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  • Section E: Financial services entities

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    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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    Question 40

    This question must be completed by qualifying foreign banks and financial entities to which Part IIIB of the ITAA 1936 applies (and have not elected out of Part IIIB).

    The dollar amounts or values asked for in this question are all based on your tax records.

    If you are a foreign bank or a qualifying foreign financial entity that carries on business operations through an Australian branch and, under section 160ZZVB of the ITAA 1936, you:

    • have not made an election that Part IIIB does not apply, then all the rules in Part IIIB apply.
    • have made an election that Part IIIB does not apply, then certain rules regarding withholding taxes in Part IIIB continue to apply.

    For the purposes of Part IIIB, the following terms are defined in section 160ZZV:

    • Australian branch, in relation to a foreign bank, means a permanent establishment in Australia through which the bank carries on banking business
    • foreign bank means a body corporate that is a foreign authorised deposit taking institution (ADI) for the purposes of the Banking Act 1959
    • financial entity and foreign entity both have the meaning given in section 995-1 of the ITAA 1997.

    If you are a foreign bank or other qualifying financial entity which has not elected out of Part IIIB of the ITAA 1936, answer Yes at A item 40 and complete B to F at item 40a and G to J at item 40b.

    At B, write the amount of your average quarterly notional borrowings within the meaning of subsection 160ZZZ(1) of the ITAA 1936. This is calculated by adding up your notional borrowings determined under subsection 160ZZZ(1) at the end of each quarter in your income year and dividing that number by four.

    At C, write the Appendix 13 currency in which the notional amount was taken to be borrowed under section 160ZZZ. If there is more than one currency, write the main currency of the notional borrowings.

    At D, write the amount of interest taken to be paid under section 160ZZZA of the ITAA 1936 (capped at LIBOR). If you are an offshore banking unit (OBU), do not include any amounts attributable to offshore banking (OB) activities under Division 9A of Part III of ITAA 1936.

    At E, write the amount of interest taken to be paid under section 160ZZZA of the ITAA 1936 attributable to OB activities under Division 9A of Part III of ITAA 1936 (if you are an OBU).

    At F, write the amount of withholding tax you paid on the interest amount taken to be paid under section 160ZZZA of the ITAA 1936 (capped at LIBOR). Interest withholding tax is payable under section 160ZZZJ of the ITAA 1936 on 50% of the amount of interest taken to be paid under section 160ZZZA.

    At G, write the notional amount taken to be paid under subsection 160ZZZE of the ITAA 1936.

    At H, write the notional amount taken to be received under subsection 160ZZZE of the ITAA 1936.

    At I, write the notional amount taken to be paid under subsection 160ZZZF of the ITAA 1936.

    At J, write the notional amount taken to be received under subsection 160ZZZF of the ITAA 1936.

    Do not show any amounts taken to be paid under section 160ZZZE or section 160ZZZF at I and J item 18d.

    If you are a foreign bank or other qualifying financial entity which has elected out of Part IIIB of the ITAA 1936, answer Yes at K item 40c and complete L to P.

    At L, write the amount of your average quarterly notional borrowings within the meaning of subsection 160ZZZ(1) of the ITAA 1936. This is calculated by adding up your notional borrowings determined under subsection 160ZZZ(1) at the end of each quarter in your income year and dividing that number by four.

    At M, write the Appendix 13 currency in which the notional amount was taken to be borrowed under section 160ZZZ. If there is more than one currency, write the main currency of the notional borrowings.

    At N, write the amount of interest taken to be paid under section 160ZZZA of the ITAA 1936 (capped at LIBOR). If you are an offshore banking unit (OBU), do not include any amounts attributable to OB activities under Division 9A of Part III of ITAA 1936.

    At O, write the amount of interest taken to be paid under section 160ZZZA of the ITAA 1936 attributable to OB activities under Division 9A of Part III of ITAA 1936 (if you are an OBU).

    At P, write the amount of withholding tax you paid on the interest amount taken to be paid under section 160ZZZA of the ITAA 1936 (capped at LIBOR).

    Interest withholding tax is payable under section 160ZZZJ of the ITAA 1936 on 50% of the amount of interest taken to be paid under section 160ZZZA.

    Question 41

    If you are an offshore banking unit (OBU), what you show at this question helps in assessing your level of compliance with the OBU tax provisions.

    To complete this question, undertake the following steps:

    • For each OB activity type listed in the schedule work out the (gross) amount of your assessable OB income in accordance with sections 121EDA and 121EE of the ITAA 1936.
    • Calculate your net OB income or loss in accordance with sections 121EDA, 121EE and 12EF of the ITAA 1936 for each OB activity type listed in the schedule (by subtracting exclusive OB deductions for the OB activity type from the assessable OB income for the activity).
    • Identify your OB activities undertaken with related parties.
    • Calculate the (gross) amount of your assessable OB income, within the meaning of sections 121EDA and 121EE of the ITAA 1936, for the OB activities you have undertaken with related parties.
    • Work out the amount of your general OB deduction and apportionable OB deductions for the income year in accordance with section 121EF of the ITAA 1936.
    • Work out the amount of your eligible fraction of foreign income tax you claimed as a foreign tax offset under Division 770 of the ITAA 1997.

    Tax and Superannuation Laws Amendment (2015 Measures No.1) Bill 2015 External Linkreceived royal assent on 25 June 2015. The amendments to the OBU regime apply in relation to income years starting on or after 1 July 2015.

    The amendments include:

    • changing the method of allocating general expenses between the taxpayer’s domestic banking unit and the OBU
    • expanding the list of eligible OB activities (for example, by including offshore leasing arrangements)

    If you were an OBU or the head company of a consolidated group that includes an OBU, answer Yes at A item 41 and complete the following:

    At B items 41a to 41i and 41o, write the amount of your assessable OB income for the income year determined in accordance with sections 121EDA and 121EE of the ITAA 1936, for each specified OB activity type.

    At B item 41m, write the sum of the amounts you have written at items 41a to 41i and 41o. The amount you have written at B item 41m should be the amount of your total assessable OB income for the income year determined under sections 121EDA and 121EE of the ITAA 1936.

    If the amount at any of these labels is a loss, write L in the box at the right of the amount.

    At C items 41a to 41i and 41o, write the amount of your net OB income or loss for each specified OB activity type. Calculate by subtracting the amount of your exclusive OB deductions for the income year (within the meaning of subsection 121EF(3) of the ITAA 1936) for the OB activity type, from the amount of assessable OB income which you have written at B items 41a to 41i and 41o for that activity type. If this amount is a net loss, write L in the box at the right of the amount.

    At C item 41j, write the sum of the amount of your general OB deduction and the amount of your apportionable OB deductions determined under section 121EF of the ITAA 1936 for all your OB activities for the income year.

    At C item 41m, write the sum of the amounts you have written at C items 41a to 41i and 41o, less the sum of the amount of your general OB deduction and apportionable OB deductions you have written at C item 41j. If this amount is a net loss, write L in the box at the right of the amount. The amount you have written at C item 41m should be the amount of your total assessable OB income, subject to subsection 121EG(1) of the ITAA 1936 less allowable OB deductions, subject to subsection 121EG(2) of the ITAA 1936, for the income year. If this amount is a net loss, write L in the box at the right of the amount.

    For the purposes of providing information at D (Assessable OB income from related parties), treat related party as having the same meaning as it has in determining whether you have international related party dealings.

    At D items 41a to 41i and 41o, write the amount of your assessable OB income for the income year determined in accordance with sections 121EDA and 121EE of the ITAA 1936, for each specified OB activity type for OB activities undertaken with related parties.

    At D item 41m, write the sum of the amounts you have written at D items 41a to 41i and 41o. The amount you have written at D item 41m should be the amount of your total assessable OB income for the income year determined under sections 121EDA and 121EE of the ITAA 1936 for all your OB activities undertaken with related parties.

    At E item 41n, write the eligible fraction of foreign income tax on OB income you claimed under Division 770 of the ITAA 1936.

    The foreign income tax paid on the offshore banking income of an OBU is taken to be one-third (the current offshore banking eligible fraction) of the amount of foreign income tax actually paid (see subsection 121EG(3A) of the ITAA 1936).

    Example

    During the income year, XYZ Co, an Australian taxpayer which was an OBU, extracted the following information from its tax records for its financial services activities.

    Tax records for financial services activities.

    Activity type

    Related party

    Total assessable income
    $

    Assessable OB income
    $

    Assessable non-OB income
    $

    Exclusive deductions
    $

    Lending

    Yes

    100,000

    100,000

    0

    25,000

    Lending

    Yes

    150,000

    0

    150,000

    45,000

    Lending

    No

    125,000

    125,000

    0

    40,000

    Guarantee-type

    Yes

    90,000

    90,000

    0

    10,000

    Guarantee-type

    No

    110,000

    0

    110,000

    30,000

    Trading

    Yes

    250,000

    250,000

    0

    200,000

    Trading

    Yes

    140,000

    0

    140,000

    30,000

    Trading

    No

    300,000

    300,000

    0

    120,000

    Eligible contract

    No

    210,000

    210,000

    0

    60,000

    Advisory

    No

    80,000

    80,000

    0

    10,000

    Advisory

    Yes

    100,000

    100,000

    0

    25,000

    Hedge

    Yes

    390,000

    0

    390,000

    270,000

    Total

    n/a

    2,045,000

    1,255,000

    790,000

    865,000

    The OB income can be summarised as follows:

    Activity type

    Assessable OB income
    $

    Net OB income or loss (assessable OB income – exclusive OB deductions)
    $

    Assessable OB income from related parties
    $

    Lending

    225,000

    160,000

    100,000

    Guarantee-type

    90,000

    80,000

    90,000

    Trading

    550,000

    230,000

    250,000

    Eligible contract

    210,000

    150,000

     

    Advisory

    180,000

    145,000

    100,000

    Total

    1,255,000

    765,000

    540,000

    Additional information:

    • XYZ Co has total allowable deductions of $100,000, within the meaning of subsection 121EF(4), attributable to both their OB activities and non-OB activities.
    • XYZ Co did not incur any apportionable deductions, within the meaning of subsection 121EF(5), during the income year.
    • All of XYZ Co's exclusive OB deductions and exclusive non-OB deductions, within the meaning of subsections 121EF(3) and (6), for its lending activities were for expenses in the nature of interest.
    • None of XYZ Co's exclusive deductions for any other kinds of activities were for expenses in the nature of interest.
    • XYZ Co did not claim an eligible fraction of foreign income tax as an offset.

    XYZ Co writes:

    Question 41 of the form completed using the information from within this example.

    End of example
    Last modified: 06 Nov 2018QC 55230