(i) that subsection had effect not only in relation to the period after the variation but also in relation to the whole of the term of the security before the variation; and
(ii) any previous material variations were taken into account but any subsequent material variations were disregarded;
the sum (in this subsection referred to as the total notional taxable income) of the taxable incomes of the taxpayer in respect of the year of income in which the variation is made and all previous years of income would have differed from the sum (in this subsection referred to as the total actual taxable income) of the actual taxable incomes of the taxpayer of those years of income;
the following provisions have effect:
(c) where the total notional taxable income exceeds the total actual taxable income—an amount equal to the excess shall be included in the assessable income of the taxpayer of the year of income in which the variation is made;
(d) where the total actual taxable income exceeds the total notional taxable income—an amount equal to the excess shall be allowable as a deduction from the assessable income of the taxpayer of the year of income in which the variation is made.
(3) In this section, a reference to a material variation of the terms of a security is a reference to a variation of the terms of the security:
(a) that has the effect that a security that was not a qualifying security before the variation would, if the security had been originally issued with the terms as varied and if paragraph (a) of the definition of qualifying security in subsection 159GP(1) were disregarded, have been a qualifying security when the security was issued;
(b) that has the effect that a security that is a qualifying security would, if originally issued with the terms as varied, not have been a qualifying security at the time of issue; or
(c) that has the effect that the amount, or time of making, of a payment under the security, or that the holder or issuer of the security, is varied.
(4) Where any right or option under a security to extend the term of, or otherwise vary the effect of, the security is exercised, then, for the purposes of this section, the exercise of that right or option shall be taken to be a variation of the terms of the security to provide for the extension or other effect.
159GW Effect of Division in relation to non‑residents
(1) Subject to subsection (2), where during the whole or a part of a year of income (which whole or part is in this subsection referred to as the period of non‑residence) a taxpayer is not a resident:
(a) no amount shall be included in, or allowable as a deduction from, the assessable income of the taxpayer of the year of income under section 159GQ in relation to the period of non‑residence; and
(c) no amount shall be included in, or allowable as a deduction from, the assessable income of the taxpayer of the year of income under section 159GS in relation to any transfer of the security that occurred during the period of non‑residence.
(2) Where:
(a) a payment is made or liable to be made under a qualifying security to a resident taxpayer; and
(b) the taxpayer was not a resident for the whole or a part (which whole or part is in this subsection referred to as the period of non‑residence) of the period during which the taxpayer held the security;
the following provisions have effect:
(c) there shall be included in the assessable income of the taxpayer of the year of income in which the payment is made or liable to be made an amount equal to the amount that, but for subsection (1), would have been included in the assessable income of the taxpayer of any year or years of income under section 159GQ in respect of the payment in respect of the period of non‑residence;
(d) there shall be allowable as a deduction from the assessable income of the taxpayer of the year of income in which the payment is made or liable to be made an amount equal to the amount that, but for subsection (1), would have been allowable as a deduction from the assessable income of the taxpayer of any year or years of income under section 159GQ in respect of the payment in respect of the period of non‑residence.
159GX Effect of Division where certain payments not assessable
Where, but for this section, an amount would be included in, or allowable as a deduction from, the assessable income of a taxpayer of a year of income under section 159GQ in respect of the whole or a part of a payment under a qualifying security, no amount shall be so included or allowable unless the payment or a part of the payment, when actually made or liable to be made, would, disregarding section 128D, be included in the assessable income of the taxpayer of a year of income.
159GY Effect of Division where qualifying security is trading stock
No amount shall be included in, or allowable as a deduction from, the assessable income of a taxpayer:
(a) under section 159GQ in relation to a qualifying security in respect of any year or part of a year of income during which the qualifying security forms part of the trading stock of the taxpayer; or
(c) under section 159GS in relation to the transfer of a qualifying security by the taxpayer where, immediately before the transfer, the qualifying security was or formed part of the trading stock of the taxpayer.
159GZ Stripped securities
(1) Where:
(a) at any time a taxpayer acquires or acquired a security (in this subsection referred to as the underlying security) in relation to which there are or were 2 or more payment rights; and
(b) the taxpayer transfers or transferred one or some but not all of those rights to a particular person or particular persons jointly;
for the purposes of the application of this Division (including any subsequent application of this subsection) in relation to any period after the transfer of the right or rights:
(c) instead of the underlying security, there shall be taken to have been originally issued:
(i) a separate security under which the payment right or payment rights transferred to the person or persons referred to in paragraph (b) were created;
(ii) where at the time at which that right or those rights were transferred, another payment right or other payment rights in relation to the underlying security was or were transferred to another person or to other persons jointly—a separate security under which that other right or those other rights were created; and
(iii) where immediately after the transfer the taxpayer retains or retained any payment right or rights—a separate security under which that right or those rights were created;
(d) where the underlying security was issued to the taxpayer—the issue price of each separate security referred to in paragraph (c) shall be taken to be so much of the issue price of the underlying security as bears to that amount the proportion that the market value of the separate security at the time of issue of the underlying security bears to the market value of the underlying security at that time; and
(e) where the underlying security was acquired by the taxpayer on transfer—the transfer price, in relation to that transfer, of each separate security referred to in paragraph (c) shall be taken to be so much of the transfer price of the underlying security as bears to that amount the proportion that the market value of the separate security at the time of transfer bears to the market value of the underlying security at that time.
(2) Where, by reason of the application of subsection (1) in relation to the transfer after 16 December 1984 of a payment right or payment rights in relation to a security to a particular person or particular persons jointly, the payment right or rights is or are taken to comprise a separate security, then, for the purposes of the application of this Division in relation to the separate security in relation to any period after the transfer, paragraph (a) of the definition of qualifying security in subsection 159GP(1) shall be disregarded.
(3) In subsections (1) and (2), payment right, in relation to a security, means a right to receive a particular payment that is liable to be made under the security.
(4) Where:
(a) at any time a taxpayer acquires or acquired a security (in this subsection referred to as the underlying security) on issue or transfer;
(b) after 16 December 1984, the taxpayer issues a qualifying security (in this subsection referred to as the stripped security); and
(c) but for this subsection, a deduction of an amount equal to the whole or a part of the issue price or, where the underlying security was acquired on transfer, the transfer price of the underlying security would be allowable from the assessable income of the taxpayer of the year of income in which the taxpayer issues the stripped security in respect of the issue of the stripped security;
the amount of the deduction allowable shall be an amount that bears to the issue price or transfer price, as the case may be, of the underlying security the same proportion as the market value of the stripped security at the time of issue or purchase, as the case may be, bears to the market value of the underlying security at that time.
Division 16J—Effect of cancellation of subsidiary’s shares in holding company
159GZZZC Interpretation—general
(1) In this Division:
associate has the same meaning as in section 318.
cancellation includes redemption.
disposal includes cancellation.
entity means a company, a partnership or a trust estate.
pre‑cancellation period, in relation to a cancellation of shares to which this Division applies, means the period beginning when the holding company concerned became a holding company of the subsidiary concerned and ending at the time of the cancellation.
security means stock, a bond or debenture, or any other document evidencing the indebtedness of a person, whether or not the debt is secured.
(3) For the purposes of this Division, a company is:
(a) a subsidiary of another company; or
(b) the holding company of another company;
if the first‑mentioned company is such for the purposes of the Corporations Act 2001.
(4) For the purposes of this Division, a reference to an interest in an entity is a reference to a legal or equitable interest in:
(a) if the entity is a company—shares in the company;
(b) if the entity is a partnership—capital or profits of the partnership;
(c) if the entity is a trust estate—corpus or income of the trust estate; or
(d) in any case—securities issued by the entity.
159GZZZD Meaning of eligible entity, eligible interest and eligible proportion
For the purposes of this Division, where a holding company holds interests in a subsidiary of the holding company either directly or indirectly through interposed entities:
(a) a reference to an eligible entity in relation to the holding company and the subsidiary is a reference to the holding company or any of the interposed entities;
(b) a reference to an eligible interest of an eligible entity is a reference to any interest held by the eligible entity directly in the subsidiary or directly in any other eligible entity in relation to the holding company and the subsidiary; and
(c) a reference to the eligible proportion in relation to an eligible interest of an eligible entity is a reference to the proportion of the total interests held directly in the subsidiary by all persons and entities that is represented by:
(i) if the eligible entity holds the eligible interest directly in the subsidiary—the eligible interest; or
(ii) if, by virtue of holding the eligible interest, the eligible entity holds an interest in the subsidiary indirectly through another eligible entity or other eligible entities—that interest in the subsidiary.
159GZZZE Share cancellations to which this Division applies
Where a holding company cancels shares in itself that are held by a subsidiary of that company, this Division applies to the cancellation of the shares.
159GZZZF Effect on subsidiary of share cancellations to which this Division applies
(1) Where:
(a) this Division applies to a cancellation of shares; and
(b) apart from this section, either:
(i) the subsidiary concerned would not receive or be entitled to receive any capital proceeds in respect of the cancellation; or
(ii) the capital proceeds that the subsidiary concerned would receive or be entitled to receive in respect of the cancellation would be less than the adjusted market value of the shares;
the following provisions have effect for the purposes of this Act:
(c) where subparagraph (b)(i) applies—the subsidiary shall be taken to have received or to be entitled to receive, as capital proceeds in respect of the cancellation, an amount equal to the adjusted market value of the shares;
(d) where subparagraph (b)(ii) applies—the amount of the capital proceeds that the subsidiary receives or is entitled to receive in respect of the cancellation shall be taken to be increased by an amount so that it equals the adjusted market value of the shares.
(2) For the purposes of subsection (1), the adjusted market value of the shares is the amount that would have been their market value at the time of the cancellation if the cancellation did not occur and was never proposed to occur.
159GZZZG Pre‑cancellation disposals of eligible interests
(1) Where:
(a) this Division applies to a cancellation of shares;
(b) during the pre‑cancellation period, there is a disposal of an eligible interest held by an eligible entity in relation to the holding company and the subsidiary concerned; and
(c) apart from this section, either:
(i) the eligible entity would not have received or been entitled to receive any capital proceeds in respect of the disposal; or
(ii) the capital proceeds that the eligible entity would have received or been entitled to receive in respect of the disposal would have been less than the adjusted market value of the eligible interest;
the following provisions have effect for the purposes of this Act:
(d) where subparagraph (c)(i) applies—the eligible entity shall be taken to have received or to have been entitled to receive, as capital proceeds in respect of the disposal, an amount equal to the adjusted market value of the eligible interest;
(e) where subparagraph (c)(ii) applies—the amount of the capital proceeds that the eligible entity received or was entitled to receive in respect of the disposal shall be taken to be increased by an amount so that it equals the adjusted market value of the eligible interest.
(2) For the purposes of subsection (1), the adjusted market value of the eligible interest is the amount that would have been its market value at the time of the disposal if the cancellation of the shares to which this Division applies did not occur and was never proposed to occur.
159GZZZH Post‑cancellation disposals of eligible interests etc.
(1) Where:
(a) as a result of the application of section 159GZZZF in relation to a cancellation of shares, the subsidiary concerned is taken to have received or to be entitled to receive an amount of capital proceeds or an increase in an amount of capital proceeds (which amount or increase is in this section called the cancellation adjustment amount) in relation to the cancellation of the shares; and
(b) an eligible entity in relation to the holding company and the subsidiary concerned holds an eligible interest at the time of the share cancellation;
then this section applies in relation to the eligible interest.
(2) For the purposes of this Act (other than Parts 3‑1 and 3‑3 of the Income Tax Assessment Act 1997):
(a) if the eligible interest is not trading stock—in determining:
(i) the amount of any deduction allowed or allowable to the eligible entity in respect of the acquisition of the eligible interest; or
(ii) the amount of any profit included in, or loss allowable as a deduction from, the assessable income of the eligible entity in respect of the acquisition and any subsequent disposal of the eligible interest;
the capital proceeds in respect of the acquisition of the eligible interest shall be taken to have been reduced by the eligible interest’s eligible proportion of the cancellation adjustment amount; and
(b) if the eligible interest is trading stock—the capital proceeds in respect of any subsequent disposal of the eligible interest shall be taken to be increased by the eligible interest’s eligible proportion of the cancellation adjustment amount.
(3) For the purposes of Parts 3‑1 and 3‑3 of the Income Tax Assessment Act 1997, if a CGT event happens in relation to the eligible interest, the cost base and reduced cost base of the eligible interest is reduced by the eligible interest’s eligible proportion of the cancellation adjustment amount.
(5) This section applies in relation to the acquisition of the eligible interest held by the eligible entity, and to a CGT event happening in relation to the eligible interest, even if the entity was not an eligible entity, and the interest was not an eligible interest, at the time of the acquisition or CGT event.
159GZZZI Additional application of sections 159GZZZG and 159GZZZH to associates
(1) Subject to this section, where a natural person is an associate of a holding company (otherwise than solely because of being the trustee of a trust estate), sections 159GZZZG and 159GZZZH apply (in addition to any application apart from this application of this section) as if references in those sections to:
(a) an eligible entity in relation to the holding company and the subsidiary concerned;
(b) an eligible interest of such an entity; or
(c) the eligible proportion in relation to such an interest;
were references to what would, if the natural person were a holding company in relation to the subsidiary, be respectively:
(d) an eligible entity in relation to the natural person and the subsidiary;