INCOME TAX ASSESSMENT ACT 1936

PART X - ATTRIBUTION OF INCOME IN RESPECT OF CONTROLLED FOREIGN COMPANIES  

Division 1 - Preliminary  

SECTION 327B   TRANSITIONAL FINANCE SHARES  

327B(1)   Meaning of ``transitional finance shares''.  

For the purposes of this Part, shares (in this subsection called the ``test shares'' ) in a company (in this subsection called the ``second company'' ) are transitional finance shares at a particular time (in this subsection called the ``test time'' ) if all of the following conditions are satisfied:


(a) the test time is before 1 July 1998;


(b) the test shares are finance shares;


(c) during a period (in this subsection called the ``primary issue period'' ) ending before the IP time, another company (in this subsection called the ``first company'' ) issued widely distributed finance shares;


(d) the issue of the widely distributed finance shares comprised the whole of a common issue of shares by the first company;


(e) the issue of the test shares comprised the whole of a common issue of shares by the second company;


(f) the test shares were simultaneously issued to the first company by the second company at, or within a reasonable time after, the end of the primary issue period;


(g) the widely distributed finance shares were issued by the first company for the sole purpose of funding the first company's acquisition of the test shares;


(h) assuming that the test shares had been issued at the end of the primary issue period, the following conditions would have been satisfied at all times during the period commencing at the end of the primary issue period and ending at the test time:


(i) the rights and obligations relating to the widely distributed finance shares are substantially similar to the rights and obligations relating to the test shares;

(ii) the first company and the second company are under common ownership;


(i) if, on the assumption that the dividends in respect of the test shares were instead payments of the interest, referred to in subsection (2), to which they may reasonably be regarded as equivalent, the following conditions would have been satisfied in relation to that interest:


(i) the interest that accrued during the 24-month period ending at the test time accrued at intervals not exceeding 12 months;

(ii) the interest that accrued during the 12-month period commencing 24 months before the test time was paid not later than 12 months after it accrued;

(iii) the dividends paid in respect of the widely distributed finance shares during the 12-month period ending at the test time are wholly attributable to the interest that accrued during the 12-month period ending at the time the dividends were paid;

(iv) the total amount of dividends paid in respect of the widely distributed finance shares during the 12-month period ending at the test time is equal to, or approximately equal to, the total amount of interest to which the dividends are attributable.

327B(2)   Meaning of ``finance shares''.  

For the purposes of this section, shares in a company are finance shares if, and only if, having regard to:


(a) the manner in which the amount of dividends in respect of the shares was to be calculated; and


(b) the conditions applicable to the payment of dividends in respect of the shares; and


(c) any other relevant matters;

the payment of the dividends in respect of the shares may reasonably be regarded as equivalent to the payment of interest on a loan.

327B(3)   Modification of ``widely distributed finance shares''.  

For the purposes of this section, in determining whether shares are widely distributed finance shares, if an asset is held by an entity as trustee for another entity who is absolutely entitled to the asset against the trustee, paragraph 327A(2)(b) has effect as if:


(a) the asset were vested in the other entity instead of the trustee; and


(b) if the asset is a share - any dividends paid in respect of the share were paid to the other entity instead of to the trustee.

327B(4)   Meaning of ``under common ownership''.  

For the purposes of this section, 2 companies are under common ownership at a particular time if, and only if:


(a) another company (in this subsection called the ``third company'' ) holds eligible share interests in each of the companies; and


(b) the aggregate of the eligible share interests in each company held by the third company is 90% or more.

327B(5)   Meaning of ``eligible share interest''.  

For the purposes of this section, a person holds an eligible share interest in a company at a particular time equal to the percentage of the company's total paid-up share capital (excluding finance shares) beneficially owned by the person at that time.

327B(6)   Extended meaning of ``eligible share interest'': tiers of companies.  

For the purposes of this section, if:


(a) a person holds an eligible share interest (including an eligible share interest that is taken to be held because of one or more previous applications of this subsection) in a company (in this subsection called the ``first level company'' ); and


(b) the first level company holds an eligible share interest in another company (in this subsection called the ``second level company'' );

the person is taken to hold an eligible share interest in the second level company equal to the percentage calculated using the formula:


First level percentage   ×   Second level percentage

where:

`` First level percentage '' means the percentage of the eligible share interest held by the person in the first level company;

`` Second level percentage '' means the percentage of the eligible share interest held by the first level company in the second level company.

327B(7)   Definitions.  

In this section:

"eligible share interest"
has the meaning given by subsections (5) and (6);

"finance share"
has the meaning given by subsection (2);

"under common ownership"
has the meaning given by subsection (4);

"widely distributed finance share"
has a meaning affected by subsection (3).


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