Tax Laws Amendment (Taxation of Financial Arrangements) Act 2009 (15 of 2009)

Schedule 1Amendments

Part 3 Application and transitional provisions

104Application of financial arrangement amendments (financial arrangements)

Future financial arrangements

(1) The financial arrangement amendments apply to financial arrangements that you start to have in the first applicable income year or a later income year.

Existing financial arrangements

(2) The financial arrangement amendments apply to all financial arrangements that:

(a) you started to have before the start of the first applicable income year; and

(b) you have at the start of that income year;

only if you elect to have this subitem apply to you.

(3) The financial arrangement amendments do not apply under subitem (2) to a financial arrangement that arose from a disposal of property (including a disposal of a capital asset, a revenue asset, a depreciating asset or trading stock).

(4) The financial arrangement amendments do not apply under subitem (2) to a financial arrangement if:

(a) the election is made by the head company of a consolidated group or MEC group; and

(b) the election specifies that the election is not to apply to financial arrangements in relation to life insurance business carried on by a member of the consolidated group or MEC group; and

(c) the arrangement is one that relates to the life insurance business carried on by a member of the consolidated group or MEC group.

(5) An election under subitem (2) must:

(a) be made on or before the first lodgment date that occurs on or after the start of the first applicable income year; and

(b) be notified to the Commissioner on or before the lodgment date referred to in paragraph (a).

(6) If you make an election under subitem (2), treat subsection 230-455(7) of the Income Tax Assessment Act 1997 as allowing you to make an election under that subsection that applies to:

(a) in any case - all of the financial arrangements that you start to have in the income year in which the election is made or a later income year; or

(b) if you make the election at the same time as you make the election under subitem (2) - all of your financial arrangements to which the financial arrangements amendments apply.

(7) If you make an election under subitem (2), treat section 230-150 of the Income Tax Assessment Act 1997 as allowing you to make an election under that section that, despite paragraph 230-160(1)(b), applies to a financial arrangement that:

(a) you started to have before the start of the first applicable income year; and

(b) you have at the start of that income year.

(8) An election that you make under Subdivision 230-C, 230-D or 230-F of the Income Tax Assessment Act 1997 extends to financial arrangements referred to in subitem (2) only if that election is made on or before the first lodgment date that occurs after the start of the first applicable income year.

(9) An election that you make under Subdivision 230-E of the Income Tax Assessment Act 1997 extends to a financial arrangement referred to in subitem (2) only if:

(a) that election is made on or before the first lodgment date that occurs after the start of the first applicable income year; and

(b) the requirements of section 230-335 were satisfied in relation to the arrangement at the time the arrangement was created, acquired or applied; and

(c) at, or soon after, the time you make the election, you have in place records in relation to the arrangement that satisfy the requirements of section 230-355 and section 230-360 (other than subparagraph 230-360(2)(c)(ii)); and

(d) the requirements of section 230-365 have been satisfied at all times since the arrangement was created, acquired or applied for the purpose of hedging a risk in relation to a hedged item.

(10) To avoid doubt, subsection 230-310(4) does not apply to a financial arrangement that you started to have before the start of the first applicable income year and that you have at the start of that income year.

(11) To avoid doubt, the election referred to in subitem (8) or (9) applies to the financial arrangements referred to in subitem (2) even though you started to have the arrangements before the election is made.

(12) If you make an election under subitem (2), balancing adjustments must be made under subitem (13).

(13) Use the following method statement to make the balancing adjustments under this subitem:

Balancing adjustment method statement

Step 1. Work out the total of all the amounts that relate to the financial arrangements and that would have been included in your assessable income if Division 230 of the Income Tax Assessment Act 1997 had applied to gains and losses from the arrangements from the time when you started to have them: the result is the notional assessable amount .

Step 2. Work out the total of all the amounts that relate to the financial arrangements and that would have been allowable to you as deductions if that Division had applied to gains and losses from the arrangements from the time when you started to have them: the result is the notional deductible amount .

Step 3. Work out the total of all the amounts that relate to the financial arrangements and have been included in your assessable income from the time when you started to have them: the result is the actual assessed amount .

Step 4. Work out the total of all the amounts that relate to the financial arrangements and that have been allowable as deductions for you from the time when you started to have them: the result is the actual deducted amount .

Step 5. Add the notional assessable amount to the actual deducted amount: the result is the step 5 amount .

Step 6. Add the actual assessed amount to the notional deductible amount: the result is the step 6 amount .

Step 7. Compare the step 5 amount with the step 6 amount. If the step 5 amount exceeds the step 6 amount, the excess is included in your assessable income as a balancing adjustment. If the step 6 amount exceeds the step 5 amount, the excess is allowable as a deduction as a balancing adjustment. If the step 5 amount and the step 6 amount are equal there is no balancing adjustment.

(14) If:

(a) an amount is recorded in a deferred tax asset account in accordance with:

(i) accounting standard AASB 112 (or another accounting standard prescribed by the regulations for the purposes of this paragraph); or

(ii) if that standard does not apply to the preparation of your financial reports - a comparable accounting standard that applies to the preparation of your financial reports under a foreign law;

immediately before the start of the first applicable income year; and

(b) the whole or a part of that amount (the attributable assessable amount ) is attributable to a financial arrangement referred to in subitem (2); and

(c) the method of relying on financial reports provided for in Subdivision 230-F applies to take account of a gain or loss you make from the financial arrangement;

the following provisions have effect:

(d) the financial arrangement is to be disregarded for the purposes of steps 1 to 4 of the method statement in subitem (13); and

(e) the attributable assessable amount is to be reduced to the extent to which it represents unused tax credits and then grossed up under subitem (16); and

(f) the step 6 amount is to be increased by the amount obtained under paragraph (e).

(15) If:

(a) an amount is recorded in a deferred tax liability account in accordance with:

(i) accounting standard AASB 112 (or another accounting standard prescribed by the regulations for the purposes of this paragraph); or

(ii) if that standard does not apply to the preparation of your financial reports - a comparable accounting standard that applies to the preparation of your financial reports under a foreign law;

immediately before the start of the first applicable income year; and

(b) the whole or a part of that amount (the attributable deductible amount ) is attributable to a financial arrangement referred to in subitem (2); and

(c) the method of relying on financial reports provided for in Subdivision 230-F applies to take account of a gain or loss you make from the financial arrangement;

the following provisions have effect:

(d) the financial arrangement is to be disregarded for the purposes of steps 1 to 4 of the method statement in subitem (13);

(e) the attributable deductible amount is to be reduced to the extent to which it represents unused tax credits and then grossed up under subitem (16);

(f) the step 5 amount is to be increased by the amount obtained under paragraph (e).

(16) An amount is to be grossed up for the purposes of subitems (14) and (15) by multiplying the amount by:

(1-(Tax rates taken into account in working out the attributable assessable amount or attributable deductable amount

(17) A balancing adjustment under subitem (13) is to be spread evenly over the first applicable income year and the next 3 income years.

(18) In applying steps 1 and 2 in the method statement in subitem (13) to financial arrangements, assume that any election that extends to the arrangements under subitem (6) had applied to those financial arrangements from the time when you started to have them.

(19) In applying section 121EH of the Income Tax Assessment Act 1936, disregard any balancing adjustment under subitem (13).