Income Tax Assessment Act 1997
CHAPTER 3
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SPECIALIST LIABILITY RULES
PART 3-10
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FINANCIAL TRANSACTIONS
The object of this section is to better align, in particular circumstances, the tax classification of a gain or loss you make from a *hedging financial arrangement with the tax classification of the *hedged item. 230-310(2)
This section applies if:
(a) you make a gain or loss from a *hedging financial arrangement for an income year; and
(b) a *hedging financial arrangement election applies to the arrangement. 230-310(3)
Subject to subsection (4):
(a) if you make a gain from the arrangement - your assessable income includes the gain in accordance with subsection 230-15(1) ; and
(b) if you make a loss from the arrangement - you may deduct the loss in accordance with subsections 230-15(2) and (3) .
A gain or loss you make from a *hedging financial arrangement, to the extent to which it is reasonably attributable to a *hedged item referred to in the following table, is dealt with in the way indicated in that item:
Subsection (6) applies if:
(a) a * hedged item is your net investment in a foreign operation (within the meaning of the * accounting principles); and
(b) the foreign operation is carried on through:
The table in subsection (4) has effect as if:
(a) to the extent that the * hedging financial arrangement hedges a risk or risks in relation to * shares you hold in the company - the reference in that table to the * hedged item were a reference to your interest in those shares; and
(b) to the extent that the hedging financial arrangement hedges a risk or risks in relation to another interest you have in the company - the reference in that table to the hedged item were a reference to that interest.
Division 230
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Taxation of financial arrangements
Subdivision 230-E
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Hedging financial arrangements method
SECTION 230-310
Aligning tax classification of gain or loss from hedging financial arrangement with tax classification of hedged item
230-310(1)
The object of this section is to better align, in particular circumstances, the tax classification of a gain or loss you make from a *hedging financial arrangement with the tax classification of the *hedged item. 230-310(2)
This section applies if:
(a) you make a gain or loss from a *hedging financial arrangement for an income year; and
(b) a *hedging financial arrangement election applies to the arrangement. 230-310(3)
Subject to subsection (4):
(a) if you make a gain from the arrangement - your assessable income includes the gain in accordance with subsection 230-15(1) ; and
(b) if you make a loss from the arrangement - you may deduct the loss in accordance with subsections 230-15(2) and (3) .
Note:
Section 230-300 tells you how to allocate the gain or loss to an income year or years.
230-310(4)A gain or loss you make from a *hedging financial arrangement, to the extent to which it is reasonably attributable to a *hedged item referred to in the following table, is dealt with in the way indicated in that item:
Special tax classification for gains and losses | |||
Item | For a hedged item that is or produces ... | the gain ... | the loss ... |
1 | a * CGT asset any * net capital gain in relation to which would be assessable under Parts 3-1 and 3-3 in relation to which a * CGT event (the hedged item CGT event ) occurs | is treated as a * capital gain from a CGT event (but only to the extent to which the gain is reasonably attributable to the hedged item CGT event) | is treated as a * capital loss from a CGT event (but only to the extent to which the loss is reasonably attributable to the hedged item CGT event) |
2 | a * CGT asset that is * taxable Australian property | is treated as a * capital gain from a * CGT event for a CGT asset that is taxable Australian property | is treated as a * capital loss from a CGT event for a CGT asset that is taxable Australian property |
3 | a * CGT asset your capital gains and losses in relation to which are disregarded, or reduced by a particular percentage, under Division 855 | is disregarded or reduced by the same percentage | is disregarded or reduced by the same percentage |
4 | * exempt income | is treated as exempt income | is not deductible |
5 | * non-assessable non-exempt income of an Australian resident | is treated as non-assessable non-exempt income | is not deductible |
6 | a share in a company that is a foreign resident if the capital gain or loss you make from a * CGT event that happens to the share is reduced by a particular percentage under Subdivision 768-G | is treated as a * capital gain from a CGT event that is reduced by the same percentage | is treated as a * capital loss from a CGT event that is reduced by the same percentage |
7 | * ordinary income or * statutory income from an * Australian source | is treated as ordinary income or statutory income from an Australian source | is treated as a loss incurred in gaining or producing ordinary income or statutory income from an Australian source |
8 | * ordinary income or * statutory income from a source out of Australia | is treated as ordinary income or statutory income from a source out of Australia | is treated as a loss incurred in gaining or producing ordinary income or statutory income from a source out of Australia |
9 | a loss or outgoing incurred in gaining or producing * ordinary income or * statutory income from a source out of Australia | is treated as ordinary income or statutory income from a source out of Australia | is treated as a loss incurred in gaining or producing ordinary income or statutory income from a source out of Australia |
10 | a loss or outgoing incurred in gaining or producing * ordinary income or * statutory income from an * Australian source | is treated as ordinary income or statutory income from an Australian source | is treated as a loss incurred in gaining or producing ordinary income or statutory income from an Australian source |
11 | a loss or outgoing that is not allowed as a deduction | is treated as * non-assessable non-exempt income | is treated as a loss that is not allowed as a deduction |
12 | a net investment in a foreign operation (within the meaning of the
*
accounting principles) that is not carried on through:
(a) a company in which you hold shares; or (b) a company that is a subsidiary of yours (within the meaning of the Corporations Act 2001 ). |
(a) to the extent that the net investment would give rise to income that is
*
non-assessable non-exempt income under section 23AH of the
Income Tax Assessment Act 1936
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is treated as non-assessable non-exempt income; and
(b) otherwise - is treated in accordance with the item or items in this table that are applicable to the gain. |
(a) to the extent that the net investment would give rise to income that is non-assessable non-exempt income under section 23AH of the
Income Tax Assessment Act 1936
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is not deductible; and
(b) otherwise - is treated in accordance with the item or items in this table that are applicable to the loss. |
230-310(5)
Subsection (6) applies if:
(a) a * hedged item is your net investment in a foreign operation (within the meaning of the * accounting principles); and
(b) the foreign operation is carried on through:
(i) a company in which you hold * shares; or
(ii) a company that is a subsidiary of yours (within the meaning of the Corporations Act 2001 ).
230-310(6)
The table in subsection (4) has effect as if:
(a) to the extent that the * hedging financial arrangement hedges a risk or risks in relation to * shares you hold in the company - the reference in that table to the * hedged item were a reference to your interest in those shares; and
(b) to the extent that the hedging financial arrangement hedges a risk or risks in relation to another interest you have in the company - the reference in that table to the hedged item were a reference to that interest.
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