounting

standards) or a part of such a commitment; or

(d) a highly probable forecast transaction (within the meaning of

the accounting standards) or a part of such a transaction; or

(e) a net investment in a foreign operation (within the meaning

of the accounting standards) or a part of such an investment;

(f) something prescribed by the regulations for the purposes of

this paragraph;

the asset (or that part of the asset), the liability (or that part of the

liability), the commitment (or that part of the commitment), the

transaction (or that part of the transaction) or the investment (or

that part of the investment) is a hedged item for the arrangement.

(11) If a

financial arrangement is a

hedging financial arrangement

because of paragraph (4)(a), the anticipated dividend referred to in

that subparagraph is a hedged item for the arrangement even if

subsection (10) is not satisfied in relation to the anticipated

dividend.

Amend ments Schedule 1

Main amendments Part 1

Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008

230-340 Generally whole arrange ment must be financial hedging

arrange ment

(1) Subject to subsections (2), (3) and (4), the whole of a

financial

arrangement must satisfy the requirements of subsection

230-335(1) or (3) for the arrangement to be a hedging financial

arrangement.

Partial hedges

(2) If a

financial arrangement:

(a) is an options contract; and

(b) hedges risk only in part by reference to changes in the

intrinsic value of the options contract;

the arrangement may be treated as a hedging financial

arrangement to the extent to which the part of the arrangement

referred to in paragraph (b) satisfies the requirements of subsection

230-335(1) or (3).

(3) If a

financial arrangement:

(a) is a forward contract; and

(b) has a spot price element and an interest element;

the arrangement may be treated as a hedging financial

arrangement to the extent to which the spot price element satisfies

the requirements of subsection 230-335(1) or (3).

Proportionate hedges

(4) A specified proportion of a

financial arrangement may be treated

as a hedging financial arrangement to the extent to which that

proportion of the arrangement satisfies the requirements of

subsection 230-335(1) or (3).

Separate financial arrangements if partial or proportionate hedge

(5) If a part (or parts), or a proportion (or proportions), of a

financial

arrangement is (or are) treated as a

hedging financial arrangement

under subsection (2), (3) or (4):

(a) the part (or each of the parts), or the proportion (or each of

the proportions), of the arrangement that is (or are) treated as

a hedging financial arrangement is taken to be a separate

financial arrangement for the purposes of this Division; and

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(b) the remaining part or proportion (if any) of the arrangement

is taken to be a separate financial arrangement for the

purposes of this Division.

(6) Subsection (5) has effect even if there would not be separate

arrangements under subsection 230-55(4).

230-345 Require ments not satisfied because of honest mistake or

inadvertence

If a

derivative financial arrangement, or a

foreign currency

hedge, that you have would not be a

hedging financial

arrangement only because the requirements of paragraph

230-335(1)(b) or (c), or both, are not satisfied because of an honest

mistake or inadvertence, it is nevertheless a hedging financial

arrangement if the Commissioner considers this appropriate

having regard to:

(a) your documented risk management practices and policies;

and

(b) your record keeping practices; and

(d) your internal governance processes; and

(e) the circumstances surrounding the mistake or inadvertence

(including the steps (if any) taken to correct or address the

mistake or inadvertence and the steps (if any) taken to

prevent a recurrence); and

(f) the extent to which the requirements of paragraphs

230-335(1)(b) and (c) have been met; and

(g) the objects of this Subdivision.

230-350 Derivative financial arrangement and foreign currency hedge

Derivative financial arrangement

(1) A derivative financial arrangement is a

financial arrangement

that you have where:

(a) its value changes in response to changes in a specified

variable or variables; and

(b) there is no requirement for a net investment, or there is such a

requirement but the net investment is smaller than would be

required for other types of financial arrangement that would

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be expected to have a similar response to changes in market

factors.

Note:

Paragraph (a)--a specified variable includes an interest rate, foreign

exchange rate, credit rating, index or commod ity or financial

instrument price.

Foreign currency hedge

(2) A foreign currency hedge is a

financial arrangement that you

have if:

(a) paragraph (1)(a) is satisfied but paragraph (1)(b) is not; and

(b) the arrangement hedges a risk in relation to movements in

currency exchange rates.

230-355 Recording re quire ments

(1) The requirement of this section is that you must make, or have in

place, a record that:

(a) contains a description of the following:

(i) the

hedging financial arrangement in relation to which

the election is made;

(ii) the nature of the risk or risks being hedged;

(iii) the

hedged item or items;

(iv) how you will assess the effectiveness of hedging the

risk in reducing your exposure to changes in the fair

value of the hedged item or items or cash flows or

foreign currency exposure attributable to them;

(v) the risk management objective for, and the risk

management strategy to be followed in, acquiring,

creating or applying the arrangement; and

(b) contains any further details that the

accounting standards

require, by way of documentation, for an arrangement to be

recorded in a financial report as a hedging instrument; and

section 230-360.

To avoid doubt, paragraph (b) applies even if the arrangement is

not recorded in your financial report as a hedging instrument.

(2) To avoid doubt, the record may consist of a single document or 2

or more documents.

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(3) The record must be made or in place:

(a) at, or soon after, the time when you create, acquire or apply

the

hedging financial arrangement; or

(b) at such other time as is provided for in the regulations for the

purposes of this paragraph.

(4) The description must be sufficiently precise and detailed that the

following are clear:

(a) that the risk in respect of the particular

hedged item or items

was the one hedged by the

hedging financial arrangement;

(b) the extent to which the risk was hedged;

financial arrangement were in fact those created, acquired or

applied for the purpose of hedging the risk.

(5) If a

financial arrangement is a

hedging financial arrangement

under subsection 230-335(2) or (3), the following requirements

must be met in addition to the requirements of subsections (1), (3)

and (4):

(a) you must make or have in place, at, or soon before or soon

after, the time when you create, acquire or apply the

arrangement, a record that sets out:

(i) a statement of why, and the way in which, the

arrangement operates commercially or economically as

a hedge of the

hedged item or items; and

(ii) the reasons why the arrangement does not satisfy the

requirements of the standards referred to in paragraph

230-315(2)(a) to be a hedging instrument;

(b) you must, at the end of each income year during which you

have the arrangement, make a record of the accumulated

gains and/or losses (whether realised or unrealised) as at the

end of that income year from the arrangement or

arrangements relating to the hedged item or items that are yet

to be included in your assessable income or allowed to you as

deductions;

the arrangement, a record that sets out your risk management

policies and practices;

(d) you must have in place, at the time when you create, acquire

or apply the arrangement, internal risk management systems

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and controls that record the arrangement and the hedged item

or items.

(6) For the purposes of paragraph (5)(b), you must assume that:

(a) all the gains from the

financial arrangement would be

assessable income; and

(b) all the losses from the financial arrangement would be

allowed to you as deductions.

230-360 Determining basis for allocating gain or loss

(1) A requirement of this section is that you must determine the basis

on which your gain or loss from the

hedging financial

arrangement is to be allocated to an income year, or over 2 or more

income years, for the purposes of this Division.

(2) It is also a requirement of this section that the basis that you

determine must:

(a) fairly and reasonably correspond with the basis on which

gains, losses or other amounts in relation to the

hedged item

or items are recognised or allocated under this Act; and

(b) be objective; and

or other amount from the

hedged item or items is taken into

account for the purposes of this Act, the following will be

clear from the record made under section 230-355:

(i) the time at which the gain or loss from the

hedging

financial arrangement is to be taken into account for the

purposes of this Division;

(ii) the way in which that gain or loss will be dealt with

under section 230-310.

Note:

Paragraph (a) refers to an amount in relation to the hedged item or

items being recognised or allocated under this Act. This would include

an amount being allowed as a deduction or an amount being included

in assessable income. If the hedged item were an asset, an amount

referable to a part of the cost of the asset might, for example, be

allowed as a deduction for a particular income year.

(3) To avoid doubt, the income years over which your gain or loss is to

be allocated may include an income year that starts after you cease

to have the

hedging financial arrangement.

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230-365 Effectiveness of the hedge

The requirement of this section is that:

(a) hedging the risk must be expected to be highly effective

(within the meaning of the standards referred to in paragraph

230-315(2)(a)), for the period for which you expect to have

the

hedging financial arrangement, in reducing your

exposure to changes in the fair value of the

hedged item or

items or cash flows attributable to your hedged risk; and

(b) the fair value of the hedged item or items or cash flows

relating to them and the fair value of the arrangement must be

able to be reliably measured; and

(i) on a regular basis in accordance with the

accounting

standards; and

(ii) at least once in each 12 month period;

and your assessment must be that it will be highly effective

(within the meaning of the standards referred to in paragraph

230-315(2)(a)) in reducing your exposure to changes in the

fair value of the hedged item or items or cash flows

attributable to the hedged risk throughout the remainder of

the period for which you expect to have the arrangement.

230-370 When election ceases to apply

(1) A

hedging financial arrangement election ceases to have effect

from the start of an income year if you cease to be eligible under

subsection 230-315(2) to make the election for that income year.

(2) Subsection (1) does not prevent you from making a new

hedging

financial arrangement election at a later time if you become, at that

later time, eligible under subsection 230-315(2) to make an

election for an income year.

Note:

The new election will only apply to financial arrangements you start to

have after the start of the income year in which the new election is

made.

230-375 Balancing adjustment if election ceases to apply

(1) This section applies if a

hedging financial arrangement election

ceases to have effect under subsection 230-370(1).

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(2) You are taken, for the purposes of this Division, to have:

(a) disposed of each

hedging financial arrangement to which the

election applies for its fair value immediately before the

election ceases to have effect; and

(b) reacquired the arrangement at its fair value immediately after

the election ceases to have effect.

(3) To avoid doubt, this Subdivision applies, for the purposes of

working out the consequences of the disposal referred to in

paragraph (2)(a), as if the

hedging financial arrangement were one

to which the

hedging financial arrangement election applied at the

time of the disposal.

230-380 Where require ments not met

Commissioner may determine that requirement met

(1) If a

hedging financial arrangement that you have would not meet

the requirements of sections 230-355 to 230-365, it nevertheless

meets the requirements if the Commissioner considers this

appropriate having regard to:

(a) the respects in which it would not do so; and

(b) the extent to which it would not do so; and

(d) if the Commissioner is considering whether to impose

conditions under subsection (2)--the likelihood that you will

comply with those conditions; and

(e) the objects of this Subdivision.

Commissioner may impose additional record keeping requirements

(2) The Commissioner may make a determination under subsection (1)

conditional on your keeping records in addition to those required

by section 230-355.

(3) A determination under subsection (1) ceases to have effect if you

breach a condition imposed under subsection (2).

(4) Subsection (3) ceases to apply to you if the Commissioner

determines that that subsection ceases to apply to you. The

determination takes effect from the date specified in the

determination.

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(5) In deciding whether to make the determination under

subsection (4), the Commissioner must have regard to:

(a) your record keeping practices; and

(b) your compliance history; and

(i) your accounting systems and controls; and

(ii) your internal governance processes;

to ensure that breaches of the kind referred to in

subsection (3) do not happen again; and

(d) any other relevant matter.

Commissioner may determine matter under section 230-360

(6) If:

(a) the Commissioner makes a determination under

subsection (1) in relation to a

hedging financial

arrangement; and

(b) either or both of the following applies:

(i) you fail to determine a matter in relation to the

arrangement under section 230-360;

(ii) you determine a matter in relation to the arrangement

under section 230-360 but the determination does not

satisfy the requirements of subsection 230-360(2);

the Commissioner may determine that matter and the

Commissioner's determination has effect as if you had made the

determination and recorded it under that section.

230-385 You may be excluded from this Subdivision for deliberate

failures to comply with require ments

When section applies

(1) This section applies if:

(a) you start to have a

hedging financial arrangement to which

your

hedging financial arrangement election applies; and

(b) you do not meet a requirement of section 230-355 or 230-360

in relation to the arrangement; and

this Subdivision not apply to the arrangement.

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Hedging financial arrangement election ceases to apply

(2) The

hedging financial arrangement election does not apply to a

hedging financial arrangement you start to have after you fail to

meet the requirement referred to in paragraph (1)(b).

Commissioner may determine that hedging financial arrangement

is to reapply

(3) Subsection (2) ceases to apply to you if the Commissioner

determines that that subsection ceases to apply to you. The

determination takes effect from the date specified in the

determination.

(4) The Commissioner may make the determination under

subsection (3) only if satisfied that you are unlikely to deliberately

fail again to meet a requirement of section 230-355 or 230-360 in

order to have this Subdivision not apply to a

hedging financial

arrangement.

(5) In deciding whether to make the determination under

subsection (3), the Commissioner must have regard to:

(a) your record keeping practices; and

(b) your compliance history; and

(i) your accounting systems and controls; and

(ii) your internal governance processes;

to ensure that failures of the kind referred to in

paragraph (1)(c) do not happen again; and

(d) any other relevant matter.

(6) If the Commissioner makes a determination under subsection (3),

the

hedging financial arrangement election applies to a

hedging

financial arrangement only if you start to have the arrangement

after the determination takes effect.

Commissioner may still exercise powers under section 230-380

(7) This section does not prevent the Commissioner from exercising

the Commissioner's powers under section 230-380 in relation to

the

hedging financial arrangement referred to in paragraph (1)(a).

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Subdivision 230-F--Reliance on financial reports

Table of sections

230-390 Objects of this Subdivision

230-395 Election to rely on financial reports

230-400 Financial reports election where differing income and accounting years

230-405 Commissioner discretion to waive requirements in paragraphs

230-395(2)(c) and (e)

230-410 Financial arrangements to which the election applies

230-415 Financial arrangements not covered by election

230-420 Effect of election to rely on financial reports

230-425 When election ceases to apply

230-430 Balancing adjustment if election ceases to apply

230-390 Objects of this Subdivision

The objects of this Subdivision are:

(a) to reduce administration and compliance costs by allowing

you to align the tax treatment of your gains and losses from a

financial arrangement with the accounting treatment that

applies to the arrangement; and

(b) to achieve those objects without your obtaining inappropriate

tax benefits.

230-395 Election to rely on financial reports

Election

(1) You may make an election to rely on financial reports if you are

eligible under subsection (2) to make the election for the income

year in which you make the election.

Eligibility to make election

(2) You are eligible to make an election to rely on financial reports for

an income year if:

(a) you prepare a financial report for that income year in

accordance with:

(i) the

accounting standards; or

(ii) if those standards do not apply to the preparation of the

financial report--comparable accounting standards

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made under a

foreign law that apply to the preparation

of the financial report under a foreign law; and

(b) the financial report is audited in accordance with:

(i) the

auditing standards; or

(ii) if the auditing standards do not apply to the auditing of

the financial report--comparable auditing standards

made under a foreign law; and

financial report for that income year or any of the last 4

financial years in a respect that is relevant to the taxation

treatment of

financial arrangements; and

(d) your accounting systems and controls and your internal

governance processes are reliable; and

(e) no report of an audit or review conducted in the income year,

or any of the preceding 4 income years, has included an

adverse assessment of your accounting systems in a respect

that is relevant to the taxation treatment of financial

arrangements.

Note 1:

Paragraph (b)--section 230-500 allows regulations to be made

specifying particular foreign accounting and auditing standards as

ones that are to be treated as comparable with Australian accounting

and auditing standards for the purposes of this Division.

Note 2:

For the purposes of paragraphs (c) and (e), a qualification or

assessment may be relevant to the taxation treatment of financial

arrangements even though it does not deal with the amount or timing

of recognition of gains or losses (but relates, for example, to the

reliability of the accounting systems through which information about

financial arrangements is recorded).

(3) Paragraph (2)(e) does not apply to a report of:

(a) an internal audit or review that you conduct; or

(b) an audit or review of a kind prescribed by the regulations for

the purposes of this paragraph.

Election irrevocable

(4) An election under subsection (1) is irrevocable.

Note:

The election may cease to apply under section 230-425.

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230-400 Financial re ports election where diffe ring income and

accounting years

(1) This section applies if:

(a) you prepare a financial report for a year (the first year); and

(b) you prepare a financial report for the subsequent year (the

second year); and

second year; and

(d) both the financial report for the first year and the financial

report for the second year are:

(i) prepared in accordance with paragraph 230-395(2)(a);

and

(ii) audited in accordance with paragraph 230-395(2)(b);

and

(e) the auditor's reports are unqualified for both the financial

report for the first year and the financial report for the second

year.

(2) Treat yourself as eligible to make an election for the income year

under subsection 230-395(2).

(3) Work out the gain or loss you make from the arrangement for the

income year as follows:

(a) firstly, work out the gain or loss you make from the

arrangement for the first year in accordance with

section 230-420 (treating the first year as an income year);

(b) next, work out how much of the gain or loss mentioned in

paragraph (a) is attributable to the income year in accordance

with subsection (4);

arrangement for the second year in accordance with

section 230-420 (treating the second year as an income year);

(d) next, work out how much of the gain or loss mentioned in

paragraph (c) is attributable to the income year in accordance

with subsection (4);

(e) next:

(i) if the amounts worked out under paragraphs (b) and (d)

are both gains--add them together to work out the gain

from the arrangement for the income year; or

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(ii) if the amounts worked out under paragraphs (b) and (d)

are both losses--add them together to work out the loss

from the arrangement for the income year; or

(iii) if one of the amounts worked out under paragraphs (b)

and (d) is a loss and the other is a gain--subtract the

loss from the gain. If the result is positive, this is the

gain from the arrangement for the income year. If the

result is negative, this is the loss from the arrangement

for the income year.

(4) For the purposes of paragraphs (3)(b) and (d), work out how much

of the gain or loss is attributable to the income year by:

(a) using a methodology that is reasonable; and

(b) using the same methodology for the first and second years.

(5) For the purposes of paragraph (4)(a), treat a methodology that

attributes the gain or loss on a pro-rata basis as not being

reasonable.

230-405 Commissioner discretion to waive requirements in

paragraphs 230-395(2)(c) and (e)

(1) Paragraph 230-395(2)(c) or (e) does not apply in relation to your

election to rely on financial reports for a particular income year or

income years if the Commissioner determines that the paragraph

does not apply to the election for that income year or those income

years.

(2) In deciding whether to make the determination under

subsection (1), the Commissioner must have regard to:

(a) the reasons for the non-compliance with the standards

concerned; and

(b) the remedial action (if any) that you have undertaken to

ensure that non-compliance with those standards does not

occur in future (such as changes to your accounting systems

and controls or to your internal governance structures); and

or review--any opinions expressed by the regulator about the

adequacy of remedial action of the kind referred to in

paragraph (b); and

(d) any other relevant matter.

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230-410 Financial arrangements to which the election applies

(1) An

election to rely on financial reports applies in relation to a

financial arrangement that you have if:

(a) the arrangement is a

Division 230 financial arrangement;

and

(b) you start to have the arrangement in the income year in which

you make the election or in a later income year; and

referred to in paragraph 230-395(2)(a) that are audited as

referred to in paragraph 230-395(2)(b); and

(d) if the arrangement is a financial arrangement under

section 230-50--the arrangement is an asset or liability that

you are required (whether or not as a result of a choice you

make) by:

(i) the

accounting standards; or

(ii) if those standards do not apply to the preparation of the

financial report--comparable accounting standards that

apply to the preparation of the financial report under a

foreign law;

to classify or designate, in the financial reports, as at fair

value through profit or loss; and

(e) it is reasonably expected that the following is, or will be, the

same:

(i) the amount of the overall gain or loss you make from

the arrangement (as determined in accordance with the

financial reports);

(ii) the amount of the overall gain or loss you make from

the arrangement (as determined in accordance with the

provisions of this Division if the election under

subsection (1) did not apply to the arrangement); and

(f) the differences between the results of the following methods

would reasonably be expected not to be substantial:

(i) the method used in your financial reports to work out

the amounts of the gain or loss you make from the

arrangement for each income year;

(ii) the method that would be applied by this Division to

work out the amounts of those gains or losses if the

election did not apply to the arrangement.

This subsection has effect subject to section 230-415.

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(2) In applying paragraph (1)(f) at the time when you start to have the

financial arrangement, disregard any differences between the

results of the methods referred to in subparagraphs (1)(f)(i) and (ii)

that are attributable solely to the provision for the possible

impairment of debts required by the standards referred to in

paragraph 230-395(2)(a).

(3) Subsections (4), (5) and (6) apply if, but for this subsection,

paragraphs (1)(c) and (d) would not be satisfied in relation to a

financial arrangement because the arrangement is an intra-group

transaction for the purposes of:

(a)

accounting standard AASB 127 (or another accounting

standard prescribed by the regulations for the purposes of this

paragraph); or

(b) if that standard does not apply to the preparation of the

financial report--a comparable accounting standard that

applies to the preparation of the financial report under a

foreign law.

Note:

Financial arrangements between members of a consolidated group or

MEC group are not covered by this subsection because the single

entity rule in subsection 701-1(1) operates to treat them as not being

financial arrangements for the purposes of this Division.

(4) Paragraphs (1)(c) and (d) are taken to be satisfied in relation to the

financial arrangement.

(5) Paragraph (1)(e) applies as if the reference in

subparagraph (1)(e)(i) to the amount of the overall gain or loss you

make from the

financial arrangement (as determined in

accordance with the financial reports) were a reference to the

amount of that overall gain or loss (as would be determined in

accordance with the financial reports if the arrangement had not

been an intra-group transaction for the purposes of the standard

referred to in paragraph (3)(b)).

(6) Paragraph (1)(f) applies as if the reference in subparagraph (1)(f)(i)

to the method used in your financial reports to work out the

amounts of the gain or loss you make from the arrangement for

each income year were a reference to the method that would be

used in your financial reports to work out those amounts if the

arrangement had not been an intra-group transaction for the

purposes of the standard referred to in paragraph (3)(b).

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(7) For the purposes of applying subparagraphs (1)(e)(ii) and (f)(ii) to

financial arrangement, assume that you had made any election

that:

(a) you could make under Subdivision 230-C or 230-D; and

(b) could apply to the arrangement.

(8) If:

(a) the

financial arrangement would not be a financial

arrangement if the following provisions were disregarded:

(i) Division 9A of Part III of the Income Tax Assessment

Act 1936 (which deals with offshore banking units);

(ii) Part IIIB of that Act (which deals with Australian

branches of foreign banks etc.); and

(b) paragraphs (1)(c) and (d) would be satisfied in relation to the

financial arrangement if the arrangement had been between 2

separate entities; and

election to rely on financial reports is made by:

(i) if section 121EB of the Income Tax Assessment Act

1936 applies--the OBU mentioned in that section

(disregarding the operation of that section); or

(ii) if section 160ZZW of that Act applies--the bank

mentioned in that section (disregarding the operation of

that section);

paragraphs (1)(c) and (d) are taken to be satisfied in relation to the

arrangement.

230-415 Financial arrangements not covered by election

(1) An

election to rely on financial reports does not apply to a

financial arrangement if:

(a) the arrangement is an

equity interest; and

(b) you are the issuer of the equity interest.

(2) An

election to rely on financial reports does not apply to a

financial arrangement if:

(a) you are:

(i) an individual; or

(ii) an entity (other than an individual) that satisfies

subsection 230-455(2), (3) or (4) for the income year in

which you start to have the arrangement; and

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(b) the arrangement is a

qualifying security; and

(3) An

election to rely on financial reports does not apply to a

financial arrangement if:

(a) the election is made by the

head company of a

consolidated

group or

MEC group; and

(b) the election specifies that the election is not to apply to

financial arrangements in relation to

life insurance business

carried on by a member of the consolidated group or MEC

group; and

business carried on by a member of the consolidated group or

MEC group.

(4) An

election to rely on financial reports does not apply to a

financial arrangement if the arrangement is associated with a

business of a kind specified in regulations made for the purposes of

this subsection.

230-420 Effect of election to rely on financial reports

(1) If an

election to rely on financial reports applies to a

financial

arrangement, the gain or loss you make from the arrangement for

an income year is:

(a) the gain or loss that the standards referred to in paragraph

230-395(2)(a) require you to recognise in profit or loss from

that arrangement for that income year; or

(b) if subsection 230-410(3) applies to the arrangement--the

gain or loss that the standards referred to in paragraph

230-395(2)(a) would have required you to recognise in profit

or loss from that arrangement for that income year if the

arrangement had not been an intra-group transaction for the

purposes of the standard referred to in paragraph

230-410(3)(b); or

gain or loss that the standards referred to in paragraph

230-410(1)(d) would have required you to recognise in profit

or loss for the year from the asset or liability mentioned in

paragraph 230-410(1)(d) if the arrangement had been

between 2 separate entities.

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Note:

Subsection 230-40(7) provides that this Subdivision does not apply to

a gain or loss from a financial arrangement to the extent to which

Subdivision 230-E (hedging financial arrangements method) applies to

the arrangement.

(2) Subsection (3) applies if:

(a) a

head company of a

consolidated group or

MEC group

has a

financial arrangement; and

(b) an

election to rely on financial reports applies to the

arrangement; and

the group at a particular time (the leaving time); and

(d) immediately after the leaving time, the subsidiary member

has the arrangement.

(3) The gain or loss the group makes from the

financial arrangement

for the income year in which the leaving time occurs is taken to be

the gain or loss that the standards referred to in paragraph

230-395(2)(a) would require the group to recognise in profit or loss

from the arrangement for that income year if:

(a) the circumstances that existed in relation to the arrangement

(including its value) immediately before the leaving time had

continued to exist until the end of the income year; and

(b) any circumstances that arise in relation to the arrangement

after the leaving time were disregarded.

230-425 When election ceases to apply

(1) An election under subsection 230-395(1) ceases to have effect

from the start of an income year if you cease to be eligible to make

election to rely on financial reports for that income year.

(2) Subsection (1) does not prevent you from making a new election

under subsection 230-395(1) at a later time if you become, at that

later time, eligible to make an

election to rely on financial reports

for an income year.

Note:

The new election will only apply to financial arrangements you start to

have after the start of the income year in which the new election is

made.

(3) An election under subsection 230-395(1) ceases to apply to a

financial arrangement from the start of an income year if the

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arrangement ceases to satisfy a requirement of paragraph

230-410(1)(c), (d), (e) or (f) during that income year.

(4) If the election ceases to apply to a particular

financial arrangement

under subsection (3), the election cannot subsequently apply to that

arrangement (even if the requirements of paragraphs

230-410(1)(c), (d), (e) and (f) are satisfied once more in relation to

the arrangement).

230-430 Balancing adjustment if election ceases to apply

(1) You must make balancing adjustments under subsection (2) if an

election under subsection 230-395(1) ceases to have effect under

subsection 230-425(1).

(2) The balancing adjustments under this subsection are the balancing

adjustments you would make under Subdivision 230-G in relation

to each of the

financial arrangements to which the election applied

if you disposed of the arrangement for its fair value when the

election ceases to have effect.

(3) You must make balancing adjustments under subsection (5) if an

election under subsection 230-395(1) ceases to apply to a particular

financial arrangement under subsection 230-425(3).

(4) Subsection (3) does not apply to a

financial arrangement if:

(a) the arrangement is not one that you are required (whether or

not as a result of a choice you make) by the standards

referred to in paragraph 230-395(2)(a) to classify or

designate, in your financial reports, as at fair value through

profit or loss; and

(b) the election under subsection 230-395(1) ceases to apply to

the arrangement because the arrangement fails to satisfy the

requirements of paragraph 230-410(1)(e) or (f); and

paragraph because the arrangement becomes impaired for the

purposes of those standards.

(5) The balancing adjustment under this subsection is the balancing

adjustment you would make under Subdivision 230-G if you

disposed of the

financial arrangement for its fair value when the

election ceases to apply to the arrangement.

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(6) If a balancing adjustment is made under subsection (2) or (5) in

relation to a

financial arrangement, you are taken, for the purposes

of this Division, to have reacquired the arrangement at its fair value

immediately after the election ceased to have effect or ceased to

apply to the arrangement.

Subdivision 230-G--Balancing adjustment on ceasing to have a

financial arrangement

Table of sections

230-435 When balancing adjustment made

230-440 Exceptions

230-445 Balancing adjustment

230-435 When balancing adjustment made

When balancing adjustment made

(1) A balancing adjustment is made under this Subdivision if:

(a) you transfer to another entity all of your rights and/or

obligations under a

financial arrangement; or

(b) all of your rights and/or obligations under a financial

arrangement otherwise cease; or

(i) a proportionate share of all of your rights and/or

obligations under a financial arrangement; or

(ii) a right or obligation that you have under a financial

arrangement to a specifically identified

financial

benefit; or

(iii) a proportionate share of a right or obligation that you

have under a financial arrangement to a specifically

identified financial benefit; or

(d) an

arrangement that is a

Division 230 financial arrangement

ceases to be a financial arrangement.

(2) Paragraphs (1)(a), (b) and (c) do not apply to a right or obligation

under a

financial arrangement unless that right or obligation is one

of the rights or obligations that constitute the financial

arrangement.

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Note:

See subsections 230-45(1) and 230-50(1) and (2) for the rights and/or

obligations that constitute a financial arrangement.

Modifications for arrangements that are assets

(3) If the

financial arrangement is an asset of yours at the time the

event referred to in subsection (1) occurs, paragraphs (1)(a) and (c)

do not apply unless the effect of the transfer is to transfer to the

other entity substantially all the risks and rewards of ownership of

the interest transferred.

(4) If a

financial arrangement is an asset of yours, for the purposes of

applying this Subdivision to the arrangement, you are treated as

transferring a right under the arrangement to another entity if:

(a) you retain the right but assume a new obligation; and

(b) your assumption of the new obligation has the same effect, in

substance, as transferring the right to another entity; and

financial benefits under the arrangement is satisfied; and

(d) you cannot sell or pledge the right (other than as security in

relation to the new obligation); and

(e) you must, under the new obligation, provide financial

benefits you receive in relation to the right to the entity to

which you owe the new obligation without delay.

Historic rate rollover of derivative financial arrangement

(5) For the purposes of paragraph (1)(b), all of your rights and/or

obligations under a

financial arrangement that is a

derivative

financial arrangement are taken to

cease if there is an historic rate

rollover of the arrangement.

230-440 Exceptions

Equity interests etc.

(1) A balancing adjustment is not made under this Subdivision in

relation to a

financial arrangement at a time if:

(a) the arrangement is a financial arrangement under

section 230-50 (equity interests etc.); and

(b) neither Subdivision 230-C nor Subdivision 230-F apply to

the arrangement immediately before that time.

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Financial arrangements to which hedging financial arrangement

elections apply

(2) Balancing adjustments are not made under this Subdivision in

relation to a

financial arrangement in relation to which a

hedging

financial arrangement election applies.

Bad debts, margining and conversion into, or exchange for,

ordinary shares

(3) A balancing adjustment is not made under this Subdivision in

relation to the following events:

(a) a

financial arrangement being written off in whole or part as

a bad debt;

(b) a financial arrangement that is a

derivative financial

arrangement being settled or closed out for margining

purposes;

arrangement that is a

traditional security if:

(i) the ceasing occurs because the traditional security is

converted into ordinary shares in, or transferred to, a

company that is the issuer of the traditional security or a

connected entity; and

(ii) the traditional security was issued on the basis that it

will or may convert into ordinary shares in, or be

transferred to, the issuer of the traditional security or the

connected entity;

(d) the ceasing of obligations or rights under a financial

arrangement that is a traditional security if:

(i) the ceasing occurs because the traditional security is

exchanged for ordinary shares in a company that is

neither the issuer of the traditional security nor a

connected entity; and

(ii) if the ceasing of the obligations or rights occurs because

of a disposal--the disposal is to the issuer of the

traditional security or a connected entity; and

(iii) the traditional security was issued on the basis that it

will or may be exchanged for ordinary shares in the

company.

Note:

Paragraph (a)--for the treatment of bad debts, see paragraph

230-190(3)(c).

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Subsidiary member leaving consolidated group or MEC group

(4) A balancing adjustment is not made under this Subdivision in

relation to a subsidiary member of a

consolidated group or

MEC

group that has a

financial arrangement ceasing to be a member of

the group.

230-445 Balancing adjustment

Complete cessation or transfer

(1) Use the following method statement to make the balancing

adjustment if paragraph 230-435(1)(a), (b) or (d) applies:

Method statement for balancing adjustment

Step 1. Add up the following:

(a) the total of all the

financial benefits you have

received under the

financial arrangement;

Note:

This would include financial benefits you receive in

relation to the transfer or cessation (see paragraph

230-60(2)(c)).

(b) the total of the amounts that have been allowed to

you as deductions, because of circumstances that

have occurred before the transfer or cessation, for

losses from the arrangement;

allowed to you as deductions, because of

circumstances that have occurred before the

transfer or cessation, for losses from the

arrangement if all your losses from the

arrangement were allowable as deductions;

Note:

The losses from the arrangement here include losses

made in gaining or producing exempt income or

non-assessable non-exempt income.

(d) the total of the amounts that will be allowed to you

as deductions after the transfer or cessation

because of a balancing adjustment under subitems

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104(12) to (18) of the Tax Laws Amendment

(Taxation of Financial Arrangements) Act 2008 to

the extent to which those amounts are attributable

to the arrangement;

(e) the total of the amounts that will be allowed to you

as deductions after the transfer or cessation

because of sections 230-160 and 230-165 to the

extent to which those amounts are attributable to

the arrangement.

Step 2. Add up the following:

(a) the total of all the

financial benefits you have

provided under the

financial arrangement;

Note:

This would include financial benefits you provide in

relation to the transfer or cessation (see paragraph

230-60(1)(c)).

(b) the total of the amounts that have been included in

your assessable income, because of circumstances

that have occurred before the transfer or cessation,

as gains from the arrangement;

included in your assessable income, because of

circumstances that have occurred before the

transfer or cessation, as gains from the

arrangement if all your gains from the arrangement

were assessable;

Note:

The gains from the arrangement here include amounts of

exempt income or non-assessable non-exempt income.

(d) the total of the amounts that will be included in

your assessable income after the transfer or

cessation because of a balancing adjustment under

subitems 104(12) to (18) of the Tax Laws

Amendment (Taxation of Financial Arrangements)

Act 2007 to the extent to which those amounts are

attributable to the arrangement.

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(e) the total of the amounts that will be included in

your assessable income after the transfer or

cessation because of sections 230-160 and 230-165

to the extent to which those amounts are

attributable to the arrangement.

Step 3. Compare the amount obtained under step 1 (the step 1

amount) with the amount obtained under step 2 (the step

2 amount). If the step 1 amount exceeds the step 2

amount, an amount equal to the excess is taken, as a

balancing adjustment, to be a gain you make from the

financial arrangement for the purposes of this Division.

If the step 2 amount exceeds the step 1 amount, an

amount equal to the excess is taken, as a balancing

adjustment, to be a loss that you make from the

arrangement. If the step 1 amount and the step 2 amount

are equal, no balancing adjustment is made.

Proportionate transfer of all rights and/or obligations under

financial arrangement

(2) If subparagraph 230-435(1)(c)(i) applies, you make the balancing

adjustment by applying the method statement in subsection (1) but

reduce:

(a) the amounts referred to in step 1; and

(b) the amounts referred to in step 2;

by applying the proportion referred to in subparagraph

230-435(1)(c)(i) to them.

Transfer of specifically identified right or obligation under

financial arrangement

(3) If subparagraph 230-435(1)(c)(ii) applies, you make the balancing

adjustment by applying the method statement in subsection (1) as if

the references to:

(a) the amounts referred to in step 1; and

(b) the amounts referred to in step 2;

were references to those amounts to the extent to which they are

reasonably attributable to the right or obligation referred to in

subparagraph 230-435(1)(c)(ii).

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Proportionate transfer of specifically identified right or obligation

under financial arrangement

(4) If subparagraph 230-435(1)(c)(iii) applies, you make the balancing

adjustment by applying the method statement:

(a) as if the references to:

(i) the amounts referred to in step 1; and

(ii) the amounts referred to in step 2;

were references to those amounts to the extent to which they

are reasonably attributable to the right or obligation referred

to in subparagraph 230-435(1)(c)(iii); and

(b) by reducing those amounts by applying the proportion

referred to in subparagraph 230-435(1)(c)(iii) to them.

Attribution must reflect appropriate and commercially accepted

valuation principles

(5) Any attribution made under subsection (3) or paragraph (4)(a) must

reflect appropriate and commercially accepted valuation principles

that properly take into account:

(a) the nature of the rights and obligations under the

financial

arrangement; and

(b) the risks associated with each

financial benefit, right and

obligation under the arrangement; and

Income year for which gain or loss is made

(6) The gain or loss you are taken to make under subsection (1), (2),

(3) or (4) is a gain or loss for the income year in which the event

referred to in subsection 230-435(1) occurs.

Treatment of bad debts in relation to financial arrangements

(7) For the purposes of applying paragraph (b) of step 1 of the method

statement in subsection (1) to a

financial arrangement, a bad debt

deduction in relation to the arrangement to which subsection

230-25(3) applies is taken to be a deduction for a loss from the

arrangement.

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Subdivision 230-H--Exceptions

Table of sections

230-450 Short-term arrangements where non-money amount involved

230-455 Certain taxpayers where no significant deferral

230-460 Various rights and/or obligations

230-465 Ceasing to have a financial arrangement in certain circumstances

230-470 Forgiveness of commercial debts

230-475 Clarifying exceptions

230-480 Treatment of gains in form of franked distribution etc.

230-450 Short-term arrangements whe re non-money amount

involved

This Division does not apply in relation to your gains and losses

from a

financial arrangement if:

(a) the arrangement is a financial arrangement under

section 230-45; and

(b) either:

(i) you acquired goods or other property (other than goods

that are, or property that is, money or a

money

equivalent) or services (other than services that are a

money equivalent) from another entity and the

financial benefits you are to provide under the

arrangement are consideration for those goods, that

property or those services; or

(ii) you provided goods or other property (other than goods

that are, or other property that is, money or a money

equivalent) or services (other than services that are a

money equivalent) to another entity and the financial

benefits you are to receive under the arrangement are

consideration for those goods, that property or those

services; and

(i) the time when you are to provide or receive the

consideration (or a substantial proportion of it);

(ii) the time when you acquired or provided the property,

goods or services (or a substantial proportion of them);

and

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(d) the arrangement is not a

derivative financial arrangement for

any income year; and

(e) a

fair value election does not apply to the arrangement.

230-455 Certain taxpayers where no significant deferral

(1) This Division does not apply in relation to your gains or losses

from a

financial arrangement for any income year if:

(a) you are:

(i) an individual; or

(ii) a superannuation entity (within the meaning of

section 10 of the Superannuation Industry (Supervision)

Act 1993), a managed investment scheme (within the

meaning of the Corporations Act 2001) or an entity with

a similar status to such a scheme under a

foreign law

relating to corporate regulation; or

(iii) an

ADI, a

securitisation vehicle, an entity that is

required to register under the Financial Sector

(Collection of Data) Act 2001 or an entity that would be

required to register under that Act if it were a

corporation; or

(iv) an entity other than an entity of a kind mentioned in

subparagraph (i), (ii) or (iii); and

(b) where subparagraph (a)(ii) applies--you satisfy

subsection (2) for the income year in which you start to have

the arrangement; and

subsection (3) for the income year in which you start to have

the arrangement; and

(d) where subparagraph (iv) applies--you satisfy subsection (4)

for the income year in which you start to have the

arrangement; and

(e) either:

(i) the arrangement is to end not more than 12 months after

you start to have it; or

(ii) the arrangement is not a

qualifying security.

(2) An entity satisfies this subsection for an income year if:

(a) the value of the entity's assets (see subsection (5)) for the

income year (worked out at the end of the income year) is

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less than $100 million if the income year is the one in which

the entity comes into existence; or

(b) the value of the entity's assets for the immediately preceding

income year (worked out at the end of that immediately

preceding income year) is less than $100 million if the

income year is an income year after the one in which the

entity comes into existence.

(3) An entity satisfies this subsection for an income year if:

(a) the entity's

aggregated turnover for the income year (worked

out at the end of the income year) is less than $20 million if

the income year is the one in which the entity comes into

existence; or

(b) the entity's aggregated turnover for the immediately

preceding income year (worked out at the end of that

immediately preceding income year) is less than $20 million

if the income year is an income year after the one in which

the entity comes into existence.

(4) An entity satisfies this subsection for an income year if:

(a) either:

(i) the entity's

aggregated turnover for the income year

(worked out at the end of the income year) is less than

$100 million if the income year is the one in which the

entity comes into existence; or

(ii) the entity's aggregated turnover for the immediately

preceding income year (worked out at the end of that

immediately preceding income year) is less than $100

million if the income year is an income year after the

one in which the entity comes into existence; and

(b) either:

(i) the value of the entity's financial assets (see

subsection (5)) for the income year (worked out at the

end of the income year) is less than $100 million if the

income year is the one in which the entity comes into

existence; or

(ii) the value of the entity's financial assets for the

immediately preceding income year (worked out at the

end of that immediately preceding income year) is less

than $100 million if the income year is an income year

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after the one in which the entity comes into existence;

and

(i) the value of the entity's assets (see subsection (5)) for

the income year (worked out at the end of the income

year) is less than $300 million if the income year is the

one in which the entity comes into existence; or

(ii) the value of the entity's assets for the immediately

preceding income year (worked out at the end of that

immediately preceding income year) is less than $300

million if the income year is an income year after the

one in which the entity comes into existence.

(5) For the purposes of subsections (2) and (4), the value of the

entity's assets or financial assets is to be determined in accordance

with:

(a) if the entity applies

accounting standard AAS 25 in

preparation of its financial reports--that accounting standard

or another accounting standard prescribed by the regulations

for the purposes of this paragraph; or

(b) if paragraph (a) does not apply and the entity prepares its

financial reports in accordance with the accounting

standards--the entity's financial reports; or

its financial reports in accordance with an accounting

standard comparable to accounting standard AAS 25 under a

foreign law--that comparable standard; or

(d) if paragraphs (a), (b) and (c) do not apply--commercially

accepted valuation principles.

(6) Subsection (1) does not apply to your gains or losses from a

financial arrangement for an income year if:

(a) you have made an election under subsection (7) in that

income year or an earlier income year; and

(b) you start to have the arrangement after the beginning of the

income year in which you make the election.

(7) An election under this subsection is an election to have this

Division apply to all of the

financial arrangements that you start to

have in the income year in which the election is made or a later

income year.

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(8) An election under subsection (7) is irrevocable.

(9) This section does not apply in relation to your gains or losses from

financial arrangement that you start to have after a time if you

are not an individual and you failed to satisfy subsection (2), (3) or

(4) (as the case may be) for an income year ending before that

time.

230-460 Various rights and/or obligations

Rights and/or obligations subject to an exception

(1) This Division does not apply to your gains and losses from a

financial arrangement for any income year to the extent that your

rights and/or obligations under the arrangement are the subject of

an exception under any of the following subsections.

Note:

Further exceptions are also provided for in section 230-475.

Leasing or property arrangement

(2) A right or obligation arising under:

(a) an

arrangement to which Division 42A (about leases of

luxury cars) of Schedule 2E to the Income Tax Assessment

Act 1936 applies; or

(b) an arrangement to which Division 240 of this Act (about

arrangements treated as a sale and loan) applies; or

of this Act (about assets put to tax preferred use) applies; or

(d) an arrangement that, in substance or effect, depends on the

use of a specific asset that is:

(i) real property; or

(ii) goods or a personal chattel (other than money or a

money equivalent); or

(iii) intellectual property;

and gives a right to control the use of the asset; or

(e) an arrangement that is a licence to use:

(i) real property; or

(ii) goods or a personal chattel (other than money or a

money equivalent); or

(iii) intellectual property;

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is the subject of an exception.

Interest in partnership or trust

(3) A right carried by an interest in a partnership or a trust, or an

obligation that corresponds to such a right, is the subject of an

exception if:

(a) there is only one class of interest in the partnership or trust;

(b) the interest is an

equity interest in the partnership or trust; or

managed by a funds manager or custodian, or a responsible

entity (as defined in the Corporations Act 2001) of a

registered scheme (as so defined).

(4) Subsection (3) does not apply if a

fair value election, or an

election to rely on financial reports, applies to the

financial

arrangement.

Certain insurance policies

(5) A right or obligation under a

life insurance policy is the subject of

an exception unless:

(a) you are not a

life insurance company that is the insurer

under the policy; and

(b) the policy is an annuity that is a

qualifying security.

(6) A right or obligation under a

general insurance policy is the

subject of an exception unless:

(a) you are not a

general insurance company; and

(b) the policy is a

derivative financial arrangement.

Certain workers' compensation arrangements

(7) A right or obligation in relation to a liability for workers'

compensation claims to which Division 323 of Schedule J to the

Income Tax Assessment Act 1936 applies is the subject of an

exception.

Certain guarantees and indemnities

(8) A right or obligation under a guarantee or indemnity is the subject

of an exception unless:

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(a) the

financial arrangement is the subject of a

fair value

election or an

election to rely on financial reports; or

(b) the financial arrangement is a

derivative financial

arrangement; or

arrangement.

Personal arrangements and personal injury

(9) The following rights and obligations are the subject of an

exception:

(a) a right to receive, or an obligation to provide, consideration

for providing personal services;

(b) a right, or obligation, arising from the administration of a

deceased person's estate;

deed;

(d) a right to receive, or an obligation to provide, a

financial

benefit by way of maintenance:

(i) to an individual who is or has been the

spouse of the

person liable to provide the benefit; or

(ii) to or for the benefit of an individual who is or has been

a child of the person liable to provide the benefit; or

(iii) to or for the benefit of an individual who is or has been

a child of an individual who is or has been a spouse of

the person liable to provide the benefit;

(e) a right to receive, or an obligation to provide, a financial

benefit in relation to personal injury to an individual;

(f) a right to receive, or an obligation to provide, a financial

benefit in relation to an injury to an individual's reputation.

(10) Without limiting paragraph (9)(e), that paragraph applies:

(a) even if the person to whom the

financial benefit is to be

provided is not the individual who was injured; and

(b) even if the personal injury to the individual takes the form of:

(i) a wrong to the individual; or

(ii) illness of the individual.

Note:

The person referred to in paragraph (a) may, for example, be a relative

of the individual who was injured.

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Superannuation and pension benefits

(11) A right to receive, or an obligation to provide,

financial benefits is

the subject of an exception if the right or obligation arises from a

person's membership of a superannuation or pension scheme,

including:

(a) a right of a dependant of a member to receive financial

benefits or an obligation to provide financial benefits to a

dependant of a member; and

(b) a right or obligation arising from an interest in:

(i) a

complying superannuation fund or

non-complying

superannuation fund; or

(ii) a

pooled superannuation trust; or

(iii) an

approved deposit fund; or

(iv) an

RSA.

Interest in certain foreign companies, foreign trusts and FLPs

(12) A right or obligation that arises under an interest (within the

meaning of Part XI of the Income Tax Assessment Act 1936) in a

FIF or

FLP is the subject of an exception.

Proceeds from certain business sales

(13) A right to receive, or an obligation to provide,

financial benefits

arising from the sale of:

(a) a business; or

(b) shares in a company that operates a business; or

is the subject of an exception if the amounts, or the values, of those

benefits are contingent only on the economic performance of the

business after the sale.

Infrastructure borrowings

(14) A right to receive, or an obligation to provide,

financial benefits is

the subject of an exception if the right or obligation arises under an

arrangement to which Division 16L of the Income Tax Assessment

Act 1936 applies.

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Farm Management Deposits

(15) A right to receive, or an obligation to provide,

financial benefits is

the subject of an exception if the right or obligation is the right or

obligation of an owner of a

farm management deposit that relates

to the deposit.

Rights and obligations to which section 121EK of the Income Tax

Assessment Act 1936 applies

(16) A right or obligation that arises because of a payment of an amount

to which section 121EK of the Income Tax Assessment Act 1936

applies is the subject of an exception.

Forestry managed investment scheme interests

(17) A right or obligation under a

forestry interest in a

forestry

managed investment scheme in relation to which you can claim

deductions under Division 394 is the subject of an exception.

Regulations may provide for exceptions

(18) A right or obligation of a kind specified in the regulations for the

purposes of this subsection is the subject of an exception.

230-465 Ceasing to have a financial arrangement in certain

circumstances

(1) This section applies if:

(a) you cease to have a

financial arrangement (or part of a

financial arrangement); and

(b) you make a loss from ceasing to have the arrangement (or

that part of the arrangement); and

meaning of section 70B of the Income Tax Assessment Act

1936):

(i) you did not acquire the arrangement in the ordinary

course of trading on a securities market (within the

meaning of that section); and

(ii) at the time you acquired the arrangement, it was not

open to you to acquire an identical financial

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arrangement in the ordinary course of trading on a

securities market; and

(d) if the arrangement is a marketable security--you did not

dispose of the arrangement in the course of trading on a

securities market; and

(e) it would be concluded that you ceased to have the

arrangement wholly or partly because there was an

apprehension or belief that the other party or other parties to

the arrangement were, or would be likely to be, unable or

unwilling to discharge all their liabilities to pay amounts

under the arrangement.

(2) The amount of the loss is reduced by so much of that amount as is

a loss of capital or a loss of a capital nature.

Note:

However, the amount by which the loss is reduced is a capital loss.

(3) In applying paragraph (1)(e), you must have regard to:

(a) the financial position of the other party or parties to the

financial arrangement; and

(b) the perceptions of the financial position of the other party or

parties to the arrangement; and

230-470 Forgiveness of comme rcial debts

If a gain that you make from a

financial arrangement arises from

the forgiveness of a debt (as defined in Subdivision 245-B of

Schedule 2C to the Income Tax Assessment Act 1936), the gain is

reduced by:

(a) if section 245-90 (about agreements to forgo capital losses or

revenue reductions) of that Schedule does not apply--the

debt's net forgiven amount as defined in paragraph

245-85(2)(a) of that Schedule; or

(b) if that section does apply--the debt's provisional net

forgiven amount as defined in paragraph 245-85(2)(b) of that

Schedule.

Note:

Section 51AAA (about a net capital gains limit) of the Income Tax

Assessment Act 1936 also has the effect of preventing you from

deducting losses.

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230-475 Clarifying exceptions

Exceptions

(1) To avoid doubt, this Division does not apply to your gains and

losses from a

financial arrangement for any income year to the

extent that your rights and/or obligations are the subject of an

exception under any of the following subsections.

(2) This section is not intended to limit, expand or otherwise affect the

operation of sections 230-45 to 230-55 (which tell you what is

covered by the concept of financial arrangement) in relation to

rights and/or obligations other than those dealt with in this section.

Retirement village and residential or flexible care arrangements

(3) The following rights and obligations are the subject of an

exception:

(a) a right or obligation arising under a

retirement village

residence contract;

(b) a right or obligation arising under a

retirement village

services contract;

arrangement under

which

residential care or

flexible care is provided.

(4) For the purposes of subsection (3):

(a) a retirement village residence contract is a contract that

gives rise to a right to occupy

residential premises in a

retirement village; and

(b) a retirement village services contract is a contract under

which a resident of a retirement village is provided with

general or personal services in the retirement village.

230-480 Treatment of gains in form of franked distribution etc.

(1) This section applies if a gain you make from a

financial

arrangement is in the form of:

(a) a

franked distribution (including a franked distribution that

flows indirectly to you); or

(b) a right to receive a franked distribution (including a franked

distribution that will flow indirectly to you).

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(2) This Division does not apply to the gain to the extent that the

franked distribution has a

franked part.

Subdivision 230-I--Other provisions

Table of sections

230-485 Effect of change of residence--rules for particular methods

230-490 Effect of change of residence--disposal and reacquisition etc. after ceasing

to be Australian resident where no further recognised gains or losses from

arrangement

230-495 Effect of change of accounting standards

230-500 Comparable foreign accounting and auditing standards

230-505 Financial arrangement as consideration for provision or acquisition of a

thing

230-510 Non-arm's length dealings in relation to financial arrangement

230-515 Arm's length dealings in relation to financial arrangement--adjustment to

gain or loss in certain situations

230-520 Disregard gains or losses covered by value shifting regime

230-525 Consolidated financial reports

230-485 Effect of change of residence--rules for particular methods

(1) The object of this section is to deal with your gains and losses for

an income year in which you change residence by:

(a) allocating the gains and losses to your periods of Australian

and foreign residence in that income year; and

(b) determining the assessability of the gains and the

deductibility of the losses according to:

(i) your residency in each period; and

(ii) the sources of the gains and the connection of the losses

with your assessable income.

(2) This section applies if:

(a) you are a foreign resident for part of an income year (the

foreign residency period) and an Australian resident for the

other part of the income year (the Australian residency

period); and

(b) section 230-490 does not apply in respect of the change of

residence.

Note:

See section 230-490 if you change residence, and after the change the

gains and losses you make from the arrangement are not assessable or

deductible under this Division.

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Realisation method

(3) Subsection (4) applies if:

(a) you have a

financial arrangement at the time (the residence

change time):

(i) you cease to be an Australian resident; or

(ii) you become an Australian resident; and

(b) you apply the realisation method to determine the amount of

a gain or loss you make from the arrangement.

(4) You are taken for the purposes of this Division:

(a) to have disposed of the arrangement just before the residence

change time for its fair value just before that time; and

(b) to have acquired the arrangement again at the residence

change time for its fair value at that time.

Accruals and hedging financial arrangement methods

(5) Subsection (6) applies if:

(a) assuming that you disregarded this section and subsection

230-40(2), you would apply the accruals or hedging financial

arrangement method to determine the amount of:

(i) a gain included in your assessable income under

section 230-15 for the income year; or

(ii) a loss you can deduct under section 230-15 for the

income year; and

(b) subsection (4) does not apply in relation to any gain or loss

under the arrangement.

(6) Apply that method by apportioning the gain or loss on a reasonable

basis between those periods so as to work out:

(a) a gain or loss from the arrangement for the foreign residency

period; and

(b) a gain or loss from the arrangement for the Australian

residency period.

Fair value, foreign exchange retranslation and financial reports

methods

(7) Subsection (8) applies if:

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(a) assuming that you disregarded this section and subsection

230-40(2), you would apply the fair value or foreign

exchange retranslation method or the method of relying on

your financial reports to determine the amount of:

(i) a gain included in your assessable income under

section 230-15 for the income year; or

(ii) a loss you can deduct under section 230-15 for the

income year; and

(b) subsection (4) does not apply in relation to any gain or loss

under the arrangement.

(8) Apply that method to work out:

(a) a gain or loss from the arrangement for the foreign residency

period; and

(b) a gain or loss from the arrangement for the Australian

residency period.

230-490 Effect of change of residence--disposal and reacquisition

etc. after ceasing to be Australian resident where no

further recognised gains or losses from arrangement

(1) This section applies if:

(a) you cease to be an Australian resident at a particular time (the

residence change time); and

(b) you have a

financial arrangement at the residence change

time; and

losses you make from the arrangement after that time will not

be assessable or deductible under this Division.

(2) You are taken for the purposes of this Division:

(a) to have disposed of the arrangement just before that time for

its fair value just before that time; and

(b) to have acquired the arrangement again at the residence

change time for its fair value at that time.

230-495 Effect of change of accounting standards

(1) This section applies if:

(a) one of these methods apply to take account of a gain or loss

you make from a

financial arrangement:

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(i) the fair value method provided for in

Subdivision 230-C; or

(ii) the foreign exchange retranslation method provided for

in Subdivision 230-D; or

(iii) the method of relying on your financial reports provided

for in Subdivision 230-F; and

(b) there is a change in, or in the application of, the relevant

standards (as mentioned in section 230-230 (fair value

method), 230-280 (foreign exchange retranslation method) or

230-420 (method of relying on financial reports)) that apply

in relation to the arrangement; and

years; and

(d) as a result of the change, those standards require you to

recognise in your statement of financial position an amount

(the equity amount), in order to avoid the need to increase or

decrease gains or losses recognised in profit or loss from the

financial arrangement in respect of previous income years.

(2) If the equity amount is positive, include in your assessable income

for the particular income year mentioned in paragraph (1)(c) so

much of it as relates to the

financial arrangement mentioned in

paragraph (1)(a).

(3) If the equity amount is negative, you are entitled to a deduction for

the particular income year mentioned in paragraph (1)(c) equal to

so much of it as relates to the

financial arrangement mentioned in

paragraph (1)(a).

230-500 Comparable foreign accounting and auditing standards

The regulations may:

(a) specify that particular standards that apply under a

foreign

law are to be taken for the purposes of this Division to be

comparable to the

accounting standards; and

(b) specify that particular standards that apply under a foreign

law are to be taken for the purposes of this Division to be

comparable to the

auditing standards.

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230-505 Financial arrangement as consideration for provision or

acquisition of a thing

(1) This section applies if you start or cease to have a

Division 230

financial arrangement as consideration for the provision or

acquisition of a thing.

(2) Work out the

market value of the thing at the time at which you

(in fact) provide or acquire it. For the purposes of applying this Act

to you, treat the amount:

(a) you obtain for providing the thing; or

(b) you provide for acquiring the thing;

as being that market value.

Note 1:

The amount may be relevant, for example, for the purposes of

applying the provisions of this Act dealing with capital gains, capital

allowances or trading stock to the thing.

Note 2:

This subsection does not affect the financial benefits received or

provided under the financial arrangement from you starting or ceasing

to have it (except in the circumstances described in Note 3). However:

(a)

the market value of the thing will be, or form part of, those

financial benefits for the purposes of section 230-445; and

(b)

in the case of a non arm's length transaction, the amount of those

financial benefits may be affected by section 230-510.

Note 3:

If the thing is itself a Division 230 financial arrangement and

subsection (3) does not apply, this subsection will determine the

financial benefits received or provided under the financial

arrangement from you starting or ceasing to have it.

(3) Subsection (2) does not apply if:

(a) you start or cease to have the

financial arrangement as

mentioned in subsection (1) under an arrangement (the

starting or ceasing arrangement); and

(b) the thing is itself a

Division 230 financial arrangement; and

Division 230 financial arrangement.

Example: An arrangement for exchanging a share subject to Subdivision 230-C

for another share subject to Subdivision 230-C, where the arrangement

itself is not a Division 230 financial arrangement.

(4) For the purposes of this section:

(a) treat yourself as providing a thing to another entity if:

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(i) you have provided, or are to provide, the thing to the

other entity; or

(ii) you cease to have, have ceased to have or are to cease to

have, the thing; or

(iii) the other entity starts to have, has started having or is to

start to have, the thing; and

(b) treat yourself as acquiring a thing if:

(i) another entity has provided, or is to provide, the thing to

you; or

(ii) another entity ceases to have, has ceased to have or is to

cease to have, the thing; or

(iii) you start to have, have started to have or are to start to

have, the thing.

(5) For the purposes of this section, treat part of a

Division 230

financial arrangement as a Division 230 financial arrangement.

(6) Without limiting subsection (1), the thing provided, or the thing

acquired, need not be a tangible thing and may take the form of

services, conferring a right, incurring an obligation or

extinguishing or varying a right or obligation.

(7) To avoid doubt, this section applies even if your starting or ceasing

to have the

financial arrangement mentioned in subsection (1) is

only part of the consideration for the provision or acquisition of the

thing.

(8) For the purposes of this section, treat your starting or ceasing to

have the

financial arrangement mentioned in subsection (1) as

consideration for the provision or acquisition of the thing if that

starting or ceasing is, in substance or effect, done for the provision

or acquisition of the thing.

Example: Starting to have a financial arrangement in satisfaction of an

obligation, where the obligation itself was incurred as consideration

for the thing.

230-510 Non-arm's length dealings in relation to financial

arrange ment

(1) This section applies if:

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(a) a balancing adjustment is made under Subdivision 230-G in

relation to a

Division 230 financial arrangement you have;

and

(b) if the balancing adjustment was made because of paragraph

230-435(1)(b) or (d) (cessations without transfer)--the

arrangement is not a

debt interest or loan.

Non-arm's length transaction resulting in you starting to have the

arrangement

(2) Subsection (3) applies if the parties to the dealing that resulted in

you starting to have the arrangement were not dealing at

arm's

length in relation to the dealing.

(3) For the purposes of this Division:

(a) disregard the amount of the

financial benefit (if any) that

you provided or received in relation to you starting to have

the arrangement; and

(b) instead, treat yourself as having provided or received a

financial benefit in relation to you starting to have the

arrangement that is equal to the amount of the financial

benefit that you would have provided or received if the

parties to the dealing mentioned in subsection (2) were

dealing at

arm's length in relation to the dealing.

Non-arm's length transaction resulting in change of an amount of

a financial benefit that you provided or received under the

financial arrangement

(4) Subsection (5) applies if the parties to a dealing that resulted in a

change of an amount of a

financial benefit that you provide or

receive under the

financial arrangement were not dealing at

arm's

length in relation to the dealing.

(5) For the purposes of this Division:

(a) disregard the amount of the

financial benefit (if any) that

you provide or receive under the

financial arrangement as a

result of the dealing; and

(b) instead, treat yourself as providing or receiving a financial

benefit under the financial arrangement as a result of the

dealing that is equal to the amount of the financial benefit

that you would have provided or received if the parties to the

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dealing were dealing at

arm's length in relation to the

dealing.

Non-arm's length transaction resulting in balancing adjustment

(6) Subsection (7) applies if the parties to the dealing that resulted in

the balancing adjustment mentioned in subsection (1) being made

were not dealing at

arm's length in relation to the dealing.

(7) For the purposes of this Division:

(a) disregard the amount of the

financial benefit (if any) that

you provide or receive in relation to the balancing

adjustment; and

(b) instead, treat yourself as providing or receiving a financial

benefit in relation to the balancing adjustment that is equal to

the amount of the financial benefit that you would have

provided or received if the parties to the dealing mentioned in

subsection (6) were dealing at

arm's length in relation to the

dealing.

230-515 Arm's length dealings in relation to financial

arrange ment--adjustment to gain or loss in certain

situations

(1) This section applies if:

(a) disregarding this Division, a provision mentioned in

subsection (2) makes an adjustment to an amount (including

a nil amount) (the relevant amount); and

(b) the relevant amount is relevant in determining the amount of

a gain or loss you make from a

Division 230 financial

arrangement.

(2) The provisions are as follows:

(a) section 52A of the Income Tax Assessment Act 1936;

(b) section 73B of the Income Tax Assessment Act 1936;

1936;

(d) Division 16K of Part III of the Income Tax Assessment Act

1936;

(e) subsection 245-65(2) in Schedule 2C to the Income Tax

Assessment Act 1936;

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(f) section 775-40 of the Income Tax Assessment Act 1997.

(3) In determining the amount of the gain or loss, treat the relevant

amount as having been adjusted by the provision mentioned in

subsection (2).

(4) However, if the circumstances that give rise to the adjustment

result in section 230-510 having the effect of altering the amount

of the gain or loss, do not treat the relevant amount as having been

adjusted under subsection (3) to the extent of that alteration.

230-520 Disregard gains or losses covered by value shifting regime

(1) Disregard a gain or loss under this Division from a

financial

arrangement to the extent that it is attributable to:

(a) a shifting of value that has consequences under Division 723;

(b) a

value shift that has consequences under Division 725; or

indirect value shift that has consequences under

Division 727; or

(d) a shifting of value that has consequences analogous to those

under Division 723, 725 or 727 under a repealed provision of

this Act or of the Income Tax Assessment Act 1936.

(2) Determine whether a shifting of value has the consequences

mentioned in paragraph (1)(a) or (d) on the assumption that a

realisation event in respect of all or part of the

financial

arrangement happens in the income year for the gain or loss.

230-525 Consolidated financial reports

For the purposes of this Division, treat a financial report prepared

by another entity as being prepared by you if:

(a) the other entity is a

connected entity of yours; and

(b) the report is a consolidated financial report that deals with

both your affairs and the affairs of the connected entity; and

Subdivision 230-J--Additional operation of Division

Table of sections

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230-530 Additional operation of Division

230-530 Additional operation of Division

Foreign currency

(1) This Division also applies to foreign currency as if the currency

were a right that constituted a

financial arrangement.

Non-equity shares

(2) This Division also applies to a

non-equity share in a company as if

the share were a right that constituted a

financial arrangement.

Commodities held by traders

(3) This Division also applies to a commodity that you hold as if the

commodity were a right that constituted a

financial arrangement

if:

(a) you are an entity that trades or deals both in:

(i) that commodity; and

(ii) financial arrangements whose values change in response

to changes in the price or value of that commodity; and

(b) you hold that commodity for the purposes of dealing in the

commodity; and

fair value election or an

election to rely on financial

reports applies to financial arrangements that you start to

have when you start to have the commodity; and

(d) the commodity is an asset that you are required (whether or

not as a result of a choice you make) by:

(i) the

accounting standards; or

(ii) if those standards do not apply to the preparation of the

financial report--comparable accounting standards that

apply to the preparation of the financial report under a

foreign law;

to classify or designate, in your financial reports, as at fair

value through profit or loss.

Offsetting commodity contracts held by traders

(4) This Division also applies to a contract to which you are a party as

if the contract were a

financial arrangement if:

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(a) you have a right to receive or an obligation to provide a

commodity under the contract; and

(b) you have a practice of dealing in the commodity through the

performance of offsetting contracts to receive and provide the

commodity; and

entering into the contract, the purpose of receiving or

delivering the commodity as part of your expected purchase,

sale or usage requirements; and

(d) a

fair value election or an

election to rely on financial

reports applies to financial arrangements that you start to

have when you enter into the contract; and

(e) the contract is an asset or liability that you are required

(whether or not as a result of a choice you make) by:

(i) the

accounting standards; or

(ii) if those standards do not apply to the preparation of the

financial report--comparable accounting standards that

apply to the preparation of the financial report under a

foreign law;

to classify or designate, in your financial reports, as at fair

value through profit or loss.

2 At the end of subsection 775-15(4)

Add:

Note:

Under section 230-20, foreign exchange gains from a Division 230

financial arrangement are dealt with under Division 230 and not under

this Division.

3 At the end of subsection 775-30(4)

Add:

Note:

Under section 230-20, foreign exchange losses from a Division 230

financial arrangement are dealt with under Division 230 and not under

this Division.

4 Section 775-200

After "4", insert "or 9".

5 After subsection 775-270(1)

Insert:

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(1A) A choice under subsection (1) does not apply to a

qualifying forex

account held by you if a

foreign exchange retranslation election

by you is in effect in relation to the account under

Subdivision 230-D.

6 At the end of Division 775

Add:

Subdivision 775-F--Retranslation under foreign exchange

retranslation election under Subdivision 230-D

Guide to Subdivision 775-F

775-290 What this Subdivision is about

If you have made a foreign exchange retranslation election under

Subdivision 230-D:

(a) a forex realisation gain or a forex realisation loss

you make in relation to an arrangement that is not a

Division 230 financial arrangement as a result of

forex realisation event 1 to 5 or 8 is disregarded;

and

(b) forex realisation event 9 enables any gains or

losses to be worked out on a retranslation basis.

Table of sections

775-295 When this Subdivision applies

775-300 Tax consequences of choosing retranslation for arrangement

775-305 Retranslation of gains and losses relating to arrangement to which foreign

exchange retranslation election applies--forex realisation event 9

775-310 When election ceases to apply to arrangement

775-315 Balancing adjustment when election ceases to apply to arrangement

775-295 When this Subdivision applies

(1) A

foreign exchange retranslation election applies to an

arrangement for the purposes of this Subdivision if:

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(a) you start to have the arrangement after the start of the income

year in which the election is made; and

(b) the arrangement is recognised in financial reports of a kind

referred to in paragraph 230-255(2)(a) that are audited, or

required to be audited, as referred to in paragraph

230-255(2)(b); and

by:

(i)

accounting standard AASB 121 (or another accounting

standard prescribed for the purposes of paragraph

230-265(1)(c)); or

(ii) if that standard does not apply to the preparation of the

financial report--a comparable accounting standard that

applies to the preparation of the financial report under a

foreign law;

to recognise, in the financial reports referred to in paragraph

230-255(1)(a), amounts in profit or loss (if any) that are

attributable to changes in currency exchange rates.

(2) The

foreign exchange retranslation election does not apply to an

arrangement for the purposes of this Subdivision if:

(a) the election is made by the

head company of a

consolidated

group or

MEC group; and

(b) the election specifies that the election is not to apply to

financial arrangements in relation to

life insurance business

carried on by a member of the consolidated group or MEC

group; and

business carried on by a member of the consolidated group or

MEC group.

(3) The

foreign exchange retranslation election does not apply to an

arrangement for the purposes of this Subdivision if the

arrangement is associated with a business of a kind specified in

regulations made for the purposes of subsection 230-270(4).

775-300 Tax consequences of choosing retranslation for

arrange ment

(1) A

forex realisation gain or

forex realisation loss you make as a

result of forex realisation event 1, 2, 3, 4, 5 or 8 is disregarded if:

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(a) the event happens in relation to an

arrangement that you

hold; and

(b) you have made a

foreign exchange retranslation election that

applies to the arrangement; and

(2) If:

(a) CGT event C1 or C2 happens in relation to an

arrangement

that you hold at the time of the event; and

(b) you have made a

foreign exchange retranslation election that

applies to the arrangement; and

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.

775-305 Retranslation of gains and losses relating to arrangement to

which foreign exchange retranslation election applies--

forex realisation event 9

Forex realisation event 9

(1) Forex realisation event 9 happens in relation to an

arrangement

during an income year if:

(a) you have made a

foreign exchange retranslation election that

applies to the arrangement; and

(b) you are required by:

(i)

accounting standard AASB 121 (or another accounting

standard prescribed for the purposes of paragraph

230-265(1)(c)); or

(ii) if that standard does not apply to the preparation of the

financial report--a comparable accounting standard that

applies to the preparation of the financial report under a

foreign law;

to recognise, in the financial report referred to in paragraph

230-255(1)(a) for that income year, amounts in profit or loss

(if any) in relation to the arrangement that are attributable to

changes in currency exchange rates.

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136 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,

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The forex realisation event 9 is taken to have happened in the

income year.

Forex realisation gain

(2) You make a forex realisation gain if the standard referred to in

paragraph (1)(b) requires you to recognise an amount in profit in

relation to the

arrangement. That amount of the forex realisation

gain is the amount the standard requires you to recognise.

Forex realisation loss

(3) You make a forex realisation loss if the

accounting standard

referred to in paragraph (1)(b) requires you to recognise an amount

in loss in relation to the

arrangement. That amount of the forex

realisation loss is the amount that the accounting standard requires

you to recognise.

Section does not apply to amounts previously recognised in equity

(4) Subsections (1), (2) and (3) do not apply to amounts that have

previously been required by the standards referred to in paragraph

230-255(2)(a) to be recognised in equity.

775-310 When election ceases to apply to arrangement

(1) For the purposes of this Division, a

foreign exchange retranslation

election under subsection 230-255(1) ceases to apply to an

arrangement from the start of an income year if the arrangement

ceases to satisfy a requirement of paragraph 775-295(1)(b) or (c)

during that income year.

(2) If the election ceases to apply to an

arrangement under

subsection (1), the election cannot subsequently reapply to that

arrangement (even if the requirements of paragraphs 775-295(1)(b)

and (c) are satisfied once more in relation to the arrangement).

775-315 Balancing adjustment whe n election ceases to apply to

arrange ment

(1) This section applies if:

(a) you make a

foreign exchange retranslation election; and

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137

(b) the election ceases to have effect or ceases to apply to an

arrangement.

(2) You are taken, for the purposes of this Division, to have:

(a) disposed of the

arrangement for its fair value immediately

before the election ceases to have effect or ceases to apply to

the arrangement; and

(b) reacquired the arrangement at its fair value immediately after

the election ceases to have effect or ceases to apply to the

arrangement.

Note:

Paragraph (a) means that there would be a forex realisation event 9 in

relation to the arrangement.

7 Subsection 820-930(1)

After "this Division", insert "and Division 230".

8 Subsection 995-1(1)

Insert:

auditing standard has the same meaning as in the Corporations

Act 2001.

9 Subsection 995-1(1) (definition of cash settlable)

Omit "250-165(2)", substitute "230-45(2)".

10 Subsection 995-1(1)

Insert:

derivative financial arrangement has the meaning given by

subsection 230-350(1).

11 Subsection 995-1(1)

Insert:

Division 230 financial arrangement: a

financial arrangement is a

Division 230 financial arrangement if Division 230 applies in

relation to your gains and losses from the arrangement.

12 Subsection 995-1(1)

Insert:

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138 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,

2008

election to rely on financial reports has the meaning given by

section 230-395.

13 Subsection 995-1(1)

Insert:

fair value election has the meaning given by subsection

230-210(1).

14 Subsection 995-1(1) (definition of financial arrangement)

Omit "sections 250-165 to 250-175", substitute "sections 230-45 to

230-55".

15 Subsection 995-1(1)

Insert:

flexible care has the same meaning as in the Aged Care Act 1997.

16 Subsection 995-1(1)

Insert:

foreign currency hedge has the meaning given by subsection

230-350(2).

17 Subsection 995-1(1)

Insert:

foreign exchange retranslation election has the meaning given by

subsections 230-255(1) and (3).

18 Subsection 995-1(1)

Insert:

hedged item has the meaning given by subsections 230-335(10)

and (11).

19 Subsection 995-1(1)

Insert:

hedging financial arrangement has the meaning given by

subsections 230-335(1) to (9) and sections 230-340 and 230-345.

Amend ments Schedule 1

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Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008

139

20 Subsection 995-1(1)

Insert:

hedging financial arrangement election has the meaning given by

section 230-315.

21 Subsection 995-1(1) (definition of money equivalent)

Repeal the definition, substitute:

money equivalent means:

(a) a right to receive money or something that is a

money

equivalent under this definition; or

(b) a

financial arrangement (within the meaning of

section 230-45).

22 Subsection 995-1(1)

Insert:

qualifying security has the same meaning as in Division 16E of

Part III of the Income Tax Assessment Act 1936.

23 Subsection 995-1(1)

Insert:

residential care has the same meaning as in the Aged Care Act

1997.

24 Subsection 995-1(1)

Insert:

residential premises has the same meaning as in the A New Tax

System (Goods and Services Tax) Act 1999.

25 Subsection 995-1(1)

Insert:

retirement village has the same meaning as in the A New Tax

System (Goods and Services Tax) Act 1999.

26 Subsection 995-1(1)

Insert:

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140 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,

2008

retirement village residence contract has the meaning given by

paragraph 230-475(4)(a).

27 Subsection 995-1(1)

Insert:

retirement village services contract has the meaning given by

paragraph 230-475(4)(b).

28 Subsection 995-1(1) (paragraph (aa) of the definition of

special accrual amount)

Repeal the paragraph, substitute:

(aa) Subdivision 230-A of this Act (which deals with gains and

losses from financial arrangements) if:

(i) the accruals method provided for in Subdivision 230-B

of this Act is applied to take account of the gain or loss

concerned; and

(ii) all the

financial benefits provided and received under

the

financial arrangement concerned are denominated

in a particular foreign currency;

29 Subsection 995-1(1)

Insert:

Subdivision 230-G assessable gain from a

financial arrangement

means an amount that is taken, as a balancing adjustment under

Subdivision 230-G, to be a gain you make from the arrangement

for the purposes of Division 230.

30 Subsection 995-1(1)

Insert:

Subdivision 230-G loss from a

financial arrangement means an

amount that is taken, as a balancing adjustment under

Subdivision 230-G, to be a loss you make from the arrangement for

the purposes of Division 230.

Amend ments Schedule 1

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141

Part 2

Consequential amendments

Income Tax Assessment Act 1936

31 Subsection 6(1)

Insert:

Division 230 financial arrangement has the same meaning as in

the Income Tax Assessment Act 1997.

32 Subsection 51AAA(2) (at the end of the table)

Add:

Div ision 230

Financial arrangements

33 Paragraph 82KZLA(a)

Repeal the paragraph, substitute:

(a) a Division 230 financial arrangement (within the meaning of

the Income Tax Assessment Act 1997); or

34 Before paragraph 96C(5A)(a)

Insert:

(aa) Division 230 of the Income Tax Assessment Act 1997; and

35 At the end of subsection 102CA(2)

Add:

; or (c) the right is, or is part of, a Division 230 financial

arrangement (within the meaning of the Income Tax

Assessment Act 1997).

36 Subsection 121D(8)

Omit "contract", substitute "financial arrangement (within the meaning

of the Income Tax Assessment Act 1997)".

37 At the end of section 121EB

Add:

Schedule 1 A mendments

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142 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,

2008

(3) To avoid doubt, this section applies for the purposes of applying

Subdivision 230-A of the Income Tax Assessment Act 1997 to a

financial arrangement (within the meaning of that Act).

Note:

This means that it is possible for financial arrangements to be entered

into between the bank and the branch and for the bank or the branch to

have a gain or loss from such an arrangement dealt with under

Division 230 of the Income Tax Assessment Act 1997.

38 Section 128NBA

Omit "net Division 16E amount" (wherever occurring), substitute "net

financial arrangement amount".

Note:

The heading to section 128NBA is replaced by the heading "Credits in respect of

amounts assessed in relation to certain financial arrangements".

39 Paragraph 128NBA(1)(a)

After "a qualifying security", insert "or a Division 230 financial

arrangement".

40 Subsection 128NBA(5)

Repeal the subsection, substitute:

Net financial arrangement amount

(5) For the purposes of this section, if:

(a) in the case of a qualifying security--the sum of all amounts

(if any) included in the assessable income of the taxpayer of

any years of income in relation to the qualifying security,

attributable agreement payment or payment of interest under

section 159GQ; or

(b) in the case of a Division 230 financial arrangement--the sum

of all amounts (if any) included in the assessable income of

the taxpayer of any years of income in relation to the

arrangement under Division 230 of the Income Tax

Assessment Act 1997;

exceeds:

(if any) allowable as deductions from the assessable income

of the taxpayer of any years of income in relation to the

security or the payment, as the case may be, under that

section; or

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143

(d) in the case of a Division 230 financial arrangement--the sum

of:

(i) all amounts (if any) allowable as deductions from the

assessable income of the taxpayer of any years of

income in relation to the arrangement under

Division 230 of the Income Tax Assessment Act 1997;

and

(ii) all amounts (if any) of interest paid under the

arrangement before the interest mentioned in

paragraph (1)(a) is paid;

there is a net financial arrangement amount equal to the excess.

(6) For the purposes of paragraph (5)(b) and subparagraph (5)(d)(i),

disregard any year of income in which the taxpayer was not an

Australian resident.

(7) For the purposes of subsection (6):

(a) if section 230-485 of the Income Tax Assessment Act 1997

applies in relation to a year of income:

(i) treat the foreign residency period mentioned in that

section as a year of income in which the taxpayer was

not an Australian resident; and

(ii) treat the Australian residency period mentioned in that

section as a year of income in which the taxpayer was

an Australian resident; and

(b) if section 230-490 of that Act applies in relation to a year of

income:

(i) treat the period during that year in which the taxpayer

was not an Australian resident as a year of income in

which the taxpayer was not an Australian resident; and

(ii) treat the period during that year in which the taxpayer

was an Australian resident as a year of income in which

the taxpayer was an Australian resident.

41 Section 160ZZV (definition of derivative transaction)

Omit "means a transaction", substitute "means a Division 230 financial

arrangement (within the meaning of the Income Tax Assessment Act

1997) that is".

42 Section 160ZZV (definition of derivative transaction)

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Part 2 Consequential amendments

144 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,

2008

After "does not include a transaction", insert "entered into".

43 After subsection 160ZZW(1)

Insert:

(1A) To avoid doubt, subsection (2) applies for the purposes of applying

Subdivision 230-A of the Income Tax Assessment Act 1997 to a

financial arrangement (within the meaning of that Act).

Note:

This means that it is possible for financial arrangements to be entered

into between the bank and the branch and for the bank or the branch to

have a gain or loss from such an arrangement dealt with under

Division 230 of the Income Tax Assessment Act 1997.

44 Section 160ZZX

Before "All", insert "(1)".

45 At the end of section 160ZZX

Add:

(2) All gains from a Division 230 financial arrangement (within the

meaning of the Income Tax Assessment Act 1997) made by a

foreign bank through its Australian branch is taken, for the

purposes of this Act, to be from an Australian source.

46 After subsection 262A(2AAC)

Insert:

(2AAD) Subsection (1) applies to a person who has a Division 230 financial

arrangement even if the person is not carrying on a business in

relation to the arrangement. However, that subsection only requires

the person to keep records that, for the purposes of this Act, are

relevant to the arrangement.

(2AAE) To avoid doubt, for the purposes of subsection (4), if the records

mentioned in that subsection relate to a Division 230 financial

arrangement that a person has, the transactions or acts mentioned

in that subsection are taken to be completed at:

(a) the end of the year of income in which the person ceases to

have the arrangement; or

(b) if:

(i) the person applies the hedging financial arrangement

method in Subdivision 230-E of the Income Tax

Amend ments Schedule 1

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145

Assessment Act 1997 to determine the amount of one or

more gains or losses the person makes from the

arrangement; and

(ii) determining the way in which those gains or losses are

dealt with in accordance with subsection 230-310(4) of

that Act is possible only at a time after the end of the

income year mentioned in paragraph (a);

the end of the year of income in which that time occurs.

47 After paragraph 262A(3)(c)

Insert:

(ca) for records required to be kept under section 230-355 of the

Income Tax Assessment Act 1997--comply with the

applicable provisions of that section; and

48 Subsection 317(1) (paragraph (b) of the definition of

tainted interest income)

After "Part III", insert "(or would be so included if Division 230 of the

Income Tax Assessment Act 1997 did not apply)".

49 After paragraph 389(b)

Insert:

(ba) Division 230 of the Income Tax Assessment Act 1997;

50 At the end of section 557A

Add:

; and (c) Division 230 of the Income Tax Assessment Act 1997.

51 Subsection 57-25(6) of Schedule 2D (after table item 6)

Insert:

Div ision 230

Income Tax Assessment Act 1997

52 Section 10-

5 (after table item headed "consideration")

Insert:

consolidated groups and MEC groups

Assets in relation to Division 230 financial arrangement.... 701-61(3)

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146 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,

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53 Section 10-

5 (after table item headed "films")

Insert:

financial arrangements

gains from .................................................................................... 230-15(1)

54 Section 12-

5 (after table item headed "conservation

covenants")

Insert:

financial arrangements

Assets in relation to Division 230 financial arrangement.... 701-61(4)

55 Section 11-

10 (after table item headed "dividends or

shares")

Insert:

financial arrangements

gains related to exempt inco me ................................................ 230-30

56 Section 11-

55 (after table item headed "employment")

Insert:

financial arrangements

gains related to non-assessable non-exempt inco me ............ 230-30

57 Section 12-5 (table

item headed "financial arrangements")

Repeal the item, substitute:

financial arrangements

losses from ................................................................................... 230-15(2) and (3)

see also borrowing expenses, infrastructure borrowings,

interest, leases and securities

58 At the end of subsection 25-35(5)

Add:

Note:

Subsections 230-180(3), (5) and (6) and 230-195(3), (5) and (6)

provide that in certain circumstances a deduction for a loss in relation

to a financial arrangement is to be treated, for the purposes of this Act,

as a deduction of a bad debt. The rules referred to in this subsection

apply to that deduction.

59 After subsection 25-85(4)

Insert:

Amend ments Schedule 1

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147

(4A) Subsections (2) and (3) do not apply to a

return on a

debt interest

that is a

Division 230 financial arrangement.

60 At the end of section 25-90

Add:

Note:

This section does not apply to a Division 230 financial arrangement.

61 Subsection 40-180(1) (note)

Omit "Note", substitute "Note 1".

62 At the end of subsection 40-180(1)

Add:

Note 2:

Section 230-505 provides special rules for working out the amount of

consideration for an asset if the asset is a Division 230 financial

arrangement or a Division 230 financial arrangement is involved in

that consideration.

63 Subsection 40-185(1) (note)

Omit "Note", substitute "Note 1".

64 At the end of subsection 40-185(1)

Add:

Note 2:

Section 230-505 provides special rules for working out the amount of

consideration for an asset if the asset is a Division 230 financial

arrangement or a Division 230 financial arrangement is involved in

that consideration.

65 At the end of subsection 40-300(1)

Add:

Note:

Section 230-505 provides special rules for working out the amount of

consideration for an asset if the asset is a Division 230 financial

arrangement or a Division 230 financial arrangement is involved in

that consideration.

66 Subsection 40-305(1) (note)

Omit "Note", substitute "Note 1".

67 At the end of subsection 40-305(1)

Add:

Schedule 1 A mendments

Part 2 Consequential amendments

148 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,

2008

Note 2:

Section 230-505 provides special rules for working out the amount of

consideration for an asset if the asset is a Division 230 financial

arrangement or a Division 230 financial arrangement is involved in

that consideration.

68 Section 70-10

Repeal the section, substitute:

70-10 Meaning of trading stock

Trading stock includes:

(a) anything produced, manufactured or acquired that is held for

purposes of manufacture, sale or exchange in the ordinary

course of a

business; and

(b)

live stock;

but does not include a

Division 230 financial arrangement.

Note 1:

Shares in a PDF are not trading stock. See section 124ZO of the

Income Tax Assessment Act 1936.

Note 2:

If a company becomes a PDF, its shares are taken not to have been

trading stock before it became a PDF. See section 124ZQ of the

Income Tax Assessment Act 1936.

69 At the end of section 102-20

Add:

Note 5:

Under subsection 230-310(4) gains and losses are taken to arise from a

CGT event in particular circumstances.

70 At the end of section 104-5

Add:

Note:

Subsection 230-310(4) (which deals with hedging financial

arrangements) provides that in certain circumstances a CGT event is

taken to have occurred in relation to a hedging financial arrangement

at the same time as a CGT event actually occurs in relation to a

hedged item covered by the arrangement.

71 At the end of subsection 110-25(1)

Add:

Note 3:

An amount that makes up all or part of an element of the cost base of

an asset may be determined under section 230-505, if the amount is

provided for acquiring a thing, and you start or cease to have a

Division 230 financial arrangement as consideration for the

acquisition of the thing.

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149

72 At the end of section 112-5

Add:

(7) Section 230-505 provides special rules for working out the amount

of consideration for an asset if the asset is a

Division 230 financial

arrangement or a Division 230 financial arrangement is involved in

that consideration.

73 Section 112-97 (after table item 22A)

Insert:

22B

You start or cease to have a

Division 230 financial

arrangement as consideration

for the acquisition of a thing

All elements of cost base

and reduced cost base

section 230-505

74 Subsection 116-10(7) (note)

Omit "Note", substitute "Note 1".

75 At the end of subsection 116-10(7)

Add:

Note 2:

Section 230-505 of this Act (Division 230 financial arrangement as

consideration for provision or acquisition of a thing) also modifies

capital proceeds.

76 Section 118-27

Repeal the section, substitute:

118-27 Division 230 financial arrange ments

(1) A

capital gain or

capital loss you make:

(a) from a

CGT asset; or

(b) in creating a CGT asset; or

is disregarded if, at the time of the

CGT event, the asset or

liability is, or is part of, a

Division 230 financial arrangement.

Note 1:

Paragraph (b) is relevant for CGT event D1.

Note 2:

Paragraph (c) is relevant for CGT event L7.

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

Schedule 1 A mendments

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150 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,

2008

(a) a gain or loss that subsection 230-310(4) (which deals with

hedging financial arrangements) provides is to be treated as a

capital gain or

capital loss;

(b) a loss that is reduced under subsection 230-465(2), to the

extent of that reduction (this is the extent to which the loss is

of a capital nature).

(3) Subsection (1) does not apply if the situation that gives rise to the

CGT event does not result in a gain from the arrangement being

included in your assessable income under Division 230, or in a loss

from the arrangement entitling you to a deduction under

Division 230.

77 Section 130-100

After "a

traditional security", insert "or

qualifying security".

78 Paragraph 130-100(a)

After "the traditional security" (wherever occurring), insert "or the

qualifying security".

79 Sections 250-165 to 250-175

Repeal the sections.

80 After paragraph 295-85(2)(a)

Insert:

(aa) section 230-15 (about financial arrangements);

81 Section 320-45

Before "If", insert "(1)".

82 At the end of section 320-45

Add:

(2) Subsection (1) has effect despite anything in Division 230.

83 After paragraph 396-30(1)(b)

Insert:

; or (c) an amount allowable as a deduction to the borrower under

Division 230, to the extent that, if that Division did not apply,

Amend ments Schedule 1

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151

the amount would be allowable as a deduction to the

borrower in the circumstances mentioned in paragraph (b).

84 After paragraph 396-30(2)(b)

Insert:

; or (c) an amount included in the assessable income of the lender

under Division 230, to the extent that, if that Division did not

apply, the amount would be included in the assessable

income of the lender in the circumstances mentioned in

paragraph (b).

85 After subsection 701-55(5)

Insert:

Division 230 (financial arrangements)

(5A) If Division 230 is to apply in relation to the asset, the expression

means that the Division applies as if the asset were acquired at the

particular time for a payment equal to:

(a) unless paragraph (b) applies--the asset's

tax cost setting

amount; or

(b) if the asset's tax cost is set because an entity becomes a

subsidiary member of a

consolidated group, and

Subdivision 230-C (fair value method), Subdivision 230-D

(foreign exchange retranslation method) or

Subdivision 230-F (reliance on financial reports method) is to

apply in relation to the asset--the asset's

Division 230

starting value at the particular time.

(5B) To avoid doubt, for the purposes of paragraph (5A)(b), determine

the asset's

Division 230 starting value by reference to the relevant

standards (as mentioned in section 230-230, 230-280 or 230-420)

that apply in relation to the

head company's financial report for

the income year in which the entity becomes a subsidiary member

of the group.

86 Subsection 701-58(2)

Omit "subsections 701-55(2), (3), (4), (5) and (6)", substitute

"subsections 701-55(2), (3), (4), (5), (5A) and (6)".

87 After section 701-60

Schedule 1 A mendments

Part 2 Consequential amendments

152 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,

2008

Insert:

701-61 Assets in relation to Division 230 financial arrangement--

head company's assessable income or deduction

(1) This section applies if:

(a) an entity (the joining entity) becomes a

subsidiary member

of a

consolidated group; and

(b) paragraph 701-55(5A)(b) applies in relation to one or more

assets of the joining entity.

(2) Work out if the total of the

Division 230 starting values for those

assets exceeds or falls short of the total of their

tax cost setting

amounts.

(3) If there is an excess, an amount equal to 25% of that excess is

included in the

head company's assessable income for:

(a) the income year in which the particular time mentioned in

subsection 701-55(5A) occurs; and

(b) each of the 3 subsequent income years.

(4) If there is a shortfall, the

head company is entitled to a deduction

equal to 25% of that shortfall for:

(a) the income year in which the particular time mentioned in

subsection 701-55(5A) occurs; and

(b) each of the 3 subsequent income years.

88 After subsection 705-30(3A)

Insert:

Division 230 financial arrangements

(3B) If an asset of the joining entity is or is part of a

Division 230

financial arrangement, the joining entity's terminating value for the

asset is equal to the amount of consideration that the joining entity

would need to receive, if it were to dispose of the asset just before

the joining time, without an amount being assessable income of, or

deductible to, the joining entity under Division 230.

89 After Subdivision 715-D

Insert:

Amend ments Schedule 1

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153

Subdivision 715-F--Interactions with Division 230 (financial

arrangements)

Table of sections

715-375 Cost setting--amount of liability that is Division 230 financial arrangement

715-380 Exit history rule not to affect certain matters related to Division 230

financial arrangements

715-385 Exit history rule and elective methods applying to Division 230 financial

arrangements

715-375 Cost setting--amount of liability that is Division 230

financial arrangement

(1) Subsection (2) applies if:

(a) an entity (the joining entity) becomes a

subsidiary member

of a

consolidated group at a time (the joining time); and

(b) a thing (the accounting liability) is, in accordance with

accounting standards, or statements of accounting concepts

made by the Australian Accounting Standards Board, a

liability of the joining entity at the joining time that can or

must be recognised in the entity's statement of financial

position; and

Division 230

financial arrangement.

(2) For the purposes of Division 230, treat the

head company of the

group as starting to have the accounting liability at the joining

time.

(3) Subsection (4) applies if:

(a) the requirements in subsection (1) are met; and

(b) Subdivision 230-C (fair value method), Subdivision 230-D

(foreign exchange retranslation method) or

Subdivision 230-F (reliance on financial reports method) is to

apply in relation to the accounting liability after the joining

time.

(4) For as long as Subdivision 230-C, 230-D or 230-F applies in

relation to the accounting liability, treat the amount of the

accounting liability as its

Division 230 starting value at the joining

Schedule 1 A mendments

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154 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,

2008

time for the purposes of those Subdivisions and

Subdivision 230-G.

715-380 Exit history rule not to affect certain matters related to

Division 230 financial arrangements

Spreading fees gain or loss

(1) Subsection (2) applies if:

(a) an entity (the leaving entity) ceases to be a

subsidiary

member of a

consolidated group at a time (the leaving time);

and

(b) but for the cessation of membership and section 701-40 (the

exit history rule), the

head company of the group would

spread a fees gain or loss mentioned in section 230-160 over

a period that ended after the leaving time.

(2) Despite section 701-40 (the exit history rule), the

head company

of the

consolidated group continues to spread the fees gain or loss

over that period, in accordance with section 230-160.

Assessable income and deductions under section 701-61

(3) Subsection (4) applies if:

(a) an entity (the leaving entity) ceases to be a

subsidiary

member of a

consolidated group at a time (the leaving time);

and

(b) but for the cessation of membership and section 701-40 (the

exit history rule):

(i) an amount would be included in the assessable income

of the

head company of the group under section 701-61

for an income year ending after the leaving time; or

(ii) the head company of the group would be entitled to a

deduction under section 701-61 for an income year

ending after the leaving time.

(4) Despite section 701-40 (the exit history rule), the amount is

included in the assessable income of the

head company for the

income year, or the head company is entitled to the deduction for

the income year.

Amend ments Schedule 1

Consequential amend ments Part 2

Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008

155

715-385 Exit history rule and elective methods applying to

Division 230 financial arrangements

(1) Subsection (2) applies if:

(a) an entity (the leaving entity) ceases to be a

subsidiary

member of a

consolidated group at a time (the leaving time);

and

(b) the

head company of the group has a

Division 230 financial

arrangement at the leaving time because the leaving entity is

taken by subsection 701-1(1) (the single entity rule) to be a

part of the head company; and

a kind mentioned in section 230-220 (fair value method),

230-265 (foreign exchange retranslation method), 230-325

(hedging method) or 230-410 (reliance on financial reports

method).

(2) For the purposes of determining whether the election applies to the

financial arrangement, disregard paragraphs 230-220(1)(d),

230-265(1)(d), 230-325(a) and 230-410(1)(b)).

90 Subsection 715-660(1) (after table item 3)

Insert:

section 230-210, 230-255, 230-315

or 230-395

Choice about treatment of gains and

losses from

Div ision 230 financial

arrangement

91 Subsection 715-665(1) (after table item 1)

Insert:

section 230-210, 230-255, 230-315

or 230-395

Choice about treatment of gains and

losses from

Div ision 230 financial

arrangement

92 Section 775-170

Repeal the section.

93 Subsections 775-195(8) and (9)

Repeal the subsections.

Schedule 1 A mendments

Part 2 Consequential amendments

156 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,

2008

94 Subsections 960-55(3) and (4)

Repeal the subsections.

95 Subsections 960-60(5) and (6)

Repeal the subsections.

96 Subsection 995-1(1)

Insert:

Division 230 starting value:

(a) the Division 230 starting value of an asset or liability that is

or is part of a

Division 230 financial arrangement to which

Subdivision 230-C (fair value method) applies is the amount

of the asset or the amount of the liability according to the

relevant standards mentioned in section 230-230 that apply in

relation to the arrangement; and

(b) the Division 230 starting value of an asset or liability that is

or is part of a Division 230 financial arrangement to which

Subdivision 230-D (foreign exchange retranslation method)

applies is the value of the asset or the amount of the liability

according to the relevant standards mentioned in

section 230-280 that apply in relation to the arrangement; and

or is part of a Division 230 financial arrangement to which

Subdivision 230-F (reliance on financial reports method)

applies is the value of the asset or the amount of the liability

according to the relevant standards mentioned in

section 230-420 that apply in relation to the arrangement.

97 Subsection 995-1(1) (after paragraph (b) of the definition

of special accrual amount)

Insert:

(ba) Division 230 (other than Subdivision 230-B) of this Act;

Income Tax (Transitional Provisions) Act 1997

98 Subsection 295-390(5) (subparagraph (a)(iii) of the

definition of fixed interest complying ADF)

Amend ments Schedule 1

Consequential amend ments Part 2

Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008

157

After "Income Tax Assessment Act 1936", insert "(or would be so

included if Division 230 of the Income Tax Assessment Act 1997 did not

apply)".

99 Before Subdivision 715-J

Insert:

Subdivision 715-F--Interactions with Division 230 (financial

arrangements)

Table of sections

715-380 Exit history rule not to affect certain matters related to Division 230

financial arrangements

715-380 Exit history rule not to affect certain matters related to

Division 230 financial arrangements

Transitional balancing adjustments

(1) Subsection (2) applies if:

(a) an entity (the leaving entity) ceases to be a subsidiary

member of a consolidated group at a time (the leaving time);

and

(b) but for the cessation of membership and section 701-40 of

the Income Tax Assessment Act 1997 (the exit history rule),

the head company of the group would be subject to a

balancing adjustment under item 104 of Schedule 1 to the

Tax Laws Amendment (Taxation of Financial Arrangements)

Act 2008 for an income year ending after the leaving time.

(2) Despite section 701-40 of the Income Tax Assessment Act 1997

(the exit history rule), the head company of the consolidated group

continues to be subject to the balancing adjustment for income

years ending after the leaving time.

100 Paragraph 77(1)(b) of Schedule 4

Repeal the paragraph.

Taxation Administration Act 1953

Schedule 1 A mendments

Part 2 Consequential amendments

158 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,

2008

101 Subsection 45-120(2B) in Schedule 1

Repeal the subsection (including the heading), substitute:

Net gains under Division 230 included in instalment income

(2B) Your instalment income for a period also includes the difference

between:

(a) a gain (or gains) you make from a

financial arrangement to

the extent to which it is (or they are):

(i) assessable under Division 230 of the Income Tax

Assessment Act 1997; and

(ii) reasonably attributable to that period; and

(b) a loss (or losses) you make from a financial arrangement to

the extent to which it is (or they are):

(i) allowable to you as a deduction under Division 230 of

the Income Tax Assessment Act 1997; and

(ii) reasonably attributable to that period.

This is so only if the gain (or gains) referred to in paragraph (a)

exceeds the loss (or losses) referred to in paragraph (b).

Amend ments Schedule 1

Application and transitional provisions Part 3

Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008

159

Part 3

Application and transitional provisions

102 Definitions

In this Part:

financial arrangement amendments means the amendments made by

Parts 1 and 2 of this Schedule.

first applicable income year means the first income year for which the

financial arrangement amendments apply to you under item 103.

lodgment date means the due date for you to lodge an income tax

return.

103 Application of financial arrangement amendments

(income years)

(1) Subject to subitem (2), the financial arrangement amendments

apply to you for income years commencing on or after 1 July 2010.

(2) The financial arrangement amendments apply to you for income

years commencing on or after 1 July 2009 if you elect to have this

subitem apply to you.

Note:

For a consolidated group, it is the head entity that would make the

election.

(3) An election under subitem (2) must be made on or before the first

lodgment date that occurs on or after the start of your first income

year commencing on or after 1 July 2009.

104 Application of financial arrangement amendments

(financial arrangements)

Future financial arrangements

(1)

The financial arrangement amendments apply to financial arrangements

that you start to have in the first applicable income year or a later

income year.

Existing financial arrangements

(2)

The financial arrangement amendments apply to all financial

arrangements that:

Schedule 1 A mendments

Part 3 Application and transitional provisions

160 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,

2008

(a) you started to have before the start of the first applicable

income year; and

(b) you have at the start of that income year;

only if you elect to have this subitem apply to you.

(3)

The financial arrangement amendments do not apply under subitem (2)

to a financial arrangement that arose from a disposal of property

(including a disposal of a capital asset, a revenue asset, a depreciating

asset or trading stock).

(4)

The financial arrangement amendments do not apply under subitem (2)

to a financial arrangement if:

(a) the election is made by the head company of a consolidated

group or MEC group; and

(b) the election specifies that the election is not to apply to

financial arrangements in relation to life insurance business

carried on by a member of the consolidated group or MEC

group; and

business carried on by a member of the consolidated group or

MEC group.

(5)

An election under subitem (2) must:

(a) be made on or before the first lodgment date that occurs on or

after the start of the first applicable income year; and

(b) be notified to the Commissioner on or before the lodgment

date referred to in paragraph (a).

(6)

If you make an election under subitem (2), treat subsection 230-455(7)

of the Income Tax Assessment Act 1997 as allowing you to make an

election under that subsection that applies to:

(a) in any case--all of the financial arrangements that you start

to have in the income year in which the election is made or a

later income year; or

(b) if you make the election at the same time as you make the

election under subitem (2)--all of your financial

arrangements to which the financial arrangements

amendments apply.

(7)

If you make an election under subitem (2), treat section 230-150 of the

Income Tax Assessment Act 1997 as allowing you to make an election

Amend ments Schedule 1

Application and transitional provisions Part 3

Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008

161

under that section that, despite paragraph 230-160(1)(b), applies to a

financial arrangement that:

(a) you started to have before the start of the first applicable

income year; and

(b) you have at the start of that income year.

(8)

An election that you make under Subdivision 230-C, 230-D or 230-F of

the Income Tax Assessment Act 1997 extends to financial arrangements

referred to in subitem (2) only if that election is made on or before the

first lodgment date that occurs after the start of the first applicable

income year.

(9)

An election that you make under Subdivision 230-E of the Income Tax

Assessment Act 1997 extends to a financial arrangement referred to in

subitem (2) only if:

(a) that election is made on or before the first lodgment date that

occurs after the start of the first applicable income year; and

(b) the requirements of section 230-335 were satisfied in relation

to the arrangement at the time the arrangement was created,

acquired or applied; and

place records in relation to the arrangement that satisfy the

requirements of section 230-355 and section 230-360 (other

than subparagraph 230-360(2)(c)(ii)); and

(d) the requirements of section 230-365 have been satisfied at all

times since the arrangement was created, acquired or applied

for the purpose of hedging a risk in relation to a hedged item.

(10)

To avoid doubt, subsection 230-310(4) does not apply to a financial

arrangement that you started to have before the start of the first

applicable income year and that you have at the start of that income

year.

(11)

To avoid doubt, the election referred to in subitem (8) or (9) applies to

the financial arrangements referred to in subitem (2) even though you

started to have the arrangements before the election is made.

(12)

If you make an election under subitem (2), balancing adjustments must

be made under subitem (13).

(13)

Use the following method statement to make the balancing adjustments

under this subitem:

Schedule 1 A mendments

Part 3 Application and transitional provisions

162 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,

2008

Balancing adjustment method statement

Step 1. Work out the total of all the amounts that relate to the

financial arrangements and that would have been

included in your assessable income if Division 230 of the

Income Tax Assessment Act 1997 had applied to gains

and losses from the arrangements from the time when

you started to have them: the result is the notional

assessable amount.

Step 2. Work out the total of all the amounts that relate to the

financial arrangements and that would have been

allowable to you as deductions if that Division had

applied to gains and losses from the arrangements from

the time when you started to have them: the result is the

notional deductible amount.

Step 3. Work out the total of all the amounts that relate to the

financial arrangements and have been included in your

assessable income from the time when you started to

have them: the result is the actual assessed amount.

Step 4. Work out the total of all the amounts that relate to the

financial arrangements and that have been allowable as

deductions for you from the time when you started to

have them: the result is the actual deducted amount.

Step 5. Add the notional assessable amount to the actual

deducted amount: the result is the step 5 amount.

Step 6. Add the actual assessed amount to the notional deductible

amount: the result is the step 6 amount.

Step 7. Compare the step 5 amount with the step 6 amount. If the

step 5 amount exceeds the step 6 amount, the excess is

included in your assessable income as a balancing

adjustment. If the step 6 amount exceeds the step 5

amount, the excess is allowable as a deduction as a

balancing adjustment. If the step 5 amount and the step 6

amount are equal there is no balancing adjustment.

(14)

If:

Amend ments Schedule 1

Application and transitional provisions Part 3

Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008

163

(a) an amount is recorded in a deferred tax asset account in

accordance with:

(i) accounting standard AASB 112 (or another accounting

standard prescribed by the regulations for the purposes

of this paragraph); or

(ii) if that standard does not apply to the preparation of your

financial reports--a comparable accounting standard

that applies to the preparation of your financial reports

under a foreign law;

immediately before the start of the first applicable income

year; and

(b) the whole or a part of that amount (the attributable

assessable amount) is attributable to a financial arrangement

referred to in subitem (2); and

Subdivision 230-F applies to take account of a gain or loss

you make from the financial arrangement;

the following provisions have effect:

(d) the financial arrangement is to be disregarded for the

purposes of steps 1 to 4 of the method statement in

subitem (13); and

(e) the attributable assessable amount is to be reduced to the

extent to which it represents unused tax credits and then

grossed up under subitem (16); and

(f) the step 6 amount is to be increased by the amount obtained

under paragraph (e).

(15)

If:

(a) an amount is recorded in a deferred tax liability account in

accordance with:

(i) accounting standard AASB 112 (or another accounting

standard prescribed by the regulations for the purposes

of this paragraph); or

(ii) if that standard does not apply to the preparation of your

financial reports--a comparable accounting standard

that applies to the preparation of your financial reports

under a foreign law;

immediately before the start of the first applicable income

year; and

Schedule 1 A mendments

Part 3 Application and transitional provisions

164 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,

2008

(b) the whole or a part of that amount (the attributable

deductible amount) is attributable to a financial arrangement

referred to in subitem (2); and

Subdivision 230-F applies to take account of a gain or loss

you make from the financial arrangement;

the following provisions have effect:

(d) the financial arrangement is to be disregarded for the

purposes of steps 1 to 4 of the method statement in

subitem (13);

(e) the attributable deductible amount is to be reduced to the

extent to which it represents unused tax credits and then

grossed up under subitem (16);

(f) the step 5 amount is to be increased by the amount obtained

under paragraph (e).

(16)

An amount is to be grossed up for the purposes of subitems (14) and

(15) by multiplying the amount by:

Tax rate taken into account in working out

the attributable assessable amount or

attributable deductible amount

(17)

A balancing adjustment under subitem (13) is to be spread evenly over

the first applicable income year and the next 3 income years.

(18)

In applying steps 1 and 2 in the method statement in subitem (13) to

financial arrangements, assume that any election that extends to the

arrangements under subitem (6) had applied to those financial

arrangements from the time when you started to have them.

(19)

In applying section 121EH of the Income Tax Assessment Act 1936,

disregard any balancing adjustment under subitem (13).

105 Application of financial arrangement amendments

(arrangements that are not financial arrangements)

(1)

Subject to this item, item 104 applies to arrangements that are not

financial arrangements in the same way that it applies to financial

arrangements.

Amend ments Schedule 1

Application and transitional provisions Part 3

Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008

165

(2)

However, the method statement in subitem 104(13) applies to

arrangements that are not financial arrangements in accordance with

subitem (1) of this item as if:

(a) the reference in step 1 of that method statement to

"Division 230 of the Income Tax Assessment Act 1997" were

a reference to "Subdivision 775-F of the Income Tax

Assessment Act 1997"; and

(b) the reference in step 2 of that method statement to "Division"

were a reference to "Subdivision".

Schedule 1 A mendments

Part 4 A mend ments relating to Div ision 775

166 Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. ,

2008

Part 4

Amendments relating to Division 775

Income Tax Assessment Act 1997

106 Section 775-170

Before "This", insert "(1)".

107 At the end of section 775-170

Add:

(2) This Division does not apply to a

forex realisation gain or a

forex

realisation loss made by:

(a) a

securitisation vehicle; or

(b) an entity that satisfies the requirements of subsection

820-39(3).

108 At the end of section 775-195

Add:

(9) The following are not entitled to make a choice under this section:

(a) a

securitisation vehicle;

(b) an entity that satisfies the requirements of subsection

820-39(3).

109 Paragraph 775-270(2A)(a)

Repeal the paragraph, substitute:

(a) either:

(i) you make a choice within 30 days after the

commencement of the New Business Tax System

(Taxation of Financial Arrangements) Act (No. 1) 2003;

(ii) you make a choice within 90 days after the

commencement of Part 1 of Schedule 1 to the Tax Laws

Amendment (Taxation of Financial Arrangements) Act

2008; and

110 At the end of section 960-55

Add:

Amend ments Schedule 1

Amend ments relating to Division 775 Part 4

Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 No. , 2008

167

(4) Despite subsection (1), section 960-50 does not apply for the

purposes of working out the assessable income, deductions or tax

offsets of:

(a) a

securitisation vehicle; or

(b) an entity that satisfies the requirements of subsection

820-39(3).

111 At the end of section 960-60

Add:

(6) The following are not entitled to make a choice under this section:

(a) a

securitisation vehicle;

(b) an entity that satisfies the requirements of subsection

820-39(3).

112 Subsection 995-1(1) (paragraph (b) of the definition of

qualifying forex account)

Repeal the paragraph.

New Business Tax System (Taxation of Financial

Arrangements) Act (No. 1) 2003

113 Paragraph 77(1)(b) of Schedule 4

Repeal the paragraph, substitute:

(b) for the purposes of working out the assessable income or

allowable deductions of:

(i) an ADI or a non-ADI financial institution (within the

meaning of the Income Tax Assessment Act 1997); or

(ii) a securitisation vehicle (within the meaning of that Act);

(iii) an entity that satisfies the requirements of subsection

820-39(3) of that Act;

114 Application

The amendments made by this Part apply on and after 17 December

2003.

Commonwealth of Australia Bills

TAX LAWS AMENDMENT (TAXATION OF FINANCIAL ARRANGEMENTS) BILL 2008