Edited version of private advice

Authorisation Number: 1052228214935

Date of advice: 1 March 2024

Ruling

Subject: Taxation of financial arrangements

Question 1

Will the exchangeable notes (EN) issued by Company A satisfy the definition of "debt interest" pursuant to section 974-15 of the ITAA 1997?

Answer

Yes.

Question 2

Will the EN issued by Company A satisfy the definition of "financial arrangement" pursuant to section 230-45 of the ITAA 1997?

Answer

Yes.

Question 3

Will Company A be entitled to deductions pursuant to subsection 230-15(2) of the ITAA 1997 for the loss in respect of interest payable on the ENs?

Answer

Yes.

Question 4

Where an EN Holder exercises its Exchange Rights to acquire Entity B Equity Securities, will a balancing adjustment need to be made by Company A under Subdivision 230-G of the ITAA 1997 in respect of the EN Exchanged?

Answer

Yes.

Question 5

For the purposes of calculating a balancing adjustment under Subdivision 230-G of the ITAA 1997 in respect of the Exchange of an EN for Entity B Equity Securities, will Step 1a of the method statement in subsection 230-445(1) of the ITAA 1997 be equal to the proceeds received by Company A for the issue (being the face value) of the EN Exchanged?

Answer

Yes.

Question 6

For the purposes of calculating a balancing adjustment under Subdivision 230-G of the ITAA 1997 in respect of the Exchange of an EN for Entity B Equity Securities, will Step 2a of the method statement in subsection 230-445(1) include the market value of an Entity B Equity Security multiplied by the relevant number of Entity B Equity Securities provided by Company A to the EN Holder exchanging the EN at the time of the Exchange?

Answer

Yes.

Question 7

Will subsection 230-15(5) of the ITAA 1997 not apply to a loss made on an EN, including as a result of a balancing adjustment under Subdivision 230-G of the ITAA 1997?

Answer

Yes.

Question 8

Where an EN Holder exercises its Exchange Rights to acquire equity securities in Entity B ("Entity B Equity Securities"), does CGT event A1 happen to Company A in respect of its Entity B Equity Securities?

Answer

Yes.

Question 9

Where CGT event A1 happens to Company A in respect of its disposal of Entity B Equity Securities to an EN Holder as a result of an Exchange under the terms of the EN, will Company A be taken to have received capital proceeds equal to the market value of the ENs received by Company A for the disposal of Entity B Equity Securities on the date of the Exchange for the purposes of section 116-20 of the ITAA 1997?

Answer

Yes.

Question 10

Where CGT event A1 happens to Company A in respect of its disposal of Entity B Equity Securities to an EN Holder as a result of an Exchange under the terms of an EN, and Company A is able to specifically identify the particular Entity B Equity Securities disposed of, will the cost base and reduced cost base to Company A of the individually distinguishable Entity B Equity Securities disposed of be the cost base and reduced cost base of those individually distinguishable Entity B Equity Securities for the purposes of section 110-25 of the ITAA 1997 and section 110-55 of the ITAA 1997 respectively in accordance with the principles in CGT Determination Number 33?

Answer

Yes.

Question 11

Where CGT event A1 happens to Company A in respect of its disposal of Entity B Equity Securities to an EN Holder as a result of an Exchange under the terms of the EN, and Company A is unable to specifically identify the particular Entity B Equity Securities disposed of, will the cost base and reduced cost base to Company A of the Entity B Equity Securities disposed of be the cost base and reduced cost base of those Company B Shares for the purposes of section 110-25 of the ITAA 1997 and section 110-55 of the ITAA 1997 respectively determined in accordance with a first-in first-out selection, a last-in, first-out selection or a highest-in, first-out selection?

Answer

Yes.

Question 12

Will no CGT event happen to Company A upon the granting of a security interest over Entity B Equity Securities?

Answer

Yes.

Question 13

If Company A lends Entity B Equity Securities under the Stock Borrow Arrangement, will section 26BC of the ITAA 1936 apply to the arrangement?

Answer

Yes.

This ruling applies for the following periods:

1 July 20XX to 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The taxpayer applied for a private ruling on the application of Division 974, Division 230, CGT provisions of the ITAA 1997 and section 26BC of the ITAA 1936 to an arrangement in which the EN were issued by the issuing Company A to the Noteholders.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 26BC

Income Tax Assessment Act 1997 section 102-25

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 110-25

Income Tax Assessment Act 1997 section 110-55

Income Tax Assessment Act 1997 section 116-20

Income Tax Assessment Act 1997 section 121-20

Income Tax Assessment Act 1997 Subdivision 230-G

Income Tax Assessment Act 1997 subsection 230-15(2)

Income Tax Assessment Act 1997 subsection 230-15(4)

Income Tax Assessment Act 1997 subsection 230-15(5)

Income Tax Assessment Act 1997 section 230-40

Income Tax Assessment Act 1997 section 230-45

Income Tax Assessment Act 1997 section 230-50

Income Tax Assessment Act 1997 section 230-55

Income Tax Assessment Act 1997 section 230-435

Income Tax Assessment Act 1997 section 230-440

Income Tax Assessment Act 1997 subsection 230-445(1)

Income Tax Assessment Act 1997 section 230-470

Income Tax Assessment Act 1997 subsection 245-65(1)

Income Tax Assessment Act 1997 section 245-75

Income Tax Assessment Act 1997 section 245-85

Income Tax Assessment Act 1997 Division 974

Income Tax Assessment Act 1997 section 974-15

Income Tax Assessment Act 1997 section 974-20

Income Tax Assessment Act 1997 section 974-35

Income Tax Assessment Act 1997 section 974-40

Income Tax Assessment Act 1997 section 974-70

Income Tax Assessment Act 1997 section 974-75

Income Tax Assessment Act 1997 section 974-135

Income Tax Assessment Act 1997 section 974-155

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).