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Edited version of private advice
Authorisation Number: 1051604755856
Date of advice: 25 November 2019
Ruling
Subject: Offshore banking unit
Question 1
Does entering into a cash-driven securities lending arrangements (SLA) with an "offshore person" (as defined in section 121E) in which Company X provides the counterparty with a cash deposit (Cash Collateral), constitute an "OB activity" of Company X within the meaning of subsection 121D(1) Income Tax Assessment Act 1936 (ITAA 1936), by virtue of being "OB eligible contract activity" as defined in section 121DB?
Answer
Yes
Question 2
Does the provision of Cash Collateral by Company X to an "offshore person" (as defined in section 121E) under a cash driven SLA constitute an "OB activity" of Company X within the meaning of subsection 121D(1), by virtue of being a "borrowing or lending activity" as defined in subsection 121D(2)?
Answer
Yes
Question 3
Do payments made to Company X in respect of Cash Collateral provided by Company X to an "offshore person" (as defined in section 121E) under a cash-driven SLA constitute "assessable OB income" as defined in subsection 121EE(2), where none of the money lent, invested or otherwise used in carrying on the activity is non-OB money of Company X?
Answer
Yes
Question 4
Does dividend income that Company X receives on borrowed securities under a cash-driven SLA with an "offshore person" (as defined in section 121E) constitute "assessable OB income" under subsection 121EE(2) where none of the money lent, invested or otherwise used in carrying on the activity is non-OB money of Company X?
Answer
Yes
Question 5
Does a manufactured dividend payment by Company X under a cash-driven SLA with an "offshore person" (as defined in section 121E) constitute an "exclusive OB deduction" under subsection 121EF (3)?
Answer
Yes
Question 6
Does entering into a SLA with an "offshore person" (as defined in section 121E) in which Company X receives Cash Collateral constitute an "OB activity" of Company X within the meaning of subsection 121D(1), by virtue of being "OB eligible contract activity" as defined in section 121DB?
Answer
Yes
Question 7
Does a payment made by Company X in respect of Cash Collateral received by Company X from an "offshore person" (as defined in section 121E) under a SLA constitute an "exclusive OB deduction" under subsection 121EF(3)?
Answer
Yes
Question 8
Does a manufactured dividend payment received by Company X under a SLA with an "offshore person" (as defined in section 121E) constitute "assessable OB income" under subsection 121EE(2), where none of the money lent , invested or otherwise used in carrying on the activity is non-OB money of Company X?
Answer
Yes
Relevant facts and circumstances
Company X is an Australian resident company and a financial institution engaged in retail and wholesale banking activities in Australia and overseas. Company X is an 'offshore banking unit' (OBU) under subsection 128AE(2) of the ITAA 1936.
Company X proposes to enter into SLAs to derive additional income from the securities that it receives under the current cash-driven SLA activities with offshore persons.
SLA's are either "securities-driven" or "cash-driven". Securities-driven transactions are where the securities borrower wants to obtain temporary access to specific securities. Cash-driven transactions are where the securities lender wants to borrow cash and use the relevant securities as collateral for the borrowing.
The relevant SLA counterparty will be an "offshore person" as defined in section 121E of the ITAA 1936 (noting that that this can include an overseas "permanent establishment" (PE) of an OBU).
Cash Collateral provided by Company X will not be Australian currency where the SLA counterparty is an "offshore person" under section 121E of the ITAA 1936 because it is an Australian resident acting through an overseas PE and is not an OBU.
Company X's activities respect to entering into an SLA will satisfy the "OBU requirement" in section 121EA of the ITAA 1936.
All of the money lent, invested or otherwise used by Company X in carrying on its activities in respect of an SLA entered into with an offshore person will not be "non-OB money" of Company X, as defined in section 121C of the ITAA 1936.
Securities that Company X receives under cash-driven SLAs may be used in other OB eligible activities, as defined in section 121D of the 1936.
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