Taxation Laws Amendment Act (No. 1) 2004 (101 of 2004)

Schedule 10   Foreign hybrids

Part 1   Amendment of the Income Tax Assessment Act 1936

5   After section 485

Insert:

485AA Election to exclude interests in foreign hybrids from operation of this Part

Limited partnerships that are treated as companies

(1) If:

(a) disregarding subsection 94D(5):

(i) at the end of a year of income, a taxpayer has an interest in a FIF that is a corporate limited partnership for the purposes of Division 5A of Part III in relation to the year of income; and

(ii) the interest consists of a share in the FIF; and

Note: The share will be an interest in the partnership that is treated by Division 5A of Part III as a share.

(b) the entity satisfies the requirements of paragraphs 830-10(1)(a) to (d) of the Income Tax Assessment Act 1997 in relation to the year of income;

the taxpayer may elect that subsection (5) of this section applies in relation to the interest in the FIF.

Actual companies

(2) If:

(a) at the end of a year of income, a taxpayer has an interest in a FIF that consists of one or more shares in the FIF; and

(b) the interest is not one to which paragraph (1)(a) applies; and

(c) the entity satisfies the requirements of paragraphs 830-15(1)(a) to (c) of the Income Tax Assessment Act 1997 in relation to the year of income;

the taxpayer may elect that subsection (5) of this section applies in relation to the interest in the FIF.

Time limit for making election

(3) A taxpayer must make an election under this section:

(a) on or before the day on which the taxpayer lodges its return of income for the year of income; or

(b) within a further time allowed by the Commissioner.

When election is in force

(4) If the taxpayer makes the election, it is in force during the year of income and all later years of income.

Effect of election on interest in FIF etc.

(5) While the election is in force, the operative provision, and any other provision of this Part relevant to the operation of that provision, does not apply to the taxpayer in relation to the interest in the FIF consisting of the share or shares or any option, convertible note, or other instrument, that confers an entitlement to acquire the share or shares.

Note: The election will also have the effect under Division 830 of the Income Tax Assessment Act 1997 of making the company or limited partnership a foreign hybrid in relation to the taxpayer's interest in the FIF.

Effect of election on other interests in FIF

(6) However, subsection (5) does not have effect so far as that interest in the FIF is relevant for the purpose of the application of this Part in relation to the taxpayer, or any other taxpayer, in relation to any other interest in the FIF.

Note: For example, in applying section 580 to work out other taxpayers' shares of the calculated profit of the FIF, the interest would not be disregarded.

Election irrevocable

(7) The election is irrevocable.