INCOME TAX ASSESSMENT ACT 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-10 - FINANCIAL TRANSACTIONS  

Division 230 - Taxation of financial arrangements  

Subdivision 230-E - 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).

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 - 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 - 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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