(a) the trader, for the purpose of trading in the thing, acquires it on issue from the other person; or
(b) the trader, for the purpose of trading in the thing, buys it from the other person; or
(c) the trader, in trading in the thing, sells it to the other person.
121EDA Meaning of OB income
OB income
(1) Subject to subsections (2) to (5), the OB income of an OBU of a year of income is so much of the OBU’s ordinary income and statutory income of the year of income as is:
(a) derived from OB activities of the OBU or the part of the OBU to which paragraph 121EB(1)(c) applies; or
(b) included in the statutory income because of such activities.
(2) Subsection (1) does not apply to amounts included under Part 3‑1 of the Income Tax Assessment Act 1997 (about capital gains).
(3) Subsection (1) does not apply to the extent that the money lent, invested or otherwise used in carrying on the OB activities is non‑OB money of the OBU.
(4) A typical example of an amount covered by the exception in subsection (3) is interest derived from the OB activity of lending money to an offshore person, where the money lent is non‑OB money.
Reduction of OB income because of certain investment activities
(5) Ordinary or statutory income that:
(a) would otherwise be taken into account under subsection (1); and
(b) is derived from an investment activity (within the meaning of subsection 121D(6A) or (6B)) included in OB activities of the OBU or the part of the OBU to which paragraph 121EB(1)(c) applies;
is reduced by the average Australian asset percentage (within the meaning of subsection 121DA(2)) of the portfolio investment concerned.
121EE Definitions relating to assessable income of an OBU
Purpose of section
(1) This section sets out certain definitions used in this Division that relate to the assessable income of an OBU of a year of income.
Assessable OB income
(2) The assessable OB income of an OBU is so much of the OBU’s OB income of the year of income as is assessable income.
Adjusted assessable OB income
(4) The adjusted assessable OB income of an OBU is the OBU’s assessable OB income of the year of income reduced by the sum of the OBU’s exclusive OB deductions for interest (including a discount in the nature of interest).
Adjusted total assessable income
(5) The adjusted total assessable income of an OBU is the OBU’s assessable income of the year of income reduced by the sum of the OBU’s exclusive OB deductions, and exclusive non‑OB deductions, for interest (including a discount in the nature of interest).
121EF Definitions relating to allowable deductions of an OBU
Purpose of section
(1) This section sets out certain definitions used in this Division relating to allowable deductions of an OBU in relation to a year of income.
Allowable OB deduction
(2) An allowable OB deduction is any of the following 3 kinds of allowable deduction:
(a) an exclusive OB deduction;
(b) a general OB deduction;
(c) an apportionable OB deduction.
Exclusive OB deduction
(3) An exclusive OB deduction is any deduction (other than a loss deduction) allowable from the OBU’s assessable income of the year of income that relates exclusively to assessable OB income.
General OB deduction
(4) A deduction that:
(a) is none of the following:
(i) a loss deduction;
(ii) an apportionable deduction;
(iii) an exclusive OB deduction;
(iv) an exclusive non‑OB deduction; and
(b) is allowable from the OBU’s assessable income of the year of income;
is a general OB deduction to the extent that:
(c) it is incurred in gaining or producing the OB income of the OBU; or
(d) it is necessarily incurred in carrying on a business for the purpose of gaining or producing the OB income of the OBU.
Apportionable OB deduction
(5) An apportionable OB deduction is so much of any apportionable deduction allowable from the OBU’s assessable income of the year of income as is calculated by multiplying the deduction by the following fraction:
Start formula start fraction OBU's assessable OB income minus open bracket OBU's exclusive OB deductions plus OBU's general OB deductions close bracket over OBU's taxable income plus OBU's apportionable deductions end fraction end formula
Exclusive non‑OB deduction
(6) An exclusive non‑OB deduction is any deduction (other than a loss deduction) allowable from the OBU’s assessable income of the year of income that relates exclusively to assessable income that is not assessable OB income.
Loss deduction
(7) A loss deduction is any allowable deduction under Division 36 of the Income Tax Assessment Act 1997.
Subdivision C—Operative provisions
121EJ Source of income derived from OB activities
For the purposes of this Act, income of an OBU that is derived from OB activities of the OBU is taken to be derived from a source in Australia.
121EK Deemed interest on 90% of certain OBU resident‑owner money
Deemed interest
(1) If:
(a) an owner of an OBU pays an amount of money to the OBU and, because of section 121EC, the amount becomes OBU resident‑owner money of the OBU; and
(b) the OBU uses, or holds ready for use, the whole or part of the amount (which whole or part is called the OB use amount) in carrying on any of its OB activities during the whole or part of any year of income (which whole or part is called the OB use period);
then the assessable income of the owner of the year of income includes deemed interest as described in subsection (2).
Amount of deemed interest
(2) The deemed interest is:
(a) applied to 90% of the OB use amount; and
(b) applied on a daily‑rests basis for the OB use period at a rate that is 2% above the 90‑day bank bill rate from time to time during that period.
Deduction for deemed interest
(3) A deduction is allowable from the OBU’s assessable income, equal to the amount included in the owner’s assessable income, for the year of income. The deduction is taken to be an exclusive OB deduction for interest.
121EL Exemption of income etc. of OBU offshore investment trusts
(1) If:
(a) an OBU is a trustee, or is the central manager and controller, of a trust estate; and
(b) the only persons who benefit, or are capable (whether by the exercise of a power of appointment or otherwise) of benefiting, under the trust are non‑residents; and
(c) the terms of the trust are to the effect that income, profits or capital gains of the trust estate may only come from investment activities covered by subsection 121D(6) or (6A);
then:
(d) any income of the trust estate derived from an investment activity covered by subsection 121D(6) is exempt from income tax; and
(e) any capital gain or capital loss made by the trust estate from a CGT event happening in relation to a CGT asset of the trust estate in the course of, or in connection with, an investment activity covered by subsection 121D(6) is disregarded; and
(f) any income of the trust estate derived from an investment activity covered by subsection 121D(6A) is exempt from income tax, in so far as the income exceeds the average Australian asset percentage (within the meaning of subsection 121DA(2)) for the portfolio investment concerned; and
(g) if, apart from this section, the trust estate would make a capital gain or capital loss from a CGT event happening in relation to a CGT asset of the trust estate in the course of, or in connection with, an investment activity covered by subsection 121D(6A)—the trust estate makes only the average Australian asset percentage (for the portfolio investment concerned) of the gain or loss.
(2) If:
(a) an OBU is a trustee, or is the central manager and controller, of a trust estate; and
(b) the only person who benefits, or is capable (whether by the exercise of a power of appointment or otherwise) of benefiting, under the trust is an overseas charitable institution; and
(c) the terms of the trust are to the effect that income, profits or capital gains of the trust estate may only come from investment activities covered by subsection 121D(6B);
then:
(d) any income of the trust estate derived from an investment activity covered by subsection 121D(6B) is exempt from income tax; and
(e) any capital gain or capital loss made by the trust estate from a CGT event happening in relation to a CGT asset of the trust estate in the course of, or in connection with, an investment activity covered by subsection 121D(6B) is disregarded.
121ELA Exemption of income etc. of overseas charitable institutions
Investment with OBU
(1) Income, derived by an overseas charitable institution, is exempt to the extent that it is:
(a) a payment or outgoing from an OBU as part of the OB activities of the OBU; or
(b) a distribution of income that is exempt under subsection 121EL(2).
Capital gains and losses
(2) If:
(a) an OBU is a trustee, or is the central manager and controller, of a unit trust estate; and
(b) the only person who benefits, or is capable (whether by the exercise of a power of appointment or otherwise) of benefiting, under the trust is an overseas charitable institution; and
(c) the terms of the trust are to the effect that income, profits or capital gains of the trust estate may only come from investment activities covered by subsection 121D(6B); and
(d) the overseas charitable institution disposes of its interest in the trust;
then the overseas charitable institution makes no capital gain or capital loss from a CGT event happening in relation to the disposal.
121ELB Adjustment of capital gains and losses from disposal of units in OBU offshore investment trusts
Trust with subsection 121D(6) investment activities
(1) If:
(a) an OBU is a trustee, or is the central manager and controller, of a unit trust estate; and
(b) the only persons who benefit, or are capable (whether by the exercise of a power of appointment or otherwise) of benefiting, under the trust are non‑residents; and
(c) all units in the trust are held by non‑residents; and
(d) the terms of the trust are to the effect that income, profits or capital gains of the trust estate may only come from investment activities covered by subsection 121D(6); and
(e) a non‑resident disposes of a unit in the trust;
then the non‑resident makes no capital gain or capital loss from a CGT event happening in relation to the disposal.
Trust with subsection 121D(6A) investment activities
(2) If:
(a) an OBU is a trustee, or is the central manager and controller, of a unit trust estate; and
(b) the only persons who benefit, or are capable (whether by the exercise of a power of appointment or otherwise) of benefiting, under the trust are non‑residents; and
(c) all units in the trust are held by non‑residents; and
(d) the terms of the trust are to the effect that income, profits or capital gains of the trust estate may only come from investment activities covered by subsection 121D(6A); and
(e) a non‑resident disposes of a unit in the trust; and
(f) the average Australian asset percentage for the portfolio investment concerned was 10% or less;
then if, apart from this section, the non‑resident would make a capital gain or capital loss from a CGT event happening in relation to the disposal, the non‑resident makes only the average Australian asset percentage of the gain or loss.
(3) In working out the average Australian asset percentage for the purposes of subsection (2), the investment management period is taken to be the period during the 12 months before the disposal during which the non‑resident held the unit.
Division 9C—Assessable income diverted under certain tax avoidance schemes
121F Interpretation
(1) In this Division, unless the contrary intention appears:
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.
consideration includes a benefit of any kind.
diverted income, in relation to a taxpayer, means all the amounts that are included under this Division in the diverted income of the taxpayer.
diverted trust income, in relation to a trustee of a trust estate, means all the amounts that are included under this Division in the diverted trust income of the trust estate.
income includes all amounts that, apart from the operation of the relevant exempting provisions, would be assessable income.
property includes:
(a) a chose in action;
(b) any estate, interest, right or power, whether at law or in equity, in or over property; and
(c) any right to receive income.
public company rate means the rate of tax payable in respect of the taxable income of a company that is not a private company.
relevant exempting provision means any of the following provisions:
(aa) section 50‑5, 50‑10, 50‑15, 50‑25, 50‑30, 50‑40 or 50‑45 of the Income Tax Assessment Act 1997;
(b) paragraph 23(ja) as in force at any time before the commencement of section 1 of the Taxation Laws Amendment Act (No. 4) 1987;
(baa) paragraph 23(x) as in force at any time before the commencement of section 1 of the Taxation Laws Amendment Act (No. 2) 1988;
(ba) section 23F, 23FA or 23FB, as in force at any time before the commencement of section 1 of the Taxation Laws Amendment Act (No. 4) 1987;
(bb) paragraph 23(jaa) or section 23FC or 23FD, as in force at any time before the commencement of section 1 of the Taxation Laws Amendment Act (No. 2) 1989;
(bc) section 24AM;
(c) paragraph 320‑37(1)(a) of the Income Tax Assessment Act 1997;
(cb) regulations under the International Organisations (Privileges and Immunities) Act 1963, insofar as those regulations provide that an organisation is not liable to income tax;
(d) any provision of an Act other than this Act to the effect that income of a particular person or body is not subject to taxation under any law of the Commonwealth or to the effect that a particular person or body is not subject to taxation under any law of the Commonwealth.
right to receive income, in relation to a person, means a right of the person to have income that will or may be derived (whether from property or otherwise) paid to, or applied or accumulated for the benefit of, the person.
tax avoidance agreement means an agreement that was entered into after 24 June 1980 and was entered into or carried out for the purpose, or for purposes that included the purpose, of securing that a person who, if the agreement had not been entered into or carried out, would have been liable to pay income tax in respect of a year of income would not be liable to pay income tax in respect of that year of income or would be liable to pay less income tax in respect of that year of income than that person would have been liable to pay if the agreement had not been entered into or carried out.
taxpayer does not include a partnership.
(2) In determining for the purposes of this Division whether an agreement is a tax avoidance agreement, no regard shall be had to a purpose that is a merely incidental purpose.
(3) For the purposes of this Division, an agreement shall be taken to have been entered into or carried out for a particular purpose, or for purposes that included a particular purpose, if any of the parties to the agreement entered into or carried out the agreement for that purpose, or for purposes that included that purpose, as the case may be.
(4) A reference in this Division to a person shall be read as including a reference to a person in the capacity of a trustee.
(5) For the purposes of the application of this Division in relation to property acquired under a tax avoidance agreement, a reference to income that is derived from that property shall be read as including a reference to income that is derived from the disposal of that property, of any part of that property or of any interest in that property.
121G Diverted income and diverted trust income
(1) Where:
(a) a taxpayer, not being a taxpayer in the capacity of a trustee, has acquired property (in this subsection referred to as the relevant property) under a tax avoidance agreement or by reason of an act, transaction or circumstance occurring as part of, in connection with or as a result of a tax avoidance agreement;
(b) by reason that the taxpayer derives any income from the relevant property, an amount (in this subsection referred to as the relevant amount) would, apart from the operation of the relevant exempting provisions, be included in the assessable income of the taxpayer of a year of income otherwise than under Division 5, section 97, section 99B or section 100;
(c) apart from this Division, the relevant amount would not be included in the assessable income of the taxpayer of the year of income; and
(d) so much of the amount or value of the consideration provided by the taxpayer under or in connection with the tax avoidance agreement as the Commissioner is satisfied was provided in respect of the acquisition by the taxpayer of the relevant property substantially exceeds the amount or value of the consideration that might reasonably be expected to have been provided by the taxpayer in respect of the acquisition of the relevant property if the taxpayer were liable to pay tax, in respect of any income derived by the taxpayer from the relevant property, at the public company rate applicable for the financial year in which the taxpayer acquired the relevant property;
the diverted income of the taxpayer of the year of income shall include the relevant amount.
(2) Where:
(a) a taxpayer, not being a taxpayer in the capacity of a trustee, has acquired property (in this subsection referred to as the relevant property), being an interest in a partnership, under a tax avoidance agreement or by reason of an act, transaction or circumstance occurring as part of, in connection with or as a result of a tax avoidance agreement;