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This is a Bill, not an Act. For current law, see the Acts databases.
1998-1999-2000-2001
The
Parliament of the
Commonwealth of
Australia
HOUSE OF
REPRESENTATIVES
Presented and read a first
time
New Business
Tax System (Debt and Equity) Bill 2001
No.
, 2001
(Treasury)
A
Bill for an Act to implement the New Business Tax System in relation to debt and
equity interests, and for related purposes
ISBN: 0642
460094
Contents
Part 1—Amendment of the Income Tax Assessment Act
1997 3
Income Tax Assessment Act
1997 3
Part 2—Amendment of the Income Tax Assessment Act
1936 45
Income Tax Assessment Act
1936 45
Part 3—Amendment of the Taxation Administration Act
1953 75
Taxation Administration Act
1953 75
Part 4—Application of
amendments 76
Income Tax Assessment Act
1997 80
A Bill for an Act to implement the New Business Tax
System in relation to debt and equity interests, and for related
purposes
The Parliament of Australia enacts:
This Act may be cited as the New Business Tax System (Debt and Equity)
Act 2001.
This Act commences, or is taken to have commenced, on 1 July
2001.
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repealed as set out in the applicable items in the Schedule concerned, and any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.
Part 1—Amendment
of the Income Tax Assessment Act 1997
Income Tax Assessment Act
1997
1 Section 12-5 (after table item headed
“death of timber owner”)
Insert:
|
debt interests |
|
|
|
certain returns in respect of debt interests |
25-85 |
|
2 Section 12-5 (table item headed
“dividends”)
After:
|
franking credits, pooled development funds (PDFs).................
|
||
insert:
|
non-share equity interests, no deduction for return in respect
of.......................................................................................... |
26-26 |
|
3 After section 25-80
Insert:
(1) This section deals with a return that an entity pays on a
*debt interest.
(2) The return is not prevented from being a
*general deduction for an income year under
section 8-1 merely because:
(a) the return is *contingent on the
economic performance of:
(i) the entity or a part of the entity’s activities; or
(ii) a *connected entity of the entity or
a part of the activities of a connected entity of the entity; or
(b) the return secures a permanent or enduring benefit for the entity or a
connected entity of the entity.
(3) Subject to regulations made for the purposes of subsection (4),
subsection (2) does not apply to the return to the extent to which the
annually compounded internal rate of the return exceeds the
*benchmark rate of return for the interest
increased by 150 basis points.
(4) The regulations may provide that subsection (3) applies in the
circumstances specified in the regulations as if the reference to 150 basis
points were a reference to a greater or lesser number of basis points.
4 After section 26-25
Insert:
A company cannot deduct under this Act:
(a) a *non-share distribution;
or
(b) a return that has accrued on a
*non-share equity interest.
5 Paragraph 104-25(1)(f)
Omit “note”, substitute “interest”.
6 Subsection 104-25(5) (note
1)
Omit “note”, substitute “interest”.
7 Paragraph 104-35(5)(c)
Repeal the paragraph, substitute:
(c) a company issues or allots *equity
interests in the company; or
8 Paragraph 104-35(5)(e)
Repeal the paragraph, substitute:
(e) a company grants an option to acquire equity interests or
*debentures in the company; or
9 Paragraph 104-155(5)(c)
Repeal the paragraph, substitute:
(c) a company issues or allots *equity
interests in the company; or
10 Paragraph 104-155(5)(e)
Repeal the paragraph, substitute:
(e) a company grants an option to acquire equity interests or
*debentures in the company; or
11 Section 109-10 (table
item 2)
Repeal the item, substitute:
|
2 |
A company issues or allots *equity
interests in the company to you |
when contract is entered into or, if none, when equity interests issued or
allotted |
12 Section 109-55 (table
item 11)
Omit “note” (wherever occurring), substitute
“interest”
13 Section 112-70
Repeal the section, substitute:
|
Convertible interests |
|||
|---|---|---|---|
|
Item |
In this situation: |
Element affected: |
See section: |
|
1 |
You acquire shares, or units in a unit trust, by converting a convertible
interest |
First element of cost base and reduced cost base |
130-60 |
14 Subsection 114-15(4)
Omit “note”, substitute “interest”.
15 Subsection 114-15(6)
(heading)
Repeal the heading, substitute:
Convertible interests
16 Subsection 114-15(6)
Omit “note” (wherever occurring), substitute
“interest”.
17 Subsection 114-15(6)
(note)
Omit “note”, substitute “convertible
interest”.
18 Paragraph 130-40(3)(a)
Omit “notes” (wherever occurring), substitute
“interests”.
19 Paragraph 130-40(3)(b)
Omit “notes” (wherever occurring), substitute
“interests”.
20 Subsection 130-40(4)
Omit “notes”, substitute “interests”.
21 Subsection 130-40(6)
(table)
Repeal the table, substitute:
|
Modifications on exercise of rights |
||
|---|---|---|
|
Item |
In this situation: |
The modification is... |
|
1 |
You exercise rights issued to you to
*acquire the
*shares, units or options. |
The first element of your *cost base for
the shares, units or options is the sum of: The first element of their *reduced cost
base is worked out similarly. |
|
2 |
You exercise rights you *acquired from
another entity to acquire the *shares, units or
options. |
The first element of your *cost base for
the shares, units or options is the sum of: The first element of their *reduced cost
base is worked out similarly. |
|
3 |
You exercise rights issued to you to
*acquire the
*shares, units or options, and you acquired the
original shares or *convertible interests, or
the original units or convertible interests, before 20 September
1985. |
The first element of your *cost base for
the shares, units or options is the sum of: The first element of their *reduced cost
base is worked out similarly. |
22 Subsection 130-40(6)
Omit “The payment can include giving property: see
section 103-5.”
23 After subsection
130-40(6)
Insert:
(6A) An amount is to be added under this subsection if a
*capital gain made from the right has been
reduced under section 118-20. This is so even though a capital gain that is
made on exercise is disregarded under subsection (7). The amount to be
added is the amount of the reduction.
Note: For example, a capital gain made on the exercise of
the right under section 118-20 may be reduced because an amount is
included in the owner’s assessable income under subsection 26BB(2) of the
Income Tax Assessment Act 1936 (about assessing a gain on disposal or
redemption of a traditional security) or section 159GS of that Act (about
balancing adjustments on transfer of a qualifying security).
24 Subsection 130-45(1)
Omit “notes” (wherever occurring), substitute
“interests”.
25 Subdivision 130-C
(heading)
Repeal the heading, substitute:
26 Subsection 130-60(1)
Omit “note” (first occurring), substitute
“interest”.
Note: The heading to section 130-60 is altered by
omitting “note” and substituting
“interest”.
27 Subsection 130-60(1)
(table)
Repeal the table, substitute:
|
Conversion of a convertible interest |
||
|---|---|---|
|
Item |
In this situation: |
The modification is: |
|
1 |
You *acquire
*shares or units in a unit trust by converting
a *convertible interest that is a
*traditional security. |
The first element of the *cost base of the
shares or units is the sum of: The first element of their *reduced cost
base is worked out similarly. |
|
2 |
You *acquire
*shares (except shares acquired under an
*employee share scheme) by converting a
*convertible interest that is not a
*traditional security. |
The first element of the *cost base of the
shares is the sum of: The first element of their *reduced cost
base is worked out similarly. |
|
3 |
You *acquire units in a unit trust by
converting a *convertible interest (except one
that is a *traditional security) that was
issued by the trustee of the unit trust after 28 January 1988. |
The first element of the *cost base of the
units is the sum of: The first element of their *reduced cost
base is worked out similarly. |
28 Subsection 130-60(1)
Omit “The payment can include giving property: see
section 103-5.”
29 After subsection
130-60(1)
Insert:
(1A) An amount is to be added under this subsection if a
*capital gain from the
*convertible interest has been reduced under
section 118-20. This is so even though a capital gain that is made on
conversion is disregarded under subsection (3). The amount to be added is
the amount of the reduction.
Note: For example, a capital gain made on the conversion
under section 118-20 may be reduced because an amount is included in
the owner’s assessable income under subsection 26BB(2) of the Income
Tax Assessment Act 1936 (about assessing a gain on disposal or redemption of
a traditional security) or section 159GS of that Act (about balancing
adjustments on transfer of a qualifying security).
30 Subsection 130-60(2)
Omit “note”, substitute “interest”.
31 Subsection 130-60(3)
Omit “note”, substitute “interest”.
32 Subsection 130-60(3) (note
1)
Omit “note”, substitute “interest”.
33 Part 3-5 (link note after the
heading)
Repeal the link note, substitute:
[The next Division is Division 164.]
A company that issues non-share equity interests will have a notional
account called a non-share capital account. This account records
contributions to the company in relation to those non-share equity interests and
returns made by the company of those contributions.
A non-share distribution that represents a return of contributions is not
taxed as a dividend (subject to the anti-avoidance provisions dealing with
dividend substitution). In certain circumstances a company may use its share
capital account as the source for such distributions.
Table of sections
Operative provisions
164-5 Object
164-10 Non-share capital account
164-15 Credits to non-share capital account
164-20 Debits to non-share capital account
[This is the end of the Guide.]
(1) This Division provides for the
*non-share capital account through which a
company records contributions made to it in respect of
*non-share equity interests and returns by it
of those contributions.
(2) This allows a *non-share distribution
to be characterised as either:
(a) a *non-share dividend; or
(b) a *non-share capital
return.
(1) A company has a non-share capital account if:
(a) the company issues a *non-share
equity interest in the company on or after 1 July 2001; or
(b) the company has issued a non-share equity interest in the company
before 1 July 2001 that is still in existence on 1 July
2001.
(2) The account continues in existence even if the company ceases to have
any *non-share equity interests on
issue.
(3) The balance of the account cannot fall below nil.
(4) The only credits and debits that may be made to the account are those
provided for in sections 164-15 and 164-20.
(1) If the company issues a *non-share
equity interest in the company on or after 1 July 2001, there is a credit
to the *non-share capital account equal
to:
where:
amount received is the market value, when it is provided, of
the consideration the company receives for the issue of the interest.
share capital account credit is the amount of any credit made
to the company’s share capital account in respect of the issue of the
interest.
Note: The issue of a non-share equity interest can give rise
to a credit to the company’s share capital account if the interest
consists, for example, of a stapled security that includes a share in the
company’s capital.
(2) If a *debt interest in the company
changes at a particular time to an *equity
interest in the company because of section 974-110, there is a credit to
the *non-share capital account at that time
equal to:
where:
amount received is the market value, when it was provided, of
the consideration the company received for the issue of the interest.
amount returned is so much of the amount received as has been
returned to a holder of the interest before the change occurs.
share capital account credit is the amount of any credit made
to the company’s share capital account in respect of the issue of the
interest.
(3) If the company has a *non-share
capital account at the beginning of 1 July 2001 because of a
*non-share equity interest the company issued
before 1 July 2001, there is a credit to the non-share capital account on
that day for each non-share equity interest in the company that:
(a) was issued before 1 July 2001; and
(b) is still in existence on 1 July 2001.
(4) The amount of the credit under subsection (3) is:
where:
amount received is the market value, when it is provided, of
the consideration the company receives for the issue of the interest.
return of amount received is the sum of the amounts paid
before 1 July 2001 by way of return, in whole or in part, of the amount
received.
share capital account credit is the sum of any amounts
credited before 1 July 2001 to the company’s share capital account in
respect of the issue of the interest.
(1) The company may debit the whole or a part of a
*non-share distribution against the
company’s *non-share capital
account:
(a) to the extent to which the distribution is made as consideration for
the surrender, cancellation or redemption of a
*non-share equity interest in the company;
or
(b) to the extent to which:
(i) the distribution is made in connection with a reduction in the market
value of a non-share equity interest in the company; and
(ii) the amount of the distribution is equal to the amount of the
reduction in market value.
(2) The total of the amounts debited to the account in respect of a
particular *non-share equity interest must not
exceed the total of the amounts credited to the account in respect of the
interest.
(3) If an *equity interest in the company
changes at a particular time to a *debt
interest in the company because of section 974-110, there is a debit to the
*non-share capital account at that time equal
to:
where:
credits in relation to the interest is the sum of all the
credits that have been made to the *non-share
capital account in relation to the interest before the change occurs.
debits in relation to the interest is the sum of all the
debits that have been made to the *non-share
capital account in relation to the interest before the change occurs.
34 After Division 960
Insert:
[The next Division is Division 974.]
Table of Subdivisions
974-A General
974-B Debt interests
974-C Equity interests
974-D Common provisions
974-E Non-share distributions by a company
974-F Related concepts
This Division tells you whether an interest is a debt interest, or an
equity interest, for tax purposes. An interest that could be characterised as
both a debt interest and an equity interest will be treated as a debt interest
for tax purposes (except for certain interests that fund returns on equity
interests).
Whether an interest is a debt interest or an equity interest matters
because returns on debt interests are not frankable but may be deductible while
returns on equity interests are not deductible but may be frankable.
This Division extends beyond shares the range of interests that are
recognised as equity in a company. An interest that is an equity interest in a
company but is not a share will be treated in the same way as a share for some
tax purposes (particularly in relation to the determination of the tax treatment
of returns on the interest).
This Division also tells you how to work out which distributions made in
respect of a non-share equity interest in a company will be non-share dividends
and which will be non-share capital returns. Those that are non-share dividends
will be treated, for most tax purposes, in the same way as dividends.
Table of sections
974-5 Overview of Division
Operative provisions
974-10 Object
Test for distinguishing debt and equity interests
(1) The test for distinguishing between debt interests and equity
interests focuses on economic substance rather than mere legal form (see
subsection 974-10(2)). The test is designed to assess the economic substance of
an interest in terms of its impact on the issuer’s position.
Debt interests
(2) Subdivision 974-B tells you when an interest is a debt interest
in an entity. The basic test is in section 974-20.
Equity interests
(3) Subdivision 974-C tells you when an interest is an equity
interest in a company. The basic test is in section 974-75.
Tie breaker between debt and equity
(4) If an interest satisfies both the debt test and the equity test, it is
treated as a debt interest and not an equity interest.
Distributions in relation to equity interests that are not
shares
(5) If you have an equity interest in a company that is not a share,
Subdivision 974-E tells you what will count as a non-share distribution, a
non-share dividend and a non-share capital return in relation to the
interest.
Concepts used in the debt and equity tests
(6) Subdivision 974-F defines a number of concepts that are used in
the debt and equity tests (financing arrangement, effectively non-contingent
obligation, benchmark rate of return and converting interest).
[This is the end of the Guide.]
(1) An object of this Division is to establish a test for determining for
particular tax purposes whether a *scheme, or
the combined operation of a number of schemes:
(a) gives rise to a *debt interest;
or
(b) gives rise to an *equity
interest.
Note: The test is used, for example, for:
(a) identifying distributions that may be frankable and
which may be subject to dividend withholding tax; and
(b) identifying returns that may be deductible to the
company making the return; and
(c) resolving uncertainty as to the proper tax treatment for
debt/equity hybrid interests (interests that have some debt qualities and some
equity qualities); and
(d) identifying debt capital for the purposes of
Division 820 (thin capitalisation rules).
(2) The test is intended to operate on the basis of the economic substance
of the rights and obligations arising under the
*scheme or schemes rather than merely on the
basis of the legal form of the scheme or schemes. In assessing economic
substance regard is to be had, for example, to the undue tax benefits that could
be obtained from deducting dividend-like payments (deductible equity) or from
franking interest-like returns (franked debt).
Note: The basic indicator of the economic character of a
debt interest is the non-contingent nature of the returns. The basic indicator
of the economic character of an equity interest, on the other hand, is the
contingent nature of the returns (or convertibility into an interest of that
nature).
(3) This Division allows the combined effect of
*related schemes to be taken into account in
appropriate cases:
(a) to ensure that the test operates effectively on the basis of economic
substance rather than legal form; and
(b) to prevent the test being circumvented by entities merely entering
into a number of separate schemes instead of a single scheme.
(4) Another object of this Division is to identify the distributions and
credits made in respect of *non-share equity
interests in a company that are to be treated as
*dividends (non-share dividends)
and those that are to be treated as returns of capital (non-share capital
returns).
Note: Non-share dividends will generally be included in the
recipient’s assessable income and may be frankable.
(5) Regulations may also be made under the provisions of this
Division:
(a) to clarify the meaning of certain words and phrases in the light of
emerging commercial practices, conditions and products; and
(b) to give guidance on the detailed operation of particular
provisions.
The regulations must be consistent with the objects stated in
subsections (1) to (3).
(6) Without limiting subsection 46(2) of the Acts Interpretation Act
1901, the regulations made for the purposes of this Division may specify
different rules for different classes of circumstances.
Table of sections
974-15 Meaning of debt interest
974-20 The test for a debt interest
974-25 Exceptions to the debt test
974-30 Providing a financial benefit
974-35 Valuation of financial benefit—general
rules
974-40 Valuation of financial benefits—rights and
options to terminate early
974-45 Valuation of financial benefits—convertible
interests
974-50 Valuation of financial benefits—value in
present value terms
974-55 The debt interest and its issue
974-60 Debt interest arising out of obligations owed by a
number of entities
974-65 Commissioner’s power
Single scheme giving rise to debt interest
(1) A *scheme gives rise to a debt
interest in an entity if the scheme, when it comes into existence,
satisfies the debt test in subsection 974-20(1) in relation to the
entity.
Note 1: A debt interest can also arise under
subsection (2) (related schemes) or section 974-65
(Commissioner’s discretion).
Note 2: Section 974-55 defines various aspects of the
debt interest that arises.
Related schemes giving rise to debt interest
(2) Two or more *related schemes (the
constituent schemes) together give rise to a debt interest
in an entity if:
(a) the entity enters into, participates in or causes another entity to
enter into or participate in the constituent schemes; and
(b) a scheme with the combined effect or operation of the constituent
schemes (the notional scheme) would satisfy the debt test in
subsection 974-20(1) in relation to the entity if the notional scheme came into
existence when the last of the constituent schemes came into existence;
and
(c) it is reasonable to conclude that the entity intended, or knew that a
party to the scheme or one of the schemes intended, the combined economic
effects of the constituent schemes to be the same as, or similar to, the
economic effects of a debt interest.
This is so whether or not the constituent schemes come into existence at
the same time and even if none of the constituent schemes would individually
give rise to that or any other *debt
interest.
Note: Section 974-105 explains the effect, for tax
purposes, of actions taken under the schemes.
(3) Subsection (2) does not apply if each of the
*schemes individually gives rise to a
*debt interest in the entity.
(4) Two or more *related schemes do not
give rise to a debt interest in an entity under
subsection (2) if the Commissioner determines that it would be
inappropriate to apply that subsection to those schemes.
Satisfying the debt test
(1) A *scheme satisfies the debt test in
this subsection in relation to an entity if:
(a) the scheme is a *financing
arrangement for the entity; and
(b) the entity, or a *connected entity of
the entity, receives, or will receive, a
*financial benefit or benefits under the
scheme; and
(c) the entity has, or the entity and a connected entity of the entity
each has, an *effectively non-contingent
obligation under the scheme to provide a financial benefit or benefits to one or
more entities after the time when:
(i) the financial benefit referred to in paragraph (b) is received if
there is only one; or
(ii) the first of the financial benefits referred to in paragraph (b)
is received if there are more than one; and
(d) it is substantially more likely than not that the value provided
(worked out under subsection (3)) will be at least equal to the value
received (worked out under subsection (4)); and
(e) the value provided (worked out under subsection (3)) and the
value received (worked out under subsection (4)) are not both
nil.
The scheme does not need to satisfy paragraph (a) if the entity is a
company and the interest arising from the scheme is an interest covered by
item 1 of the table in subsection 974-75(1) (interest as a member or
stockholder of the company).
Note: Section 974-30 tells you when a financial benefit
is taken to be provided to an entity.
(2) For the purposes of paragraph (1)(b), a
*financial benefit is one that the entity or
*connected entity will receive under the scheme
only if another entity has an *effectively
non-contingent obligation under the scheme to provide the financial benefit to
the entity or connected entity.
(3) The value provided is:
(a) the value of the *financial benefit
to be provided under the *scheme by the entity
or a *connected entity if there is only one;
or
(b) the sum of the values of all the financial benefits provided or to be
provided under the scheme by the entity or a connected entity of the entity if
there are 2 or more.
Note: Section 974-35 tells you how to value financial
benefits.
(4) The value received is:
(a) the value of the *financial benefit
received, or to be received, under the *scheme
by the entity or a *connected entity of the
entity if there is only one; or
(b) the sum of the values of all the financial benefits received, or to be
received, under the scheme by the entity or a connected entity if there are 2 or
more.
Multiple financial benefits
(5) Paragraphs (1)(b) and (c) apply to 2 or more
*financial benefits whether they are provided
at the same time or over a period of time.
Regulations
(6) The regulations:
(a) may specify circumstances in which paragraph (1)(d) is satisfied
or not satisfied; and
(b) may otherwise specify rules to be applied in determining whether or
not paragraph (1)(d) is satisfied.
Non-arm’s length dealings giving rise to equity
interests
(1) A *scheme does not satisfy the debt
test in subsection 974-20(1) in relation to a company if:
(a) the scheme gives rise to an interest in the company to which an item
in the table in subsection 974-75(1) applies (equity interests in a company);
and
(b) the company (or its *connected
entities) mentioned in paragraph 974-20(1)(b) do not deal at
*arm’s length in relation to the scheme
with other parties to the scheme; and
(c) it is reasonable to conclude that the scheme would have given rise to
an *equity interest in the company or a
connected entity if the company or its connected entities had dealt at
arm’s length with other parties to the scheme.
Short term schemes
(2) A *scheme does not satisfy the debt
test in subsection 974-20(1) in relation to an entity if:
(a) at least a substantial part of a
*financial benefit mentioned in that subsection
does not consist of either of the following or a combination of either of the
following:
(i) a liquid or monetary asset;
(ii) an amount of money; and
(b) the scheme requires the financial benefit mentioned in paragraph
974-20(1)(c) to be provided within a period of no more than 100 days of the
receipt of the first financial benefit mentioned in paragraph 974-20(1)(b);
and
(c) the financial benefit mentioned in paragraph 974-20(1)(c) is in fact
provided within that period; and
(d) the scheme is not one of a number of
*related schemes that together are taken to
give rise to a *debt interest under subsection
974-20(2).
Regulations
(3) The regulations may make provision in relation to the application or
operation of subsection (2). Without limiting this, the regulations
may:
(a) specify what constitutes a substantial part of a
*financial benefit for the purposes of
paragraph (2)(a); or
(b) specify a period to be substituted for the period referred to in
paragraph (2)(b).
Issue of equity interest
(1) The following do not constitute the provision of a
*financial benefit by an entity or a
*connected entity of the entity:
(a) the issue of an *equity interest in
the entity or a connected entity of the entity; or
(b) an amount that is to be applied in respect of the issue of an equity
interest in the entity or a connected entity of the entity.
Providing a financial benefit to an entity
(2) A *financial benefit is taken to be
provided to an entity if it is provided:
(a) to the entity; or
(b) on the entity’s behalf; or
(c) for the entity’s benefit.
Obligation to provide future financial benefit
(3) For the avoidance of doubt, if you have a present obligation to
provide a *financial benefit to an entity at
some time in the future:
(a) the financial benefit is taken to be a financial benefit to be
provided in the future; and
(b) the obligation to provide the financial benefit is taken not to be a
financial benefit being provided at the present.
Value in nominal terms or present value terms
(1) For the purposes of this Subdivision:
(a) the value of a *financial benefit
received or provided under a *scheme is its
value calculated:
(i) in nominal terms if the performance period (see subsection (3))
must end no later than 10 years after the interest arising from the scheme is
issued; or
(ii) in present value terms (see section 974-50) if the performance
period must or may end more than 10 years after the interest arising from the
scheme is issued; and
(b) the regulations may make provisions relating to the valuation of a
financial benefit.
Assume scheme runs its full term
(2) The value of a *financial benefit
received or provided under a *scheme is
calculated assuming that the interest arising from the scheme will continue to
be held for the rest of its life.
Note 1: Section 974-40 makes specific provision for
cases in which there is a right or option to terminate the interest
early.
Note 2: Section 974-45 makes specific provision for
cases involving convertible interests.
Performance period
(3) The performance period is the period within which, under
the terms on which the interest is issued, the
*effectively non-contingent obligations of the
issuer, and any *connected entity of the
issuer, to provide a *financial benefit in
relation to the interest have to be met.
(4) An obligation is treated as having to be met within 10 years after the
interest is issued if:
(a) the issuer; or
(b) the *connected entity of the
issuer;
has an *effectively non-contingent
obligation to terminate the interest within that 10 year period even if the
terms on which the interest is issued formally allow the obligation to continue
after the end of that 10 year period.
Benefit dependent on variable factor
(5) If:
(a) a *financial benefit received or
provided in respect of an interest depends on a factor that may vary over time
(such as a variable interest rate); and
(b) that factor is one commonly used in commercial arrangements;
and
(c) it would be unreasonable to expect any of the parties to the
*scheme to know, or to anticipate accurately,
the future value of that factor; and
(d) that factor has a particular value (the starting value)
when the scheme is entered into;
the value of the financial benefit is calculated assuming that the
factor’s value will retain the starting value for the whole of the life of
the scheme.
Note: For example, the value of a return based on a floating
interest rate is calculated on the basis that the interest rate remains the
interest rate that is applicable when the scheme is entered
into.
Scheme wholly in foreign currency
(6) If all the *financial benefits
provided and received under a *scheme are
denominated in a particular foreign currency, they do not need to be converted
into Australian currency for the purpose of comparing their relative values for
the purposes of this Subdivision.
(1) This section deals with the situation in which a party to a
*scheme has a right or option to terminate the
scheme early (whether by discharging an obligation early, converting the
interest arising from the scheme into another interest or otherwise).
Note 1: An example of terminating a scheme early by
discharging an obligation early is terminating a loan by discharging the
obligation to repay the principal (and any outstanding interest)
early.
Note 2: In certain circumstances, conversion of an interest
into another interest can terminate its life (see
section 974-45).
(2) The existence of the right or option is to be disregarded in working
out the length of the life of the interest arising from the
*scheme for the purposes of this Subdivision if
the party does not have an *effectively
non-contingent obligation to exercise the right or option.
(3) If the party does have an
*effectively non-contingent obligation to
exercise the right or option, the life of the interest ends at the earliest time
at which the party will have to exercise the right or option.
(4) This section does not limit subsection 974-35(2).
(1) This section deals with the situation in which a
*scheme gives rise to an
*interest that will or may convert into an
*equity interest in a company.
(2) The life of the interest ends no later than the time when it converts
into that *equity interest.
(3) The possibility of the conversion is to be disregarded in working out
the length of the life of the interest arising from the
*scheme for the purposes of section 974-35
if it is uncertain:
(a) whether the interest will ever convert; or
(b) when the interest will convert.
Note: Section 974-40 deals with the situation in which
a party to the scheme may exercise a right or option to convert the
interest.
(4) This section does not limit subsection 974-35(2).
(1) Subject to the regulations made for the purposes of
subsection (5), the value in present value terms of a
*financial benefit to be provided or received
in respect of an interest (the test interest) is calculated under
subsection (4).
(2) If you need to calculate the values in present value terms of a number
of *financial benefits, the value of each
financial benefit is to be calculated separately.
(3) The value of a *financial benefit is
to be calculated assuming that all amounts to be paid by an entity in respect of
the test interest are paid at the earliest time when the entity becomes liable
to pay them.
(4) The value of a *financial benefit in
present value terms is:
where:
adjusted benchmark rate of return is 75% of the
*benchmark rate of return on the test
interest.
n is the number of years in the period starting on the day on
which the test interest is issued and ending on the day on which the
*financial benefit is to be provided. If the
period includes a part of a year, that part is to be expressed as the
fraction:
year means a period of 12 calendar months.
(5) The regulations may provide for the method of calculating the value in
present value terms of a *financial
benefit.
(6) Without limiting subsection (5), the regulations may:
(a) provide for an entirely different method of calculating the present
value of the *financial benefit; or
(b) specify the adjusted *benchmark rate
of return; or
(c) provide for a different method of determining the adjusted benchmark
rate of return; or
(d) specify rules for determining whether a
*debt interest is an
*ordinary debt interest.
(1) If a *scheme, or 2 or more
*related schemes, give rise to a
*debt interest in an entity, the debt
interest:
(a) consists of the interest that carries the right to receive a
*financial benefit that the entity or a
*connected entity has an
*effectively non-contingent obligation to
provide under the scheme or any of the schemes; and
(b) is taken, subject to section 974-60, to be a debt interest in the
entity; and
(c) is taken to be issued by the entity; and
(d) is issued when the entity (or a connected entity of the
entity) first receives a *financial benefit
under the scheme or any of the schemes; and
(e) is on issue while an effectively non-contingent
obligation of the entity (or a connected entity of the entity) to provide a
financial benefit under the scheme or any of the schemes remains
unfulfilled.
(2) The interest referred to in paragraph (1)(a) may take the form of
a proprietary right, a chose in action or any other form.
(1) This section deals with the situation in which a
*scheme, or a number of
*related schemes together, would, apart from
this section, give rise to the same *debt
interest in 2 or more entities.
Note: A scheme may give rise to the same debt interest in 2
or more entities if each of those entities has non-contingent obligations to
provide financial benefits under the scheme.
(2) The *debt interest:
(a) is a debt interest in the entity identified under subsection (3)
or (4); and
(b) is not a debt interest in the other entity or entities.
(3) The *debt interest is a debt interest
in the entity identified using the following method statement:
Method statement
Step 1. Work out, for each of the entities, the total value of the
*financial benefits that the entity is under an
*effectively non-contingent obligation to
provide under the *scheme or schemes: this is
the entity’s obligation value.
Step 2. The *debt interest is taken
to be a debt interest in the entity with the greatest obligation
value.
Step 3. If it is not possible to determine which entity has the
greatest obligation value (whether because of an equality of, or uncertainty as
to, obligation values or otherwise), the *debt
interest is taken to be a debt interest in the entity agreed on by all the
entities.
Step 4. If the entities do not agree, the interest is taken to be a
*debt interest in the entity determined by the
Commissioner.
(4) Despite subsection (3), the Commissioner may determine that the
*debt interest is a debt interest in the entity
specified in the determination.
(5) The Commissioner may make the determination only if satisfied, having
regard to the economic substance of the relevant transactions, that the
*debt interest is properly considered from a
commercial point of view to be an interest in the entity specified in the
determination.
(1) Despite subsection 974-20(1) (the debt test), the Commissioner may
determine that a *scheme gives rise to a
debt interest in an entity if the Commissioner considers
that:
(a) the scheme would satisfy paragraphs 974-20(1)(b) and (c);
but
(b) instead of satisfying paragraph 974-20(1)(d), the scheme would satisfy
all the following subparagraphs:
(i) it is substantially more likely than not that the value of the
*financial benefit to be provided by the entity
(or a *connected entity of the entity) under
the *effectively non-contingent obligation will
be at least equal to the substantial part of the value of the financial benefit
received or to be received by the entity (or its connected entity) under the
scheme;
(ii) it is substantially more likely than not that other financial
benefits will be provided by the entity (or its connected entity) to one or more
entities under the scheme;
(iii) it is substantially more likely than not that the sum of the values
of the financial benefits mentioned in subparagraphs (i) and (ii) will be
at least equal to the value of the financial benefit received by the entity (or
its connected entity) under the scheme.
(2) In making the determination, the Commissioner must have regard to the
following:
(a) the difference between the value of the
*financial benefit received and the value of
the financial benefit to be provided under the
*effectively non-contingent
obligation;
(b) the degree of likelihood of other financial benefits being provided
under the *scheme;
(c) the degree of likelihood of the sum of the value of the financial
benefits mentioned in subparagraphs (1)(b)(i) and (ii) being equal to or
greater than the value of the financial benefit received under the
scheme;
(d) the particular circumstances surrounding the scheme (including
circumstances of the parties to the scheme and their purposes for entering into
the scheme).
(3) If the Commissioner determines under this section that a
*scheme gives rise to a
*debt interest, the scheme has that effect for
all purposes of this Division.
Table of sections
974-70 Meaning of equity interest in a
company
974-75 The test for an equity interest
974-80 Equity interest arising from arrangement funding
return through connected entities
974-85 Right or return contingent on economic
performance
974-90 Right or return at discretion of company or connected
entity
974-95 The equity interest
Single scheme giving rise to equity interest
(1) A *scheme gives rise to an
equity interest in a company if, when the scheme comes into
existence:
(a) the scheme satisfies the equity test in subsection 974-75(1) in
relation to the company because of the existence of an interest; and
(b) the interest is not characterised as, and does not form part of a
larger interest that is characterised as, a
*debt interest in the company, or a
*connected entity of the company, under
Subdivision 974-B.
Note 1: An equity interest can also arise under
subsection (2) (related schemes) or section 974-80 (arrangements for
funding return through connected entities).
Note 2: Section 974-95 defines various aspects of the
equity interest that arises.
Related schemes giving rise to equity interest
(2) Two or more *related schemes (the
constituent schemes) are taken together to give rise to an
equity interest in a company if:
(a) the company enters into, participates in or causes another entity to
enter into or participate in the constituent schemes; and
(b) a scheme with the combined effect or operation of the constituent
schemes (the notional scheme) would give rise to an
*equity interest in the company under
subsection (1) if the notional scheme came into existence when the last of
the constituent schemes came into existence; and
(c) it is reasonable to conclude that the entity intended, or knew that a
party to the scheme or one of the schemes intended, the combined economic
effects of the constituent schemes to be the same as, or similar to, the
economic effects of an equity interest.
This is so whether or not the constituent schemes come into existence at
the same time and even if none of the constituent schemes would individually
give rise to that or any other equity interest.
Note: Section 974-105 explains the effect, for tax
purposes, of actions taken under the schemes.
(3) Subsection (2) does not apply if each of the constituent
*schemes individually gives rise to an
*equity interest in the company.
(4) Two or more related *schemes do not
give rise to an *equity interest in a company
under subsection (2) if the Commissioner determines that, having regard to
the objects of this Division, it would be inappropriate to apply that subsection
to those schemes.
Basic test for equity interest
(1) A *scheme satisfies the equity test
in this subsection in relation to a company if it gives rise to an interest set
out in the following table:
|
Equity interests |
|
|---|---|
|
Item |
Interest |
|
1 |
An interest in the company as a member or stockholder of the
company. |
|
2 |
An interest that carries a right to a variable or fixed return from the
company if either the right itself, or the amount of the return, is in substance
or effect *contingent on the economic
performance (whether past, current or future) of: The return may be a return of an amount invested in the interest. |
|
3 |
An interest that carries a right to a variable or fixed return from the
company if either the right itself, or the amount of the return, is at the
discretion of: The return may be a return of an amount invested in the interest. |
|
4 |
An interest issued by the company that: |
This subsection has effect subject to subsection (2) (requirement for
financing arrangement).
Note: Section 974-90 allows regulations to be made
clarifying when a right or return is taken to be at discretion of a company or
connected entity.
Financing arrangement
(2) A *scheme that would otherwise give
rise to an *equity interest in a company
because of an item in the table in subsection (1) (other than item 1)
does not give rise to an equity interest in the company unless the scheme is a
*financing arrangement for the
company.
Form interest may take
(3) The interest referred to in item 2, 3 or 4 in the table in
subsection (1) may take the form of a proprietary right, a chose in action
or any other form.
(1) This section deals with the situation in which:
(a) an interest carries a right to a variable or fixed return from a
company; and
(b) the interest is held by a *connected
entity of the company; and
(c) apart from this section, the interest would not be an
*equity interest in the company; and
(d) there is a *scheme, or a series of
schemes, under which the return to the connected entity is to fund (directly or
indirectly) a return to another person (the ultimate
recipient).
(2) The interest is an equity interest in the company
if:
(a) the amount of the return to the ultimate recipient is in substance or
effect *contingent on the economic performance
(whether past, current or future) of:
(i) the company; or
(ii) a part of the company’s activities; or
(iii) a *connected entity of the company
or a part of the activities of a connected entity of the company; or
(b) either the right itself, or the amount of the return to the ultimate
recipient, is at the discretion of:
(i) the company; or
(ii) a connected entity of the company; or
(c) the interest in respect of which the return to the ultimate recipient
is made or another interest that arises from the scheme, or any of the schemes,
referred to in paragraph (1)(d):
(i) gives the ultimate recipient (or a connected entity of the ultimate
recipient) a right to be issued with an *equity
interest in the company or a connected entity of the company; or
(ii) is an *interest that will, or may,
convert into an equity interest in the company or a connected entity of the
company;
and the interest is not characterised as, and does not form part of a
larger interest that is characterised as, a
*debt interest in the entity in which it is
held, or a *connected entity, under
Subdivision 974-B. The return may be a return of an amount invested in the
interest.
Note 1: Section 974-90 allows regulations to be made
clarifying when a right or return is taken to be at the discretion of a company
or connected entity.
Note 2: Paragraphs (a), (b) and (c) parallel
items 2, 3 and 4 of the table in subsection 974-75(1).
Example: Company A, Company B1, Company B2 and Company B3
are connected entities.
Company B1 operates Trust Fund C. An interest in Trust Fund
C is issued to person H and the return on that interest is contingent on the
economic performance of Company A.
Trust Fund C lends the money paid by H for the purchase of
the interest to Company B1 which lends the money to Company B2 which lends the
money to Company B3 which lends the money to Company A.
Under the arrangements under which the interest is issued
and the loans made, payments of interest by Company A on the loan that Company
B3 makes to Company A are intended to pass back through Company B2 and Company
B1 to fund the return on H’s interest in Trust Fund C.
Under subsection (2), Company B3 will have an equity
interest in Company A. If the return to Company B3 were itself contingent on
Company A’s performance, Company B3’s interest would be an equity
interest in Company A under item 2 of the table in subsection 974-75(1)
(and not under subsection (2) of this section).
Company B2 has an equity interest in Company B3 and Company
B1 has an equity interest in Company B2. This is because the returns they get
are intended to fund the return on H’s interest in Trust Fund C and that
return is contingent on the economic performance of Company A (which is related
to both Company B3 and Company B2).
(3) The interest referred to in paragraph (1)(a) or (2)(c) may take
the form of a proprietary right, a chose in action or any other form.
(1) A right, or the amount of a return, is not contingent on the
economic performance of an entity, or a part of the entity’s
activities, merely because the right or return is contingent on:
(a) the ability or willingness of an entity to meet the obligation to
satisfy the right to the return; or
(b) the receipts or turnover of the entity or the turnover generated by
those activities.
(2) The regulations may specify circumstances in which a right or return
is to be taken to be contingent, or not contingent, on the economic performance
of an entity or a part of an entity’s activities.
(3) The regulations may provide that paragraph (1)(b) does not apply
in the circumstances specified in the regulations.
(4) The regulations may provide that an interest that:
(a) is covered by item 2 in the table in subsection 974-75(1) or
paragraph 974-80(2)(a); and
(b) arises in the circumstances specified in the regulations;
is not an equity interest because of:
(c) the limited extent to which the right or return that the interest
carries is *contingent on the economic
performance of an entity or a part of the entity’s activities;
or
(d) the practical insignificance of the right or return that the interest
carries being contingent on that performance.
The regulations may specify circumstances in which a right, or the amount
of a return, is to be taken to be at the discretion of a company
or a *connected entity of the
company.
(1) If a *scheme gives rise to an
*equity interest in a company because of an
item of the table in subsection 974-75(1), the equity interest consists of the
interest referred to in that item.
(2) If 2 or more *related schemes give
rise to an *equity interest in a company
because of an item of the table in subsection 974-75(1), the equity interest
consists of the combination of interests under the schemes that satisfy the
requirements of that item.
(3) Subsection 974-80(2) also provides that certain interests are
*equity interests in a company.
(4) If the returns on a *non-share equity
interest in a company are payable to 2 or more entities:
(a) each entity is taken to be the holder of a non-share equity interest
in the company; and
(b) each entity’s non-share equity interest consists of the
interests that:
(i) constitute the non-share equity interest; and
(ii) are held by that entity.
(5) The company in which an *equity
interest exists is taken to be the issuer of the interest.
Table of sections
974-100 Treatment of convertible and converting
interests
974-105 Effect of action taken in relation to interest
arising from related schemes
974-110 Effect of material change
(1) If a *debt interest is an
*interest that will or may convert into an
*equity interest, the conversion is taken, for
the purposes of this Division to give rise to a new interest (and is not treated
merely as a continuation of the debt interest).
(2) If an *equity interest is an
*interest that will or may convert into a
*debt interest, the conversion is taken, for
the purposes of this Division to give rise to a new interest (and is not treated
merely as a continuation of the equity interest).
If:
(a) a *scheme, or schemes, give rise to a
*debt interest in an entity or an
*equity interest in a company; and
(b) the entity or company pays a return, or undertakes any other
transaction, in respect of any of the following (the component
element):
(i) the scheme; or
(ii) a part of the scheme; or
(iii) one of those schemes; or
(iv) a part of one of those schemes;
then, for the purposes of this Act (other than this subsection), the return
is taken to be paid, or the transaction to have been undertaken, in respect of
the debt interest or equity interest and not in respect of the component
element.
Example: Company A issues a convertible note to Company B.
Company C, a connected entity of Company B, provides a binding collateral
undertaking to Company A that Company B will exercise the option to convert the
note into shares in Company A. The convertible note and the undertaking are
related schemes that may give rise to an equity interest in Company A if their
combined effect satisfies section 974-20. If so, the returns on the note
are taken to be returns in respect of the equity interest.
Change to existing scheme
(1) If:
(a) a *scheme or schemes give rise to a
*debt interest (or an
*equity interest) in a company; and
(b) the scheme, or one or more of the schemes, are subsequently changed;
and
(c) the scheme or schemes as they exist immediately after the change would
give rise to an equity interest (or a debt interest) in the company if they came
into existence when the change occurred;
this Division applies after the change as if the scheme or schemes as they
exist immediately after the change came into existence when the change
occurred.
Note 1: This will mean that the characterisation of the
interest will change at that time.
Note 2: This section can apply to an interest a number of
times so that, for example, an interest that is equity when issued may change to
debt because of one subsequent change and then back to equity because of a later
change.
Note 3: There will be an adjustment to the company’s
non-share capital account when the change occurs (see subsections 164-15(2) and
164-20(4)).
Entering into a new related scheme
(2) If:
(a) a *scheme or schemes give rise to a
*debt interest (or an
*equity interest) in a company; and
(b) the company subsequently enters into, participates in or causes
another entity to enter into or participate in a new
*related scheme; and
(c) the scheme or schemes, together with:
(i) the new related scheme; and
(ii) any other related scheme that the entity (or company) enters into,
participates in or causes another entity to enter into or participate in before
the new related scheme is entered into;
would give rise to an equity interest (or a debt interest) in the company
if they all came into existence when the new related scheme is entered
into;
this Division applies after the new related scheme is entered into as if
all the schemes referred to in paragraph (c) had come into existence when
the new related scheme is entered into.
Note 1: This will mean that the characterisation of the
interest will change at that time.
Note 2: This section can apply to an interest a number of
times so that, for example, an interest that is equity when issued may change to
debt because of one subsequent change and then back to equity because of a later
change.
Note 3: There will be an adjustment to the company’s
non-share capital account when the change occurs (see subsections 164-15(2) and
164-20(4)).
All prior changes to be taken into account
(3) In applying paragraphs (1)(c) and (2)(c) to the
*scheme or schemes, take into
account:
(a) all changes to the scheme or schemes that occur before the change or
before the new related scheme is entered into; and
(b) all *related schemes entered into
before the change or before the new related scheme is entered into;
and
(c) all changes to related schemes referred to in paragraph (b) that
occur before the change or before the new related scheme is entered
into.
Table of sections
974-115 Meaning of non-share
distribution
974-120 Meaning of non-share
dividend
974-125 Meaning of non-share capital
return
A company makes a non-share distribution to you
if:
(a) you hold a *non-share equity interest
in the company; and
(b) the company:
(i) distributes money to you; or
(ii) distributes other property to you; or
(iii) credits an amount to you;
as the holder of that interest.
(1) Subject to subsection (2), all
*non-share distributions are non-share
dividends.
(2) A *non-share distribution is not a
non-share dividend to the extent to which the company debits the
distribution against:
(a) the company’s *non-share
capital account; or
(b) the company’s share capital account.
A non-share capital return is a
*non-share distribution to the extent to which
it is not a *non-share dividend.
Table of sections
974-130 Financing arrangement
974-135 Effectively non-contingent
obligation
974-140 Ordinary debt interest
974-145 Benchmark rate of return
974-150 Schemes
974-155 Related schemes
974-160 Financial benefit
974-165 Convertible and converting
interests
(1) A *scheme is a financing
arrangement for an entity if it is entered into or undertaken:
(a) to raise finance for the entity (or a
*connected entity of the entity); or
(b) to fund another scheme that is a
*financing arrangement under
paragraph (a).
(2) The following are examples of
*schemes that are generally entered into or
undertaken to raise finance:
(a) a bill of exchange;
(b) income securities;
(c) a *convertible interest that will
convert into an *equity interest.
Note: Paragraph (a) is likely to be relevant for debt
interests, paragraph (b) for equity interests and paragraph (c) for
both.
(3) The following are examples of
*schemes that are generally not entered into or
undertaken to raise finance:
(a) a derivative that is used solely for managing financial
risk;
(b) a contract for personal services entered into in the ordinary course
of a business.
Note: These may be relevant for both debt interests and
equity interests.
(4) For the purposes of subsection (1), the following
*schemes are taken not to be entered into or
undertaken to raise finance:
(a) a lease that:
(i) is not a qualifying arrangement for the purposes of Division 16D
of Part III of the Income Tax Assessment Act 1936; and
(ii) is not a relevant agreement for the purposes of section 128AC of
that Act;
(b) a securities lending arrangement under section 26BC of the
Income Tax Assessment Act 1936;
(c) a life insurance or general insurance contract undertaken as part of
the issuer’s ordinary course of business;
(d) a scheme for the payment of royalties (within the meaning of the
Income Tax Assessment Act 1936) other than:
(i) a qualifying arrangement for the purposes of Division 16D of
Part III of the Income Tax Assessment Act 1936; or
(ii) a relevant agreement for the purposes of section 128AC of that
Act.
(1) There is an effectively non-contingent obligation to
take an action under a *scheme if, having
regard to the pricing, terms and conditions of the scheme, there is in substance
or effect a non-contingent obligation (see subsections (3), (4) and (6)) to
take that action.
(2) Without limiting subsection (1), that subsection applies
to:
(a) providing a *financial benefit under
the *scheme; or
(b) terminating the scheme.
(3) An obligation is non-contingent if it is not contingent
on any event, condition or situation (including the economic performance of the
entity having the obligation or a *connected
entity of that entity), other than the ability or willingness of that entity or
connected entity to meet the obligation.
(4) The existence of the right of the holder of an
*interest that will or may convert into an
*equity interest in a company to convert the
interest does not of itself make the issuer’s obligation to repay the
investment not non-contingent.
(5) An obligation to redeem a preference share is not contingent merely
because there is a legislative requirement for the redemption amount to be met
out of profits or a fresh issue of *equity
interests.
(6) In determining whether there is in substance or effect a
non-contingent obligation to take the action, have regard to the artificiality,
or the contrived nature, of any contingency on which the obligation to take the
action depends.
Note: The artificiality, or the contrived nature, of a
contingency would tend to indicate that there is, in substance or effect, a
non-contingent obligation to take that action.
(7) An obligation of yours is not effectively non-contingent
merely because you will suffer some detrimental practical or commercial
consequences if you do not fulfil the obligation.
Note: For example, a contingent obligation to make payments
in respect of an income security issued by an approved deposit-taking
institution (ADI) is not effectively non-contingent merely because of the
detrimental effect non-payment would have on the ADI’s
business.
(8) The regulations may make further provisions relating to the
following:
(a) what constitutes a non-contingent obligation;
(b) what does not constitute a non-contingent obligation;
(c) what constitutes an *effectively
non-contingent obligation;
(d) what does not constitute an effectively non-contingent
obligation.
(1) A *debt interest arising from a
scheme is an ordinary debt interest if none of the obligations
under the scheme is in substance or effect
*contingent on the economic performance
of:
(a) the issuer of the interest; or
(b) a *connected entity; or
(c) a part of the operations of the issuer or a connected
entity.
(2) The regulations may specify rules for determining whether a
*debt interest is an
*ordinary debt interest.
(1) The benchmark rate of return for an interest (the
test interest) in an entity is the annually compounded internal
rate of return on an *ordinary debt interest
that:
(a) is issued, immediately before the test interest is issued, by the
entity, or an equivalent entity, to an entity that is not a
*connected entity; and
(b) has a comparable maturity date; and
(c) is in the same currency; and
(d) is issued in the same market; and
(e) has the same credit status; and
(f) has the same degree of subordination to debts owed to the ordinary
creditors of the issuer.
(2) If there is no interest that satisfies subsection (1), the
benchmark rate of return for the test interest is the annually
compounded internal rate of return on an interest that is closest to the test
interest in the respects referred to in that subsection (adjusted
appropriately to take account of the differences between that interest and the
test interest).
(3) The regulations may:
(a) specify the meaning to be given to an expression used in this section;
or
(b) provide for a different method of determining the
*benchmark rate of return.
(1) Scheme has the meaning given in
section 995-1.
(2) The Commissioner:
(a) may determine that what would otherwise be a single
*scheme is to be treated for the purposes of
this Division as 2 or more separate schemes; and
(b) may determine that the schemes are to be taken for the purposes of
this Division to not be *related
schemes.
(3) The regulations:
(a) may provide that, in the circumstances specified in the regulations,
what would otherwise be a single *scheme is to
be treated for the purposes of this Division as 2 or more separate schemes;
and
(b) may provide that the schemes are to be taken for the purposes of this
Division to not be *related schemes.
(1) Subject to subsection (3), 2
*schemes are related to one
another if they are related to one another in any way.
(2) Without limiting subsection (1), 2
*schemes are related to each
other if:
(a) the schemes are based on stapled instruments; or
(b) one of the schemes would, from a commercial point of view, be unlikely
to be entered into unless the other scheme was entered into; or
(c) one of the schemes depends for its effect on the operation of the
other scheme; or
(d) one scheme complements or supplements the other; or
(e) there is another scheme to which both the schemes are related because
of a previous application or applications of this subsection.
(3) Two *schemes are not
related to one another merely because:
(a) one refers to the other; or
(b) they have a common party.
(4) The regulations may specify circumstances in which 2
*schemes:
(a) are taken to be related to one another; or
(b) are taken not to be related to one another.
(1) In this Act:
financial benefit:
(a) means anything of economic value; and
(b) includes property and services; and
(c) includes anything that regulations made for the purposes of
subsection (3) provide is a financial benefit;
even if the transaction that confers the benefit on an entity also imposes
an obligation on the entity.
(2) In applying subsection (1), benefits and obligations are to be
looked at separately and not set off against each other.
(3) The regulations may provide that a thing specified in the regulations
is a financial benefit for the purposes of this Act.
An interest (the first interest) is an interest that
will or may convert into another interest (the second
interest) if:
(a) the first interest, or a part of the first interest, must be or may be
converted into the second interest; or
(b) the first interest, or a part of the first interest, must be or may be
redeemed, repaid or satisfied by:
(i) the issue or transfer of the second interest (whether to the holder of
the first interest or to some other person); or
(ii) the acquisition of the second interest (whether by the holder of the
first interest or by some other person); or
(iii) the application in or towards paying-up (in whole or in part) the
balance unpaid on the second interest (whether the second interest is to be
issued to the holder of the first interest or to some other person);
or
(c) the holder of the first interest has, or is to have, a right or option
to have allotted or transferred to the holder or to some other person, or for
the holder or some other person otherwise to acquire:
(i) the second interest; or
(ii) a right or option to acquire the second interest.
Part 2—Amendment
of the Income Tax Assessment Act 1936
Income Tax Assessment Act
1936
35 Subsection 6(1)
Insert:
debt interest has the same meaning as in the Income Tax
Assessment Act 1997.
36 Subsection 6(1)
Insert:
equity holder has the same meaning as in the Income Tax
Assessment Act 1997.
37 Subsection 6(1)
Insert:
equity interest has the same meaning as in the Income Tax
Assessment Act 1997.
38 Subsection 6(1) (paragraph (b) of the
definition of income from personal exertion)
Repeal the paragraph, substitute:
(b) rents, dividends or non-share dividends.
39 Subsection 6(1)
Insert:
non-equity share means a share that is not an equity interest
in the company.
Note: A share will not be an equity interest if it is
characterised as, or forms part of a larger interest that is characterised as, a
debt interest under Subdivision 974-B of the Income Tax Assessment Act
1997.
40 Subsection 6(1)
Insert:
non-share capital account has the same meaning as in the
Income Tax Assessment Act 1997.
41 Subsection 6(1)
Insert:
non-share capital return has the same meaning as in the
Income Tax Assessment Act 1997.
42 Subsection 6(1)
Insert:
non-share distribution has the same meaning as in the
Income Tax Assessment Act 1997.
43 Subsection 6(1)
Insert:
non-share dividend has the same meaning as in the Income
Tax Assessment Act 1997.
44 Subsection 6(1)
Insert:
non-share equity interest has the same meaning as in the
Income Tax Assessment Act 1997.
45 Subsection 6(1) (definition of
paid)
After “dividends”, insert “or non-share
dividends”.
46 Subsection 6(1)
Insert:
prudential standards has the same meaning as in the Income
Tax Assessment Act 1997.
47 After subsection 6AB(5A)
Insert:
(5B) This section applies to a non-share dividend in the same way as it
applies to a dividend.
48 At the end of
section 6AC
Add:
(7) This section applies to a non-share dividend in the same way as it
applies to a dividend.
49 At the end of
section 6B
Add:
(4) This section:
(a) applies to a non-share equity interest in the same way as it applies
to a share; and
(b) applies to an equity holder in the same way as it applies to a
shareholder; and
(c) applies to a non-share dividend in the same way as it applies to a
dividend.
50 At the end of
section 6BA
Add:
(7) This section (other than subsection (6)):
(a) applies to a non-share equity interest in the same way as it applies
to a share; and
(b) applies to an equity holder in the same way as it applies to a
shareholder; and
(c) applies to a non-share dividend in the same way as it applies to a
dividend.
51 Subparagraph 23(jb)(ii)
After “dividends”, insert “or non-share
dividends”.
52 Subparagraph 26(e)(iii)
After “dividend”, insert “or non-share
dividend”.
53 At the end of
section 26A
Add:
(2) This section applies to a non-share dividend in the same way as it
applies to a dividend.
54 Subsection 27A(1) (subparagraph (a)(v)
of the definition of eligible termination payment)
After “dividend”, insert “, or non-share
dividend,”.
55 Subsection 27A(5)
After “dividend” (wherever occurring), insert “, or
non-share dividend,”.
56 After section 43A
Insert:
(1) This Subdivision:
(a) applies to a non-share equity interest in the same way as it applies
to a share; and
(b) applies to an equity holder in the same way as it applies to a
shareholder; and
(c) applies to a non-share dividend in the same way as it applies to a
dividend.
(2) Subsection (1) does not apply to section 47A.
(3) Paragraph (1)(c) does not apply to subsection 44(1).
(4) Subsection (1) has effect subject to the special provision that
is made for non-share dividends in subsection 44(1).
57 Subsection 44(1)
Repeal the subsection, substitute:
(1) The assessable income of a shareholder in a company (whether the
company is a resident or a non-resident) includes:
(a) if the shareholder is a resident:
(i) dividends (other than non-share dividends) that are paid to the
shareholder by the company out of profits derived by it from any source;
and
(ii) all non-share dividends paid to the shareholder by the company;
and
(b) if the shareholder is a non-resident:
(i) dividends (other than non-share dividends) paid to the shareholder by
the company to the extent to which they are paid out of profits derived by it
from sources in Australia; and
(ii) non-share dividends paid to the shareholder by the company to the
extent to which they are derived from sources in Australia.
This subsection does not apply to a dividend (or non-share dividend) to the
extent to which another provision of this Act that expressly deals with
dividends includes some or all of the dividend (or non-share dividend) in, or
excludes some or all of the dividend (or non-share dividend) from, the
shareholder’s assessable income.
Note: Some of the other provisions of this Act that
expressly deal with dividends are sections 23AJ, 23AI, 23AK and
128D.
58 After subsection 45A(3)
Insert:
(3A) For the purposes of this section, a non-share distribution to an
equity holder is taken to be the distribution to the equity holder of share
capital to the extent to which it is a non-share capital return.
59 After subsection 45B(4)
Insert:
(4A) For the purposes of this section, a non-share distribution to an
equity holder is taken to be the distribution to the equity holder of share
capital to the extent to which it is a non-share capital return.
60 After subsection 45C(4)
Insert:
(4A) For the purposes of this section:
(a) a non-share distribution to an equity holder is taken to be the
distribution to the equity holder of share capital to the extent to which it is
a non-share capital return; and
(b) the debit to the company’s non-share capital account, in respect
of the non-share distribution, is taken to be a debit to the company’s
share capital account.
61 Subsection 45Z(1A)
Repeal the subsection, substitute:
Application of section
(1A) This section:
(a) does not apply to a dividend that is paid in respect of a non-equity
share in a company; and
(b) has effect subject to section 45ZA.
62 Subsection 46(1) (definition of
dividend)
Repeal the definition, substitute:
dividend:
(a) means a dividend paid by a company that is a resident but, except in
paragraph (3)(a) or (b), does not include a dividend in relation to which
section 46A applies; and
(b) does not include a dividend paid in respect of a non-equity share in
the company.
63 Subsection 46A(1) (definition of
dividend)
Repeal the definition, substitute:
dividend:
(a) means a dividend paid by a company that is a resident; and
(b) does not, except in paragraph (6)(a) or (b), include a dividend
unless the payment of the dividend arose out of, or was made in the course of, a
transaction, operation, undertaking, scheme or arrangement that the Commissioner
is satisfied was by way of dividend stripping; and
(c) does not include a dividend paid in respect of a non-equity share in
the company.
64 Section 46D
Repeal the section.
65 At the end of
section 50
Add:
(2) This section applies to a non-share dividend in the same way as it
applies to a dividend.
66 At the end of
section 52A
Add:
(9) Subsection (8) applies to a non-share equity interest in the same
way as it applies to a share.
67 Before section 82L
Insert:
(1) This Division applies only for the purposes of:
(a) calculating an eligible CFC’s attributable income for the
purposes of Part X; and
(b) defining convertible note.
(2) A term used in paragraph (1)(a) has the same meaning as it has
when used in Part X.
68 Subsection 82L(1)
Insert:
attributable income has the meaning given by Division 7
of Part X.
69 Subsection 82L(1)
Insert:
CFC or controlled foreign company has the
meaning given by section 340.
70 Subsection 96C(5) (at the end of the
definition of net income)
Add:
Note: See subsection (5A).
71 After subsection 96C(5)
Insert:
(5A) In calculating the net income of the trust estate of the year of
income for the purposes of subsections (3), (4) and (5),
disregard:
(a) Division 974 of the Income Tax Assessment Act 1997;
and
(b) the operation of any provision of this Act to the extent to which that
operation depends on an expression whose meaning is given by that
Division.
72 At the end of
section 102AAW
Add:
(2) For the purpose of applying this Act in calculating the attributable
income of a trust estate:
(a) Division 974 of the Income Tax Assessment Act 1997;
and
(b) the operation of any provision of this Act to the extent to which that
operation depends on an expression whose meaning is given by that
Division;
are to be disregarded.
73 Subsection 102L(2)
Omit “46D,”.
74 At the end of subsection
102L(2)
Add:
; and (c) any of the provisions of those sections that does not apply to a
dividend in respect of a non-equity share in a company also does not apply to a
unit trust dividend in respect of an interest in the corporate unit trust that
is characterised as, or forms part of a larger interest that is characterised
as, a debt interest under Subdivision 974-B of the Income Tax Assessment
Act 1997.
75 At the end of
section 102L
Add:
Non-unit dividend
(20) Subsections (2), (3), (3A) and (19) apply as if references in
those subsections to a unit trust dividend included a reference to a non-unit
dividend.
(21) For the purposes of subsection 44(1), a non-unit dividend paid by the
trustee of a prescribed trust estate out of corpus of the trust estate is taken,
to the extent to which the non-unit dividend is attributable to a source in
Australia, to be derived from a source in Australia.
(22) If a provision of this Act that applies to a dividend:
(a) is taken under this section to apply to a unit trust dividend;
and
(b) applies to a non-share dividend in the same way as it applies to a
dividend;
that provision also applies to a non-unit dividend in the same way as it
applies to a dividend.
Non-unit equity interest
(23) If a provision of this Act that applies to a share:
(a) is taken under this section to apply to a unit in a corporate unit
trust; and
(b) applies to a non-share equity interest in a company in the same way as
it applies to a share;
that provision also applies to a non-unit equity interest in a corporate
unit trust in the same way as it applies to a share.
Equity holder
(24) Subsections (1), (2), (17) and (19) apply as if references in
those subsections to a unitholder included a reference to an equity holder who
is not a unitholder.
(25) If a provision of this Act that applies to a shareholder:
(a) is taken because of this section to apply to a unitholder in a
corporate unit trust; and
(b) applies to an equity holder in a company who is not a shareholder in
the same way as it applies to a shareholder;
that provision also applies to an equity holder in a corporate unit trust
who is not a unitholder in the same way as it applies to a
shareholder.
Definitions
(26) In this section:
equity holder in a prescribed trust estate means the holder
of an equity interest in the prescribed trust estate.
equity interest in a prescribed trust estate means:
(a) a unit in the prescribed trust estate; or
(b) any other interest that would be an equity interest in the prescribed
trust estate if references in Division 974 of the Income Tax Assessment
Act 1997 to a company included references to a prescribed trust estate or,
as the context requires, to the trustee of a prescribed trust estate.
non-unit dividend means a unit trust distribution that is not
a unit trust dividend.
non-unit equity interest in a prescribed trust estate means
an equity interest in the prescribed trust estate that is not a unit in the
prescribed trust estate.
unit trust distribution means a distribution, or an amount
credited, that would be a unit trust dividend if references in the definition of
unit trust dividend in subsection 102D(1) to a unitholder were
references to an equity holder.
76 Subsection 102T(2)
Omit “46D,”.
77 At the end of subsection
102T(2)
Add:
; and (c) any of the provisions of those sections that does not apply to a
dividend in respect of a non-equity share in a company also does not apply to a
unit trust dividend in respect of an interest in the public trading trust that
is characterised as, or forms part of an interest that is characterised as, a
debt interest under Subdivision 974-B of the Income Tax Assessment Act
1997.
78 At the end of
section 102T
Add:
Non-unit dividend
(21) Subsections (2), (3), (4) and (20) apply as if references in
those subsections to a unit trust dividend included a reference to a non-unit
dividend.
(22) For the purposes of subsection 44(1), a non-unit dividend paid by the
trustee of a prescribed trust estate out of corpus of the trust estate is taken,
to the extent to which the non-unit dividend is attributable to a source in
Australia, to be derived from a source in Australia.
(23) If a provision of this Act that applies to a dividend:
(a) is taken under this section to apply to a unit trust dividend;
and
(b) applies to a non-share dividend in the same way as it applies to a
dividend;
that provision also applies to a non-unit dividend in the same way as it
applies to a dividend.
Non-unit equity interest
(24) If a provision of this Act that applies to a share:
(a) is taken under this section to apply to a unit in a prescribed trust
estate; and
(b) applies to a non-share equity interest in a company in the same way as
it applies to a share;
that provision also applies to a non-unit equity interest in a prescribed
trust estate in the same way as it applies to a share.
Equity holder
(25) Subsections (1), (2), (18) and (20) apply as if references in
those subsections to a unitholder included a reference to an equity holder who
is not a unitholder.
(26) If a provision of this Act that applies to a shareholder:
(a) is taken because of this section to apply to a unitholder in a
prescribed trust estate; and
(b) applies to an equity holder in a company who is not a shareholder in
the same way as it applies to a shareholder;
that provision also applies to an equity holder in a prescribed trust
estate who is not a unitholder in the same way as it applies to a
shareholder.
Definitions
(27) In this section:
equity holder in a prescribed trust estate means the holder
of an equity interest in the prescribed trust estate.
equity interest in a prescribed trust estate means:
(a) a unit in the prescribed trust estate; or
(b) any other interest that would be an equity interest in the prescribed
trust estate if references in Division 974 of the Income Tax Assessment
Act 1997 to a company included references to a prescribed trust estate or,
as the context requires, to the trustee of a prescribed trust estate.
non-unit dividend means a unit trust distribution that is not
a unit trust dividend.
non-unit equity interest in a prescribed trust estate means
an equity interest in the prescribed trust estate that is not a unit in the
prescribed trust estate.
unit trust distribution means a distribution, or an amount
credited, that would be a unit trust dividend if references in the definition of
unit trust dividend in subsection 102M(1) to a unitholder were
references to an equity holder.
79 Before section 103
Insert:
(1) This Division:
(a) applies to a non-share equity interest in the same way as it applies
to a share; and
(b) applies to an equity holder in the same way as it applies to a
shareholder; and
(c) applies to a non-share dividend in the same way as it applies to a
dividend.
(2) Subsection (1) does not apply to section 103A.
80 At the end of
section 109B
Add:
This Division applies to non-share equity interests and non-share dividends
in the same way it applies to shares and dividends.
81 After Subdivision A of Division 7A of
Part III
Insert:
This Division:
(a) applies to a non-share equity interest in the same way as it applies
to a share; and
(b) applies to an equity holder in the same way as it applies to a
shareholder; and
(c) applies to a non-share dividend in the same way as it applies to a
dividend.
82 Before section 128A
Insert:
(1) This Division:
(a) applies to a non-share equity interest in the same way as it applies
to a share; and
(b) applies to an equity holder in the same way as it applies to a
shareholder; and
(c) applies to a non-share dividend in the same way as it applies to a
dividend.
(2) Subsection (1) does not apply to:
(a) section 128AE; and
(b) section 128F; and
(c) section 128J; and
(d) section 128K.
83 Subsection 128A(1) (definition of
dividend)
Repeal the definition, substitute:
dividend:
(a) includes part of a dividend; and
(b) (except when used in paragraph (d) of the definition of
interest in subsection (1AB)) does not include a dividend
paid in respect of a non-equity share.
84 Subsection 128A(1AB) (definition of
interest)
Repeal the definition, substitute:
interest includes an amount, other than an amount referred to
in subsection 26C(1):
(a) that is in the nature of interest; or
(b) to the extent that it could reasonably be regarded as having been
converted into a form that is in substitution for interest; or
(c) to the extent that it could reasonably be regarded as having been
received in exchange for interest in connection with a washing arrangement;
or
(d) that is a dividend paid in respect of a non-equity share;
but does not include an amount to the extent to which it is a return on an
equity interest in a company.
85 After subsection
128B(2C)
Insert:
(2D) Subsections (2B) and (2C) do not apply to income to the extent
to which it is a return on an equity interest in a company.
86 Before paragraph
128B(3)(a)
Insert:
(aaa) income that consists of a non-share dividend that is not frankable
under section 160APAAAA; or
87 Before Subdivision A of Division 16K of
Part III
Insert:
(1) This Division:
(a) applies to a non-share equity interest in the same way as it applies
to a share; and
(b) applies to an equity holder in the same way as it applies to a
shareholder; and
(c) applies to a non-share dividend in the same way as it applies to a
dividend.
(2) Paragraph (1)(a) does not apply to subsection
159GZZZP(1).
88 Subsection 159GZZZP(1)
After “share” (first occurring), insert “or non-share
equity interest”.
89 Paragraph 159GZZZP(1)(b)
Repeal the paragraph, substitute:
(b) the part (if any) of the purchase price in respect of the buy-back of
the share or non-share equity interest which is debited against amounts standing
to the credit of:
(i) the company’s share capital account if it is a share that is
bought back; or
(ii) the company’s share capital account or non-share capital
account if it is a non-share equity interest that is bought back;
90 Before
section 160AE
Insert: