Commonwealth Numbered Acts

TAXATION LAWS AMENDMENT ACT (NO. 4) 1997 NO. 174 OF 1997 - SCHEDULE 1--Thin

Income Tax Assessment Act 1936

1 Section 159GZA (definition of foreign equity product )

Omit "3" (wherever occurring), substitute "2".

2 Section 159GZA (definition of foreign investor )

Omit all the words after "Australia".

3 After subsection 159GZF(1)

Insert:

(1A) Where:

(a) there is a balance outstanding on an amount owing by a resident company other than a financial institution; and

(b) interest is or may become payable in respect of the amount owed to a non-resident other than a foreign controller, or a non-resident associate of a foreign controller, of the company; and

(c) the interest is or will be, apart from this Division, allowable as a deduction from the assessable income of the company of any year of income; and

(d) the interest is not, or would not be, assessable income of any year of income of the person to whom it is or becomes payable; and

(e) the amount owing is wholly or partially guaranteed (whether directly or indirectly) by, or subject to a security provided by, a foreign controller, or a non-resident associate of a foreign controller, of the company;

(1B) Subsection (1A) does not apply in relation to an amount owing if the Commissioner is satisfied that the resident company could have borrowed that amount from a prudent arm's length lender even if the amount had not been guaranteed by another person or subject to a security provided by another person.

4 Paragraph 159GZF(1)(c)

Omit ", 159GZN or 159GZO", substitute "or 159GZN".

5 Paragraph 159GZF(2)(c)

Omit "or 159GZO".

6 Paragraph 159GZF(3)(c)

Omit "or 159GZO".

7 Paragraph 159GZF(4)(b)

Omit "(other than as a partner in a partnership or a trustee or beneficiary of a trust estate)".

8 Paragraph 159GZF(4)(c)

Omit "or 159GZO".

9 Subsections 159GZG(3) and (4)

Repeal the subsections, substitute:

(3) In this Division, foreign equity , in relation to a partnership in relation to a year of income, means the amount worked out using the formula:

where:

A is:

(a) the amount that would be shown, if a partnership balance sheet were prepared at the end of the year of income, as the partners' equity to which foreign controllers, or non-resident associates of foreign controllers, are entitled;

(b) the balance outstanding on amounts owing to the partnership (other than short-term trade credit amounts) by foreign controllers, or non-resident associates of foreign controllers, of the partnership.

(a) the amount that would be shown, if a partnership balance sheet were prepared at the end of the year of income, as the partners' equity to which persons other than foreign controllers, or non-resident associates of foreign controllers, are entitled;

(b) the balance outstanding on amounts owing to the partnership (other than short-term trade credit amounts) by such persons.

D is the individual interest in the net income of the partnership, or the partnership loss, for the year of income that is held by persons other than foreign controllers, or non-resident associates of foreign controllers.

(4) In this Division, foreign equity , in relation to a trust estate in relation to a year of income in which the trust estate has net income, means the amount worked out using the formula:

where:

A is:

(a) the amount that would be shown as the beneficiaries' equity to which foreign controllers, or non-resident associates of foreign controllers, are entitled as a result of fixed interests in the equity of the trust estate held by those foreign controllers, or non-resident associates of foreign controllers, if:

(i) a trust estate balance sheet were prepared at the end of the year of income; and

(ii) regard were had only to the use of the trust property in producing assessable income of those foreign controllers, or non-resident associates of foreign controllers;

(b) the balance outstanding on amounts owing to the trustee of the trust estate (other than short-term trade credit amounts) by foreign controllers, or non-resident associates of foreign controllers, of the trust estate.

(a) the amount that would be shown, if a trust estate balance sheet were prepared at the end of the year of income, as the beneficiaries' equity to which persons other than foreign controllers, or non-resident associates of foreign controllers, are entitled as a result of fixed interests in the equity of the trust estate held by those other persons;

(b) the balance outstanding on amounts owing to the trustee of the trust estate (other than short-term trade credit amounts) by such persons.

D is the net income of the trust estate for the year of income to which persons other than foreign controllers, or non-resident associates of foreign controllers, are entitled as a result of fixed interests in the income of the trust estate held by those persons.

(4A) In this Division, foreign equity , in relation to a trust estate in relation to a year of income in which the trust estate has no net income, means the amount worked out using the formula:

where:

A is:

(a) the amount that would be shown as the beneficiaries' equity to which foreign controllers, or non-resident associates of foreign controllers, are entitled as a result of fixed interests in the equity of the trust estate held by those foreign controllers, or non-resident associates of foreign controllers, if:

(i) a trust estate balance sheet were prepared at the end of the year of income; and

(ii) regard were had only to the use of the trust property in producing assessable income of those foreign controllers, or non-resident associates of foreign controllers;

(b) the balance outstanding on amounts owing to the trustee of the trust estate (other than short-term trade credit amounts) by foreign controllers, or non-resident associates of foreign controllers, of the trust estate.

(a) the amount that would be shown, if a trust estate balance sheet were prepared at the end of the year of income, as the beneficiaries' equity to which persons other than foreign controllers, or non-resident associates of foreign controllers, are entitled as a result of fixed interests in the equity of the trust estate held by those other persons;

(b) the balance outstanding on amounts owing to the trustee of the trust estate (other than short-term trade credit amounts) by such persons.

(a) an asset revaluation reserve of the partnership or trust estate may be taken to be applicable only if the partnership or trust estate provides for asset revaluation reserves in its accounting records; and

(b) where, if regard were had only to changes in the arm's length value of assets, the amount of an asset revaluation reserve would be less than the amount of that reserve as shown in those accounting records--that lesser amount is to be taken to be the amount of the asset revaluation reserve; and

(c) where amounts were credited to the asset revaluation reserve during the year of income--the amount of the asset revaluation reserve is taken to be the amount that it would be if those amounts had not been credited.

Omit "(other than as a partner in a partnership or a trustee or beneficiary of a trust estate)".

11 After subsection 159GZG(5)

Insert:

(5A) In calculating the foreign investor's equity for the purpose of subsection (5), any interest in a discretionary trust (within the meaning of subsection (13)) is to be disregarded to the extent that:

(a) the interest is subject to the power or discretion mentioned in paragraph (13)(a); or

(b) the interest is a contingent or defeasible interest as mentioned in paragraph (13)(b).

12 Paragraph 159GZG(9)(a)

After "apart from this subsection", insert "and subsection (12)".

13 At the end of section 159GZG

Add:

(12) Where:

(a) apart from this subsection, there would be an amount of foreign equity (the current equity amount ) of a trust estate of a year of income (the current year of income ); and

(b) at any time during the current year of income the trust was a discretionary trust;

where:

maximum discretionary percentage means the amount worked out using the following table:

M aximum discretionary percentage
Case	Paragraphs of definition of discretionary trust (see subsection (13)) that apply at any time during current year	Maximum discretionary percentage
1	Paragraph (a) only	The greater of the percentage of the corpus, or the percentage of the income, of the trust that is subject, at any time during the current year, to the power or discretion mentioned in that paragraph.
2	Paragraph (b) only	The greater of the percentage of the corpus, or the percentage of the income, of the trust to which one or more of the beneficiaries have, at any time during the current year, a contingent or defeasible interest as mentioned in that paragraph.
3	Paragraphs (a) and (b) but not paragraph (c)	The greater of the percentage of the corpus, or the percentage of the income, of the trust that either is subject, at any time during the current year, to the power or discretion mentioned in paragraph (a) or to which one or more of the beneficiaries have, at any time during the current year, a contingent or defeasible interest as mentioned in paragraph (b).
4	Paragraph (c) (whether or not either of the other paragraphs applies)	100%.

(13) In subsection (12):

discretionary trust means a trust where:

(a) both of the following conditions are satisfied:

(i) a person (who may include the trustee) is empowered (either unconditionally or on the fulfilment of a condition) to exercise any power of appointment or other discretion;

(ii) the exercise of the power or discretion, or the failure to exercise the power or discretion, has the effect of determining, to any extent, either or both of the following:

(B) how beneficiaries are to benefit, as between themselves, under the trust; or

(b) one or more of the beneficiaries under the trust have a contingent or defeasible interest in some or all of the corpus or income of the trust; or

(c) the trustee of another trust, being a trust where both of the conditions in paragraph (a) are satisfied, benefits or is capable (whether by the exercise of a power of appointment or otherwise) of benefiting, under the first-mentioned trust.

Omit "number 3" (wherever occurring), substitute "number 2".

15 Section 159GZO

Repeal the section.

16 Section 159GZP

Repeal the section.

17 Application of amendments

The amendments made by this Schedule apply in relation to the 1997-98 year of income and all later years of income.

18 Transitional--taxpayers with substituted accounting periods

Late balancing taxpayers

(1) If the 1996-97 year of income of a taxpayer ends on a day after 30 June 1997, Division 16F of Part III of the Income Tax Assessment Act 1936 applies as if:

(a) so much of the year of income as occurs on or before 30 June 1997 were one year of income (the first notional year ) and so much of the year of income as occurs after that date were a separate year of income (the second notional year ); and

(b) the foreign equity of the taxpayer for the first notional year and the second notional year were equal to the amount that would be the foreign equity of the taxpayer for the 1996-97 year of income; and

(c) the amendments made by this Schedule applied in relation to the second notional year (as well as in relation to the years specified in item 17) and for the purpose of working out the foreign equity for the purposes of paragraph (b); and

(d) for the purposes of the application of whichever of subsections 159GZS(3), 159GZT(4), 159GZU(3), 159GZV(3) and 159GZW(3) of the Income Tax Assessment Act 1936 are applicable, in relation to both the first notional year and the second notional year, the term Days in year of income were defined to mean 365.

(2) If the 1997-98 year of income of a taxpayer ends on a day before 30 June 1998, Division 16F of Part III of the Income Tax Assessment Act 1936 applies as if:

(a) so much of the year of income as occurs on or before 30 June 1997 were one year of income (the first notional year ) and so much of the year of income as occurs after that date were a separate year of income (the second notional year ); and

(b) the foreign equity of the taxpayer for the first notional year and the second notional year were equal to the amount that would be the foreign equity of the taxpayer for the 1997-98 year of income; and

(c) the amendments made by this Schedule applied in relation to the second notional year but not in relation to the first notional year and for the purpose of working out the foreign equity for the purposes of paragraph (b); and

(d) for the purposes of the application whichever of subsections 159GZS(3), 159GZT(4), 159GZU(3), 159GZV(3) and 159GZW(3) of the Income Tax Assessment Act 1936 are applicable, in relation to both the first notional year and the second notional year, the term Days in year of income were defined to mean 365.