(5) For example, if the taxpayer’s year of income is a financial year and a security with a 2 year term is issued to the taxpayer on 1 April, the accrual periods will be as follows:
1st year 2nd year 3rd year
of income of income of income
1 Apr. 1 July 1 Jan. 1 July 1 Jan. 1 Apr.
3 month 6 month 6 month 6 month 3 month
accrual accrual accrual accrual accrual
period period period period period
159GQB Accrual amount
Formula
(1) The accrual amount for an accrual period is worked out using the formula:
Start formula open bracket Implicit interest rate times Opening balance close bracket minus Period interest etc end formula
Implicit interest rate
(2) In the formula in subsection (1), Implicit interest rate means the rate of interest worked out under section 159GQC (for a fixed return security) or 159GQD (for a variable return security), properly adjusted to take account of the case where the accrual period is less than 6 months.
Opening balance
(3) In the formula in subsection (1), Opening balance means the amount worked out using the formula:
Issue/transfer price means the issue price or transfer price, as the case requires, of the security; and
Previous accruals means:
(a) if paragraph (b) does not apply—the sum, whether positive or negative, of all accrual amounts for previous accrual periods in the taxpayer’s maximum term; or
(b) if the accrual period is the first in the taxpayer’s maximum term—nil; and
Payments means all payments (other than of periodic interest) made or liable to be made under the security during all previous accrual periods in the taxpayer’s maximum term.
Periodic interest etc.
(4) In the formula in subsection (1), Periodic interest etc. means the sum of:
(a) all periodic interest payments made or liable to be made under the security during the accrual period, properly adjusted in the case of any payment made other than at the end of the period; and
(b) if any payments (other than of periodic interest) made or liable to be made under the security during the accrual period are made or liable to be made other than at its end—an amount to adjust properly for the making of the payments other than at the end of the period.
159GQC Implicit interest rate for fixed return security
For the purposes of the formula component Implicit interest rate in subsection 159GQB(1), the rate of interest for a fixed return security in relation to a taxpayer is the rate of compound interest per period of 6 months at which:
(a) the sum of the present values of all amounts payable under the security during the taxpayer’s maximum term;
equals:
(b) the issue price or the transfer price, as the case requires, of the security.
159GQD Implicit interest rate for variable return security
Implicit interest rate to be recalculated each year etc.
(1) For the purposes of the formula component Implicit interest rate in subsection 159GQB(1), the rate of interest for a variable return security must be worked out in accordance with subsection (2) separately for each year of income during the taxpayer’s maximum term. If there are 2 accrual periods of 6 months in the year of income, the rate is the same for both periods. It is possible for the rate to be negative.
Rate
(2) The rate applicable in relation to a year of income is the rate of compound interest per period of 6 months in the calculation period (see subsection (3)) at which:
(a) the sum of the present values of all amounts payable under the security during the calculation period;
equals:
(b) the opening balance, mentioned in subsection 159GQB(1), for the accrual period that begins the calculation period.
Calculation period
(3) The calculation period means the part of the taxpayer’s maximum term that occurs after the beginning of the year of income.
Where amount payable is not known
(4) For the purposes of paragraph (2)(a), if by the end of the year of income it is not possible to determine whether an amount will be payable, or the size of the amount that will be payable, after the end of the year of income, the determination is to be made by applying subsection (5), (7) or (11), or a combination of those subsections.
Assumption of constant level
(5) Subject to subsection (7), if an amount payable is worked out to any extent by reference to the amount or level, at a particular time, of a rate, price, index or other thing, it is to be assumed that the rate, price, index or thing will be the same at all times after the end of the year of income as it was at the end of the year of income (or, if it was not available at the end of the year of income, at the time when it was last available in the year of income).
Examples
(6) For the purposes of subsection (5):
(a) an example of an amount worked out wholly by reference to the amount of a rate at a particular time is an interest payment under a floating rate note. The amount payable is the product of an interest rate indicator (such as the prevailing bank bill rate) and the face or par value of the note; and
(b) an example of an amount worked out wholly by reference to the amount of a price at a particular time is a redemption payment under a commodity linked security where the amount of the payment is the product of the prevailing price of a commodity (such as gold) and the face or par value of the security.
Assumption of continuing rate of change
(7) If an amount payable is worked out to any extent by reference to the amount of change in an index or other thing that occurs during a period, it is to be assumed that the index or other thing will continue to change at the same rate as it did:
(a) if the index or other thing was available at the end of the year of income—during the year of income; or
(b) in any other case—during the period of 12 months in respect of which the index or other thing was last available in the year of income.
Example
(8) An example for the purposes of subsection (7) is a payment whose amount is the product of the face or par value of a security and the percentage increase in the All Groups Consumer Price Index number (the CPI) during the year ending on 30 June 1995. If the year of income for which the implicit interest rate is being worked out is the 1993‑94 year of income and the CPI increases by 2% during the year ending on 31 March 1994 (the date of the last available number during the year of income), the CPI is assumed to increase by 2% during the year ending on 30 June 1995.
Disguised continuing rate of change case
(9) For the purposes of subsection (7), if an amount payable is worked out to any extent by reference to the quotient of:
(a) the amount or level of an index or other thing at a particular time; and
(b) either:
(i) the amount or level of the index or other thing at a different time; or
(ii) another amount that, while not expressed to be the amount or level of the index or other thing at a different time, may reasonably be regarded as representing the amount or level of the index or other thing at a different time;
the amount payable is taken to be worked out to that extent by reference to the amount of change in the index or other thing that occurs during the period between the 2 times.
Example
(10) An example for the purposes of subsection (9) is a payment under a security issued in December 1994 that is worked out by multiplying a number of dollars by the quotient of:
(a) the All Groups Consumer Price Index number in respect of the quarter ending on 31 December 1997; and
(b) the number 114.
Assume that the number in paragraph (b) is the same as the All Groups Consumer Price Index number in respect of the quarter ending on 31 December 1994. In this case, it would be reasonable to regard the number as representing the amount of the index at 31 December 1994, and therefore to apply subsection (7).
General assumption
(11) If it is not possible to make the determination mentioned in subsection (4) in respect of the whole or part of any amount by applying subsection (5) or (7), or both, (for example, because no information about a rate, price or index was available during the year of income), the determination in respect of that whole or part is to be made on the basis of what is most likely in the circumstances.
159GR Consequences of actual payments
(1) Where a payment (not being a payment that is, or to the extent that it consists of, a periodic interest payment, a redemption payment or a partial redemption payment) is made or liable to be made in a year of income to a taxpayer under a qualifying security:
(a) no amount shall be included in the assessable income of the taxpayer of the year of income in respect of the payment otherwise than under section 159GQ; and
(b) where the taxpayer acquired the qualifying security on transfer—no amount shall be allowable as a deduction from the assessable income of the taxpayer of the year of income in respect of the payment otherwise than under section 159GQ.
159GS Balancing adjustments on transfer of qualifying security
(1) Where there is a profit amount in relation to the transfer of a qualifying security by a taxpayer in a year of income:
(a) if there is a net assessable amount in relation to the transfer and:
(i) the profit amount exceeds the net assessable amount—an amount equal to the excess shall be included in the assessable income of the taxpayer of the year of income; or
(ii) the net assessable amount exceeds the profit amount—an amount equal to the excess shall be allowable as a deduction from the assessable income of the taxpayer of the year of income; and
(b) if there is a net deductible amount in relation to the transfer—an amount equal to the sum of that amount and the profit amount shall be included in the assessable income of the taxpayer of the year of income.
(2) Where there is a loss amount in relation to the transfer of a qualifying security by a taxpayer in a year of income and:
(a) there is a net assessable amount in relation to the transfer—an amount equal to the net assessable amount shall be allowable as a deduction from the assessable income of the taxpayer of the year of income; or
(b) there is a net deductible amount in relation to the transfer that exceeds the loss amount—an amount equal to the excess shall be included in the assessable income of the taxpayer of the year of income.
(3) For the purposes of the application of this section in relation to the transfer (in this subsection referred to as the relevant transfer) of a qualifying security by a taxpayer:
(a) where the transfer price, as increased by the amount of any payments (other than periodic interest payments) made to the taxpayer under the security in respect of the period when the security was held by the taxpayer exceeds:
(i) the issue price of the security; or
(ii) where the security was acquired by the taxpayer on transfer—the transfer price in relation to that transfer;
there shall be taken to be a profit amount in relation to the relevant transfer of an amount equal to the excess;
(b) where the issue price of the security or, where the security was acquired by the taxpayer on transfer, the transfer price in relation to that transfer exceeds the sum of the transfer price in relation to the relevant transfer and any payments (other than periodic interest payments) made to the taxpayer under the security in respect of the period when the security was held by the taxpayer, there shall be taken to be a loss amount in relation to the relevant transfer of an amount equal to the excess;
(c) where the sum of all amounts (if any) included under section 159GQ in the assessable income of the taxpayer in respect of the security in respect of the period when the security was held by the taxpayer exceeds the sum of all amounts (if any) allowable under those sections as deductions from the assessable income of the taxpayer in respect of the security in respect of that period, there shall be taken to be a net assessable amount in relation to the relevant transfer of an amount equal to the excess; and
(d) where the sum of all amounts (if any) allowable under section 159GQ as deductions from the assessable income of the taxpayer in respect of the security in respect of the period when the taxpayer held the security exceeds the sum of all amounts (if any) included under those sections in the assessable income of the taxpayer in respect of the security in respect of that period, there shall be taken to be a net deductible amount in relation to the relevant transfer of an amount equal to the excess.
159GT Tax treatment of issuer of a qualifying security
(1) Subsections (1A) and (1B) apply if a taxpayer is an issuer of a qualifying security to which this section applies during a period (the issuer period) comprising the whole or part of a year of income.
(1A) If, on the assumptions in subsection (1C), an amount would be included in the taxpayer’s assessable income of the year of income in respect of the issuer period, then, subject to this section, the taxpayer is entitled to a deduction in his or her assessment for the year of income equal to that amount.
(1B) If, on the assumptions in subsection (1C), a deduction would be allowable in the taxpayer’s assessment for the year of income, then an amount equal to the deduction is included in the taxpayer’s assessable income of the year of income.
(1C) For the purposes of subsections (1A) and (1B), the assumptions are that:
(a) the security was issued to the taxpayer (rather than the taxpayer being the issuer of the security); and
(b) the taxpayer held the security during the whole of the issuer period; and
(c) the taxpayer did not transfer the security at the end of the issuer period; and
(d) sections 159GW, 159GX and 159GY were not enacted.
(2) A deduction is not allowable to a taxpayer under subsection (1A) in relation to a qualifying security to which this section applies unless the taxpayer would, but for this Division, be entitled to a deduction under section 8‑1 of the Income Tax Assessment Act 1997 in respect of payments (not being redemption payments, partial redemption payments or periodic interest payments) made or liable to be made under the security in respect of the relevant period referred to in that subsection.
(3) Where a payment (not being a payment that is, or to the extent that it consists of, a periodic interest payment, a redemption payment or a partial redemption payment) is made or liable to be made in a year of income by a taxpayer under a qualifying security to which this section applies, no amount shall be allowable as a deduction from the assessable income of the taxpayer of the year of income in respect of the payment otherwise than under this section.
(5) Subject to subsection (6), this section applies to:
(a) any qualifying security issued on or before 22 May 1986; and
(b) any qualifying security issued in Australia after 22 May 1986 other than a negotiable instrument issued payable to bearer.
(6) This section does not apply to a qualifying security issued by a taxpayer after 5 o’clock in the evening, by standard time in the Australian Capital Territory, on 23 April 1987:
(a) to, on behalf of or otherwise for the benefit of, a non‑resident or a prescribed dual resident associate of the taxpayer; or
(b) subject to an agreement between the taxpayer and an associate of the taxpayer under which the security is or was to be transferred to a non‑resident or a prescribed dual resident associate of the taxpayer.
159GU Effect of Division on certain transfer profits and losses
(1) Where, apart from this Division, a profit that is made by a resident taxpayer in relation to a transfer of a qualifying security that does not form part of the trading stock of the taxpayer would be included in the assessable income of the taxpayer of a year of income, the profit shall not be so included in the assessable income of the taxpayer.
(2) Where, apart from this Division, a loss that is incurred by a resident taxpayer in relation to a transfer of a qualifying security that does not form part of the trading stock of the taxpayer would be allowable as a deduction from the assessable income of the taxpayer of a year of income and there is a net deductible amount, within the meaning of section 159GS, in relation to the transfer, so much only of the amount of the loss as exceeds the net deductible amount shall be so allowable as a deduction.
159GV Consequence of variation of terms of security
(1) Where, after 22 May 1986, a material variation is made in the terms of a security, for the purposes of the application of this Division in relation to the security in respect of the period after the variation and before any subsequent material variation:
(a) the security shall be taken to have been issued on the terms on which it was originally issued as varied by the material variation and any prior variation;
(b) where consideration for the variation is paid or payable by the holder of the security—the issue price of the security shall be taken to be an amount equal to the amount that was the issue price of the security immediately before this application of this subsection increased by the amount of that consideration;
(c) where consideration for the variation is paid or payable by the issuer of the security—the issue price of the security shall be taken to be an amount equal to the amount that was the issue price of the security immediately before this application of this subsection reduced by the amount of that consideration; and
(d) paragraph (a) of the definition of qualifying security in subsection 159GP(1) shall be disregarded.
(2) Where:
(a) subsection (1) applies in relation to a security held by a taxpayer in relation to a material variation in the terms of the security; and