part of a distribution that is franked with a venture capital credit has the meaning given by subsection 995‑1(1) of the Income Tax Assessment Act 1997.
124ZN Exemption of income from sale of shares in a PDF
Income derived by a taxpayer from selling shares in a company is exempt from income tax if the company is a PDF at the time of the sale.
Note: Any capital gain or capital loss from a disposal of shares in a PDF is disregarded: see section 118‑13 of the Income Tax Assessment Act 1997.
124ZO Shares in a PDF are not trading stock
Shares in a PDF are not trading stock for the purposes of this Act.
124ZQ Effect of company becoming a PDF
(1) This section applies to shares in a company that a taxpayer holds when the company becomes a PDF.
(2) In determining for the purposes of this Act whether an amount is or was allowable as a deduction to the taxpayer in respect of acquiring the shares, the shares are taken to have been shares in a PDF throughout the period beginning immediately before the taxpayer acquired them and ending when the company became a PDF.
(3) For the purposes of this Act, the shares are taken to have been trading stock of the taxpayer at no time during that period.
(4) Section 170 does not prevent an assessment from being amended to give effect to this section.
124ZR Effect of company ceasing to be a PDF
(1) This section applies to shares in a company that a taxpayer holds when the company ceases to be a PDF.
(2) For the purposes of this Act (except Parts 3‑1 and 3‑3 (about CGT) of the Income Tax Assessment Act 1997), the taxpayer is taken:
(a) to have sold the shares immediately before the company ceased to be a PDF; and
(b) to have rebought the shares immediately after the company so ceased;
for a consideration equal to the market value of the shares immediately after the company so ceased.
(3) Parts 3‑1 and 3‑3 (about CGT) of the Income Tax Assessment Act 1997 apply as if the taxpayer:
(a) had disposed of the CGT assets constituted by the shares, and had done so immediately before the company ceased to be a PDF; and
(b) had re‑acquired those assets immediately afterwards;
for an amount equal to the shares’ market value immediately after the company so ceased.
Subdivision B—The taxable income of PDFs
124ZS Definitions
In this Subdivision:
non‑CGT assessable income means an amount included in assessable income otherwise than under Part 3‑1 or 3‑3 (about CGT) of the Income Tax Assessment Act 1997 or Subdivision C of this Division.
SME investment means an investment other than an unregulated investment.
Note: SME stands for small and medium enterprises.
unregulated investment has the same meaning as in the Pooled Development Funds Act 1992.
124ZTA Taxable income in first year as PDF if PDF component is nil
(1) This section applies if:
(a) a company becomes a PDF during a year of income and is still a PDF at the end of the year of income; and
(b) the PDF component for the year of income is a nil amount; and
(c) the year of income is the 1997‑98 year of income or a later one.
(2) The company’s taxable income of the year of income is the amount that, if the period (the notional year) beginning at the start of the year of income and ending immediately before the company becomes a PDF were a year of income of the company, would be the company’s taxable income of the notional year.
124ZT SME assessable income
SME assessable income
(1) A company’s SME assessable income of a year of income is the sum of:
(a) so much of the company’s non‑CGT assessable income of the year of income as was derived:
(i) from, or from the disposal of, an SME investment of the company; and
(ii) at a time when the company was a PDF; and
(b) any assessable income allocated to the company’s SME assessable income under section 124ZZB.
Note: Section 124ZZB deals with capital gains etc.
When assessable income derived
(2) For the purposes of paragraph (1)(a), if an amount is derived by a company during, but not at a particular time during, a year of income, the amount is taken to have been derived by the company on the last day of the year of income.
124ZU SME income component
Full‑year PDFs
(1) The SME income component of a year of income of a company that is a PDF throughout the year of income is so much of the company’s taxable income of the year of income as does not exceed the amount (if any) remaining after deducting from the company’s SME assessable income of the year of income any deductions allowable to the company in relation to the year of income.
Part‑year PDFs
(2) The SME income component of a year of income of a company that becomes a PDF during the year of income and is still a PDF at the end of the year of income is so much of the company’s adjusted taxable income of the year of income as does not exceed the amount (if any) remaining after deducting from the company’s SME assessable income of the year of income any deductions where both of the following conditions are satisfied:
(a) the deductions were allowable to the company in relation to the year of income;
(b) the deductions were taken into account in working out the company’s PDF component of the year of income.
For this purpose, adjusted taxable income means so much of the company’s taxable income of the year of income as does not exceed its PDF component of the year of income.
124ZV Unregulated investment component
Full‑year PDFs
(1) The unregulated investment component of a year of income of a company that is a PDF throughout the year of income is the amount (if any) remaining after deducting from the company’s taxable income of the year of income the company’s SME income component of the year of income.
Part‑year PDFs
(2) The unregulated investment component of a year of income of a company that becomes a PDF during the year of income and is still a PDF at the end of the year of income is the amount (if any) remaining after deducting from the company’s adjusted taxable income of the year of income the company’s SME income component of the year of income. For this purpose, adjusted taxable income means so much of the company’s taxable income of the year of income as does not exceed its PDF component of the year of income.
Subdivision C—Adjustments of the tax treatment of capital gains and capital losses of PDFs
124ZW Definitions
In this Subdivision:
accumulated net capital loss for a year of income (the loss year) means the amount (if any) by which the total of:
(a) the total of the overall capital losses for all classes of assessable income for the loss year; and
(b) any accumulated net capital loss for the last year of income before the loss year;
exceeds:
(c) the total of the overall capital gains for all classes of assessable income for the loss year (before section 116GB is applied).
class, in relation to assessable income, means a class specified in section 124ZY.
company does not include a company in a capacity of trustee.
non‑CGT assessable income means an amount included in assessable income otherwise than under Part 3‑1 or 3‑3 (about CGT) of the Income Tax Assessment Act 1997 or this Subdivision.
ordinary capital gain for a CGT event means any capital gain that would (apart from this Subdivision) arise from the event.
ordinary capital loss for a CGT event means any capital loss that would (apart from this Subdivision) arise from the event.
overall capital gain for a class of assessable income means:
(a) the amount by which the total ordinary capital gain for that class exceeds the total ordinary capital loss for that class; or
(b) if an amount has been applied under subsection 124ZZB(2) to reduce an overall capital gain previously worked out under this definition—that gain as so reduced.
overall capital loss for a class of assessable income means the amount by which the total ordinary capital gain for that class is less than the total ordinary capital loss for that class.
residual overall capital gain means so much of an overall capital gain as remains after applying subsection 124ZZB(2).
SME assessable income has the meaning given by Subdivision B.
SME investment means an investment other than an unregulated investment.
total ordinary capital gain for a class means the total of so much of any ordinary capital gains as has been allocated to that class under section 124ZZA.
total ordinary capital loss for a class means the total of so much of any ordinary capital losses as has been allocated to that class under section 124ZZA.
unregulated investment has the same meaning as in the Pooled Development Funds Act 1992.
124ZX Companies to which this Subdivision applies
This Subdivision applies to a company in relation to a year of income if:
(a) the company is a PDF throughout the year of income; or
(b) the company becomes a PDF during the year of income and is still a PDF at the end of the year of income.
124ZY Classes of assessable income
Classes
(1) The classes of assessable income of the company are as follows:
(a) SME assessable income (see section 124ZT);
(b) other assessable income (see subsection(2)).
Other assessable income
(2) The company’s other assessable income of the year of income is the sum of:
(a) so much of the company’s non‑CGT assessable income of the year of income as is not included in the company’s SME assessable income of the year of income; and
(b) any assessable income allocated to the company’s other assessable income under section 124ZZB.
124ZZ Treatment of capital gains
Nothing is to be included in the company’s assessable income of the year of income under section 102‑5 of the Income Tax Assessment Act 1997 (about net capital gains).
124ZZA Allocation of gain amounts and loss amounts to classes of assessable income
Disposals of SME investments
(1) If:
(a) there is an ordinary capital gain amount, or an ordinary capital loss amount, in respect of a disposal of an SME investment of the company; and
(b) the company was a PDF at the time of the disposal;
the ordinary capital gain amount or ordinary capital loss amount, as the case may be, is taken into account in determining the overall capital gain or overall capital loss for the class known as SME assessable income.
Disposals of assets other than SME investments
(2) If:
(a) there is an ordinary capital gain amount, or an ordinary capital loss amount, in respect of a disposal of an asset of the company; and
(b) subsection (1) does not apply to the disposal;
the ordinary capital gain amount or the ordinary capital loss amount, as the case may be, is taken into account in determining the overall capital gain or overall capital loss for the class known as other assessable income.
124ZZB Assessable income etc. in relation to capital gains
(1) The assessable income of each class includes the amount (if any) that is left over after the overall capital gain for that class has been reduced in accordance with this section.
(2) If there is an overall capital loss for a particular class of assessable income, the loss is to be applied in reduction of overall capital gains for the remaining class.
(3) Any accumulated net capital loss for the immediately preceding year of income is to be applied in reduction of residual overall capital gains for the classes of assessable income in the following order:
(a) SME assessable income;
(b) other assessable income.
124ZZD No net capital loss
The company does not make a net capital loss for the year of income, despite section 102‑10 of the Income Tax Assessment Act 1997.
Division 11—Interest paid by companies on bearer debentures
126 Interest paid by a company on bearer debentures
(1) If:
(a) a company pays or credits an amount of interest in respect of a debenture payable to bearer; and
(b) the interest is not, to any extent, subject to withholding tax under Division 11A; and
(c) neither of sections 128F (to the extent it applies to non‑residents who are not engaged in carrying on a business in Australia at or through a permanent establishment in Australia) and 128GB applies to the interest; and
(e) the company does not give the Commissioner the name and address of the holder of the debenture;
the company is liable to pay income tax, as imposed by the Income Tax (Bearer Debentures) Act 1971, on the amount paid or credited, or, if the company makes a deduction under subsection (2), the amount that otherwise would have been paid or credited.
(1A) Subsection (1) does not affect any other liability of the company to pay income tax.
(2) The company may deduct and retain for its own use from an amount payable to a person in respect of which the company is liable to pay tax in accordance with subsection (1) an amount equal to that tax.
(3) Where the Commissioner is satisfied that that person is not liable to furnish a return, the Commissioner must refund to that person the amount of tax paid by the company in respect of his or her debentures.
127 Credit for tax paid by company
(1) Where the company pays tax under this Division on any interest, and that interest is included in the assessment of the person to whom it was paid or credited, the proportionate amount of tax paid by the company in respect of the interest shall be deducted from the total tax payable by that person.
128 Assessments of tax
An assessment of tax payable in accordance with this Division by a company may be an assessment of the amount of tax so payable upon interest in respect of a number of debentures, whether held by the one holder or not.
Division 11A—Dividends, interest and royalties paid to non‑residents and to certain other persons
Subdivision A—General
128AAA Application of Division to non‑share dividends
(1) This Division:
(a) applies to a non‑share equity interest in the same way as it applies to a share; and
(b) applies to an equity holder in the same way as it applies to a shareholder; and
(c) applies to a non‑share dividend in the same way as it applies to a dividend.
(2) Subsection (1) does not apply to:
(a) section 128AE; and
(b) section 128F; and
(ba) section 128FA.
128A Interpretation
(1) In this Division, unless the contrary intention appears:
ADI means a body corporate that is an ADI (authorised deposit‑taking institution) for the purposes of the Banking Act 1959.
dividend:
(a) includes part of a dividend; and
(b) (except when used in paragraph (d) of the definition of interest in subsection (1AB)) does not include a dividend paid in respect of a non‑equity share.
enterprise means a business or other industrial or commercial undertaking.
entity means:
(a) the Commonwealth, a State or an authority of the Commonwealth or of a State;
(b) a natural person;
(c) a company;
(d) the partners in a partnership, in their capacity as partners;
(e) the persons carrying on a joint venture, in their capacity as such persons; or
(f) the trustees of a trust, in their capacity as such trustees.
foreign bank means a non‑resident company that carries on a banking business.
joint venture means an enterprise carried on by 2 or more persons in common otherwise than as partners.
non‑ADI financial institution means a corporation that:
(a) is a registered entity within the meaning of the Financial Sector (Collection of Data) Act 2001; and
(b) is included in Category D (Money Market Corporation) in a list kept under section 11 of that Act; and
(c) carries on a general business of providing finance (within the meaning of that Act) on a commercial basis.
nostro account means an account that:
(a) an ADI or non‑ADI financial institution holds with a foreign bank and maintains for the sole purpose of settling international transactions; and
(b) operates on the basis that:
(i) amounts deposited in the account are held in the account for no more than 10 days; and
(ii) amounts advanced by way of an overdraft on the account are repaid within 10 days.
(1AA) In this Division and in an Act imposing withholding tax:
income includes a royalty and a dividend.
(1AB) For the purposes of this Division:
interest includes an amount:
(a) that is in the nature of interest; or
(b) to the extent that it could reasonably be regarded as having been converted into a form that is in substitution for interest; or
(c) to the extent that it could reasonably be regarded as having been received in exchange for interest in connection with a washing arrangement; or
(d) that is a dividend paid in respect of a non‑equity share; or
(e) if regulations under the Income Tax Assessment Act 1997 are made having the effect that instruments known as upper tier 2 capital instruments, or a class of instruments of that kind, are debt interests—that is paid on such a debt interest and is not a return of an investment;
but does not include an amount to the extent to which it is a return on an equity interest in a company.
washing arrangement means an arrangement under which the title to a security is transferred to a resident shortly before an interest payment is made where the sole or dominant purpose of the arrangement is to reduce the amount of withholding tax payable by a person.
(1AC) An example of an amount in the nature of interest is an amount representing a discount on a security.
(1AD) An example of an amount in substitution for interest is a lump sum payment made instead of payments of interest.
(1AE) For the purposes of this Division, if a lender assigns a loan, or the right to interest under a loan, any payment from the borrower to the assignee that represents an amount that would have been interest if the assignment had not taken place is taken to be a payment of interest.
(1AF) For the purposes of this Division, if a person acquires a security, or the right to interest under a security, any payment from the issuer of the security to that person that represents an amount that would have been interest if the acquisition had not taken place is taken to be a payment of interest.