INCOME TAX ASSESSMENT ACT 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-10 - FINANCIAL TRANSACTIONS  

Division 230 - Taxation of financial arrangements  

Subdivision 230-B - The accruals/realisation methods  

When accruals method or realisation method applies

SECTION 230-120   Financial arrangements with notional principal  

230-120(1)  
This section applies to a *financial arrangement that you have if, in substance or effect, and having regard to the pricing, terms and conditions of the arrangement:


(a) the arrangement consists of these things:


(i) a leg, the *financial benefits to be provided or received in respect of which are calculated by reference to, or are reasonably related to, a notional principal;

(ii) another leg, the financial benefits to be provided or received in respect of which also are calculated by reference to, or are reasonably related to, a notional principal;

(iii) if the arrangement includes one or more other things - those things; and


(b) when you start to have the arrangement, the value of the notional principal in relation to one leg is equal to the value of the notional principal in relation to the other leg; and


(c) all or part of the notional principal in relation to each leg is provided or received at a time, regardless of whether that time is different in relation to each leg.

Example:

A swap contract.

230-120(2)  
To avoid doubt, the *financial benefits mentioned in subparagraphs (1)(a)(i) and (ii), and the notional principal in relation to each leg, need not actually be provided or received.

230-120(3)  
In applying this Subdivision to the *financial arrangement:


(a) work out the *financial benefits from the arrangement as follows:


(i) work out the financial benefits from each thing of which the arrangement consists separately from the financial benefits from each other thing of which the arrangement consists;

(ii) ensure that results under subparagraph (i) are consistent with the timing and amount of financial benefits to be actually provided or received under the arrangement; and


(b) work out your gains and losses from the arrangement as follows:


(i) work out the gains and losses from each thing of which the arrangement consists separately from the gains and losses from each other thing of which the arrangement consists;

(ii) treat the gains and losses mentioned in subparagraph (i) for all of those things as your gains and losses from the arrangement; and


(c) in working out a gain or loss from a thing for the purposes of subparagraph (b)(i), and, if the accruals method applies to the gain or loss, how it is to be spread and allocated:


(i) if the thing is a leg - take into account the amount of the notional principal at a time and in a manner that properly reflects the way in which the financial benefits in respect of that leg are calculated; and

(ii) if the thing is not a leg - take into account an amount relevant to the thing at a time and in a manner that properly reflects the way in which the financial benefits in respect of that thing are calculated.

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