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  • Entered into or extended on or after 9.30am on 16 April 2003 but before 1 July 2007

    If you entered into or extended a product on or after 9.30am on 16 April 2003 but before 1 July 2007, part of the interest cost is attributed to the capital protection feature of the loan and is not deductible.

    Products with an explicit put option

    If you have a capital protected product – such as instalment warrants traded on the Australian Securities Exchange (ASX) – that contain an explicit put option that gives you the right to 'put' or sell the underlying share, unit or stapled security ('underlying security') back to the lender for the higher of the market value or the amount outstanding under the loan, in the case of a purchase in the:

    • primary market (before listing on the ASX), the cost of the capital protection component is the amount that is paid for the put option
    • secondary market (once listed on the ASX), if the market value of the underlying security at the time of purchase is
      • greater than the loan amount, the amount attributed to the cost of the capital protection component is the price of the instalment warrant plus the loan amount less the sum of the market value of the underlying security and the interest prepaid on the newly acquired loan
      • equal to or less than the loan amount, the amount attributed to the cost of the capital protection component is the price of the instalment warrant less the interest prepaid on the newly acquired loan.
       

    Other capital protected products

    For other capital protected products the cost of the capital protection component is the greater of the:

    • difference between the total amount, ignoring amounts that are not in substance for capital protection or interest, incurred by the borrower in respect of the borrowing and the amount determined by applying the Reserve Bank of Australia's indicator rate for personal unsecured loans (fixed or variable rate, whichever is applicable to the same amount of borrowing)
    • amount determined by reference to the following specified percentage amounts of the expense on a capital protected product
      • 40% for a product with a term of one year or shorter
      • 27.5% for a product with a term longer than one year but not longer than two years
      • 20% for a product with a term longer than two years but not longer than three years
      • 17.5% for a product with a term longer than three years but not longer than four years
      • 15% for a product with a term longer than four years.
       

    Capital protected products entered into or extended before 1 July 2007 and still in existence at 13 May 2008 may continue to use the methodology outlined above until 30 June 2013 or the end of the life of the arrangement, whichever is sooner.

      Last modified: 19 Aug 2016QC 17547