(even if the event occurred after the borrowed security was disposed of by the borrower to a third party), the event is taken to have occurred during the borrowing period if, and only if, (assuming that the borrower had held the borrowed security at all times during the borrowing period) the entitlement to the distribution or issue would have been attributable to the borrower’s holding of the borrowed security at a particular time during the borrowing period.
(4) In determining:
(a) whether an amount (other than a fee payable under the securities lending arrangement) is included in the assessable income of the lender under a provision of this Act other than Part 3‑1 or 3‑3 of the Income Tax Assessment Act 1997 (about CGT); or
(b) whether an amount is allowable as a deduction to the lender;
in respect of either or both of the transactions covered by paragraph (3)(a), the lender is to be treated as if:
(c) neither of those transactions had been entered into; and
(d) the lender had held the borrowed security at all times during the borrowing period; and
(e) if the replacement security is not the borrowed security—the replacement security were the borrowed security.
(4A) If the lender receives a compensatory payment covered by sub‑subparagraph (3)(c)(v)(C), then, in determining whether an amount is included in the assessable income of the lender under a provision of this Act other than Part 3‑1 or 3‑3 of the Income Tax Assessment Act 1997, the lender is to be treated as if:
(a) the lender had held the borrowed security at all relevant times during the borrowing period; and
(b) the right or option had been issued directly to the lender in respect of the borrowed security; and
(c) the lender had disposed of the right or option immediately after its issue for a consideration equal to the compensatory payment.
(4B) If the lender receives a compensatory payment covered by sub‑subparagraph (3)(c)(vi)(C), then, in determining whether an amount is included in the assessable income of the lender under a provision of this Act other than Part 3‑1 or 3‑3 of the Income Tax Assessment Act 1997, the lender is to be treated as if:
(a) the lender had held the right or option at all relevant times during the borrowing period; and
(b) the lender had exercised the right or option; and
(c) the lender had immediately disposed of the shares, units, bonds, debentures or financial instruments that resulted from exercising the right or option for a consideration equal to the compensatory payment.
(5) In determining:
(a) whether an amount is included in the assessable income of the borrower under a provision of this Act other than Part 3‑1 or 3‑3 of the Income Tax Assessment Act 1997; or
(b) an amount (other than a fee payable under the securities lending arrangement) is allowable as a deduction to the borrower;
in respect of either or both of the transactions covered by paragraph (3)(a):
(c) if the borrowed security was disposed of by the borrower to a third party:
(i) the borrower is to be treated as if the borrower had acquired the borrowed security from the lender for a consideration equal to the market value of the borrowed security at the time of its acquisition; and
(ii) the borrower is to be treated as if the borrower had disposed of the replacement security to the lender for a consideration equal to the market value of the borrowed security at the time of its acquisition from the lender; or
(d) in any other case—the borrower is to be treated as if neither of the transactions referred to in paragraph (3)(a) had been entered into.
(6) Any capital gain or capital loss from the disposal of the borrowed security by the lender is disregarded.
(6A) If the lender acquired the borrowed security before 20 September 1985, the lender is taken (for the purposes of Parts 3‑1 and 3‑3 of the Income Tax Assessment Act 1997) to have acquired the replacement security before that day.
(6B) If the lender acquired the borrowed security on or after 20 September 1985, the first element of the cost base of the replacement security is the cost base of the borrowed security just before the acquisition of the replacement security. The reduced cost base of the replacement security is worked out similarly.
(7) If:
(a) the borrowed security was acquired on or after 20 September 1985; and
(b) a CGT event (other than one involving a transaction covered by subsection (3)) happens in relation to the replacement security at least 12 months after the lender acquired a paired security in relation to the replacement security (otherwise than under a transaction covered by subsection (3));
section 114‑10 of the Income Tax Assessment Act 1997 (about the requirement for 12 months ownership) does not apply to the CGT event.
(8) For the purposes of subsection (7):
(a) if CGT event A1 happens (involving a transaction covered by subsection (3)) by the lender disposing of an eligible security to the borrower, that security is a paired security in relation to the replacement security subsequently acquired or re‑acquired by the lender; and
(b) a security is a paired security in relation to a second security if the first security is a paired security in relation to a third security that is a paired security in relation to the second security (including a pairing with the second security by another application or other applications of this paragraph).
(9) For the purpose of applying Parts 3‑1 and 3‑3 of the Income Tax Assessment Act 1997 to the borrower:
(a) if the borrower disposes of the borrowed security to a third party:
(i) the first element of the cost base and reduced cost base of the borrowed security (in the hands of the borrower) is taken to be its market value when the borrower acquired it; and
(ii) when the borrower disposes of a replacement security to the lender, the capital proceeds from that CGT event are taken to be that market value; and
(b) if no third party is involved—the transactions referred to in paragraph (3)(a) are ignored.
(9A) For the purpose of applying Parts 3‑1 and 3‑3 of the Income Tax Assessment Act 1997 to the borrower, the incidental costs to the borrower of the acquisition of an eligible security covered by sub‑subparagraph (3)(a)(ii)(B) include a compensatory payment incurred by the borrower (to the extent that the borrower has not deducted and cannot deduct it).
(9B) For the purposes of the application of Parts 3‑1 and 3‑3 of the Income Tax Assessment Act 1997 to a right or option received by the lender as mentioned in subparagraph (3)(c)(v), the borrower and lender are to be treated as if the eligible security in respect of which the right or option was issued had been held by the lender at the time of the acquisition of the right or option.
(9C) For the purposes of the application of Parts 3‑1 and 3‑3 of the Income Tax Assessment Act 1997 to a share, unit, bond, debenture or financial instrument received by the lender as mentioned in subparagraph (3)(c)(vi), the borrower and the lender are to be treated as if:
(a) the share, unit, bond, debenture or financial instrument had been received as the result of the exercise of the borrowed security; and
(b) the borrowed security had been held by the lender at the time of the exercise; and
(c) the lender had exercised the borrowed security; and
(d) the lender had exercised the borrowed security at the time the direction concerned was given; and
(e) the amount of the contribution (if any) made by the lender to the borrower in respect of the carrying out of the direction were an amount paid as consideration by the lender in respect of the exercise.
(9D) If a distribution covered by subparagraph (3)(c)(i) consists of one or more shares issued by a company to the borrower or to a third party in the circumstances mentioned in subsection 6BA(1), then, for the purposes of the application of Parts 3‑1 and 3‑3 of the Income Tax Assessment Act 1997 to a share (in this subsection called the notional bonus share) received by the lender in relation to the distribution in the circumstances mentioned in sub‑subparagraph (3)(c)(iv)(A) or (B), the borrower and the lender are to be treated as if:
(a) the company had issued the notional bonus share to the lender instead of the borrower or the third party, as the case requires; and
(b) the notional bonus share had been issued in the circumstances mentioned in subsection 6BA(1); and
(c) the notional bonus share had been issued in respect of the borrowed security; and
(d) the lender had held the borrowed security at the time the notional bonus share was issued.
(9E) If a distribution covered by subparagraph (3)(c)(i) consists of one or more units issued by the trustee of a unit trust to the borrower or to a third party in the circumstances covered by section 130‑20 of the Income Tax Assessment Act 1997, then, for the purposes of the application of Parts 3‑1 and 3‑3 of the Income Tax Assessment Act 1997 to a unit (in this subsection called the notional bonus unit) received by the lender in relation to the distribution in the circumstances mentioned in sub‑subparagraph (3)(c)(iv)(A) or (B), the borrower and the lender are to be treated as if:
(a) the trustee had issued the notional bonus unit to the lender instead of the borrower or the third party, as the case requires; and
(b) the notional bonus unit had been issued in the circumstances covered by section 130‑20 of the Income Tax Assessment Act 1997; and
(c) the notional bonus unit had been issued in respect of the borrowed security; and
(d) the lender had held the borrowed security at the time the notional bonus unit was issued.
(9F) If the lender receives a compensatory payment covered by sub‑subparagraph (3)(c)(v)(C), then, for the purposes of the application of Parts 3‑1 and 3‑3 of the Income Tax Assessment Act 1997 to the lender, the lender is to be treated as if:
(a) the lender had held the borrowed security at all relevant times during the borrowing period; and
(b) the right or option had been issued directly to the lender in respect of the borrowed security; and
(c) the lender had disposed of the right or option immediately after its issue and had received capital proceeds of an amount equal to the compensatory payment.
(9G) If the lender receives a compensatory payment covered by sub‑subparagraph (3)(c)(vi)(C), then, for the purposes of the application of Parts 3‑1 and 3‑3 of the Income Tax Assessment Act 1997 to the lender, the lender is to be treated as if:
(a) the lender had held the right or option at all relevant times during the borrowing period; and
(b) the lender had exercised the right or option; and
(c) the lender had immediately disposed of the shares, units, bonds, debentures or financial instruments that resulted from exercising the right or option and had received capital proceeds of an amount equal to the compensatory payment.
(11A) If:
(a) the lender receives from the borrower a distribution or identical property covered by subparagraph (3)(c)(iv); and
(b) assuming that the borrowed security had continued to be held by the lender, an amount (in this subsection called the otherwise assessable amount) would have been included in the lender’s assessable income of a year of income in respect of the distribution concerned;
the lender’s assessable income of the year of income includes an amount equal to the otherwise assessable amount.
(11B) If:
(a) the lender receives from the borrower a compensatory payment covered by sub‑subparagraph (3)(c)(iv)(C); and
(b) assuming that the borrowed security had continued to be held by the lender, an amount (in this subsection called the otherwise assessable amount) would have been included in the lender’s assessable income of a year of income in respect of the distribution concerned;
the lender’s assessable income of the year of income includes an amount equal to the otherwise assessable amount.
(12) Where:
(a) a taxpayer has entered into a transaction of a kind referred to in subparagraph (3)(a)(i); and
(b) at the time of making an assessment in respect of income of the taxpayer of the year of income in which the transaction occurred, the Commissioner is of the opinion that, at a later time, circumstances will exist because of which this section will apply in connection with that transaction;
the Commissioner may apply the provisions of this section as if those circumstances existed at the time of making the assessment.
(13) Where:
(a) in the making of an assessment, this section has been applied on the basis that a circumstance that did not exist at the time of making the assessment would exist at a later time; and
(b) after the making of the assessment, the Commissioner becomes satisfied that the circumstance will not exist;
then, in spite of anything in section 170, the Commissioner may amend the assessment at any time for the purpose of ensuring that this section is to be taken always to have applied on the basis that the circumstance did not exist.
26E Income from RSAs
(1) All benefits provided in respect of, and amounts that are paid from, an RSA (including amounts taken to be paid from an RSA under subsection (2)) are taken to have an Australian source.
(2) If the premiums of an insurance policy are paid from an RSA, any amounts paid by the insurer under the policy are taken to be paid by the RSA provider as a benefit of the RSA.
Subdivision AA—Non‑superannuation annuities etc.
27H Assessable income to include annuities and superannuation pensions
(1) Subject to Division 54 of the Income Tax Assessment Act 1997, the assessable income of a taxpayer of a year of income shall include:
(a) the amount of any annuity derived by the taxpayer during the year of income excluding, in the case of an annuity that has been purchased, any amount that, in accordance with the succeeding provisions of this section, is the deductible amount in relation to the annuity in relation to the year of income; and
(b) the amount of any payment made to the taxpayer during the year of income as a supplement to an annuity, whether the payment is made voluntarily, by agreement or by compulsion of law and whether or not the payment is one of a series of recurrent payments.
Note: Division 54 of the Income Tax Assessment Act 1997 provides a tax exemption for certain payments under structured settlements and structured orders.
(2) Subject to subsections (3) and (3A), the deductible amount in relation to an annuity derived by a taxpayer during a year of income is the amount (if any) ascertained in accordance with the
formula Start formula start fraction A open bracket B minus C close bracket over D end fraction end formula, where:
A is the relevant share in relation to the annuity in relation to the taxpayer in relation to the year of income.
B is the amount of the undeducted purchase price of the annuity.
C is:
(a) if there is a residual capital value in relation to the annuity and that residual capital value is specified in the agreement by virtue of which the annuity is payable or is capable of being ascertained from the terms of that agreement at the time when the annuity is first derived—that residual capital value; or
(b) in any other case—nil; and
D is the relevant number in relation to the annuity.
(3) Subject to subsection (3A), where the Commissioner is of the opinion that the deductible amount ascertained in accordance with subsection (2) is inappropriate having regard to:
(a) the terms and conditions applying to the annuity; and
(b) such other matters as the Commissioner considers relevant;
the deductible amount in relation to the annuity derived by the taxpayer during the year of income is so much of the annuity as, in the opinion of the Commissioner, represents the undeducted purchase price having regard to:
(c) the terms and conditions applying to the annuity;
(d) any certificate or certificates of an actuary or actuaries stating the extent to which, in the opinion of the actuary or actuaries, the amount of the annuity derived by the taxpayer during the year of income represents the undeducted purchase price; and
(e) such other matters as the Commissioner considers relevant.
(3A) For the purposes of this section, where the annuity derived by a taxpayer during a year of income is part of an annuity of which a part has been commuted in the year of income or a preceding year of income, the deductible amount ascertained under subsection (2) or (3) shall be reduced by such amount as, in the opinion of the Commissioner, is appropriate having regard to:
(c) any deductible amount ascertained under this section in relation to the annuity in relation to a preceding year of income; and
(d) such other matters as the Commissioner considers relevant.
(4) In this section:
actuary means a Fellow or Accredited Member of the Institute of Actuaries of Australia.
agreement means any agreement, arrangement or understanding whether formal or informal, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings.
annuity means an annuity, a pension paid from a foreign superannuation fund (within the meaning of the Income Tax Assessment Act 1997) or a pension paid from a scheme mentioned in paragraph 290‑5(c) of that Act, but does not include:
(a) an annuity that is a qualifying security for the purposes of Division 16E; or
(b) a superannuation income stream (within the meaning of the Income Tax Assessment Act 1997).
life expectation factor, in relation to a person in relation to an annuity, means the number of years in the complete expectation of life of the person as ascertained by reference to the prescribed Life Tables at the time at the beginning of the period to which the first payment of the annuity relates.