(2) Subject only to sections 437, 438 and 440, for the purposes of this section, where a company has prepared recognised accounts for a statutory accounting period in accordance with commercially accepted accounting principles, then, in determining whether a particular amount shown in those accounts is covered by an expression used in subsection (1) (other than an exclusion of amounts shown in those recognised accounts as amounts covered by section 436), the expression concerned is taken to have the same meaning that it has under those accounting principles.
(3) If:
(a) arm’s length conditions are taken by Subdivision 815‑B of the Income Tax Assessment Act 1997 to operate for purposes relating to the company; and
(b) had those conditions operated, an amount described in any of the paragraphs of subsection (1) as being an amount shown in the recognised accounts of the company for the statutory account period would have been different;
then the different amount is substituted for the amount shown in the recognised accounts.
435 Gross tainted turnover
For the purposes of this Part, the gross tainted turnover of a company of a statutory accounting period is so much of the gross turnover of the company of the statutory accounting period as consists of:
(a) passive income of the company of the statutory accounting period; or
(b) tainted sales income of the company of the statutory accounting period; or
(c) tainted services income of the company of the statutory accounting period.
436 Amounts excluded from active income test
(1) For the purposes of the application of this Part to a company, the following amounts are, in accordance with subparagraph 434(1)(a)(i) and paragraphs 434(1)(b), (c) and (d), excluded from the active income test:
(a) income or profits derived by the company that are included in the assessable income of the company of any year of income other than under section 143 (where the proviso to that section does not apply);
(b) income or profits derived by the company during a statutory accounting period where all of the following conditions are satisfied:
(i) the income or profits are derived by the company in carrying on a business at or through a permanent establishment of the company in a listed country (other than a listed country of which the company is a resident);
(ii) the income or profits are not eligible designated concession income in relation to any listed country in relation to the statutory accounting period;
(iii) the income or profits are subject to tax in a listed country in a tax accounting period:
(A) ending before the end of the statutory accounting period; or
(B) commencing during the statutory accounting period;
(c) an amount that, if the company were a resident within the meaning of section 6, would, or would apart from paragraphs 99B(2)(d) and (e), have been included in the assessable income of the company under Division 6 of Part III;
(d) so much of a frankable distribution as is either the franked part of the distribution, or the part of the distribution that has been franked with an exempting credit;
(e) a non‑portfolio dividend paid to the company by a company that is a resident of a listed country or unlisted country;
(g) a premium paid or credited to the company where, because of the application of subsection 148(1), the premium is not allowable as a deduction to the person referred to in subparagraph 148(1)(a)(i) and is not included in the assessable income of the company.
(2) Where:
(a) the company receives an attribution account payment, being a dividend, from another entity; and
(b) the whole or part (in this subsection called the eligible amount) of the attribution account payment is not excluded from the active income test, in relation to the company in relation to the statutory accounting period, under subsection (1); and
(c) on the making of the attribution account payment by the other entity, an attribution debit arises for that entity in relation to a taxpayer;
then, for the purposes of this Part, so much of the eligible amount as does not exceed the grossed‑up amount of the attribution debit is, in accordance with subparagraph 434(1)(a)(i), excluded (in addition to any other amount that is excluded under subsection (1)) from the active income test in relation to the company in relation to the taxpayer.
Subdivision C—Treatment of partnership income
437 Treatment of partnership income
(1) For each partnership in which a company is a partner at any time during a statutory accounting period, the following modifications apply for the purposes of determining the effect of that partnership on the question whether the company is taken to pass the active income test in relation to the statutory accounting period:
(a) the partnership is to be treated as an entity separate from the company;
(b) in spite of anything in section 432, the company is not taken to pass the active income test in relation to the statutory accounting period unless:
(i) the partnership has kept accounts for the statutory accounting period and:
(A) the accounts are prepared in accordance with commercially accepted accounting principles; and
(B) the accounts give a true and fair view of the financial position of the partnership; and
(ii) the partnership has complied with the substantiation requirements set out in section 452 in relation to the statutory accounting period;
(c) for the purposes of this Division, the notional gross tainted turnover of the partnership of the statutory accounting period, or the notional gross turnover of the partnership of the statutory accounting period, is the amount that would be the gross tainted turnover, or the gross turnover, as the case requires, of the partnership of the statutory accounting period if:
(i) except for the purposes of determining the associates of the partnership—the partnership were a company; and
(ii) a reference in this Division to the recognised accounts of the partnership were a reference to the accounts referred to in paragraph (b) of this subsection that are prepared by the partnership for the statutory accounting period; and
(iii) the partnership were a resident of the same particular listed country or particular unlisted country, of which the company was a resident;
(d) the gross tainted turnover of the company of the statutory accounting period is to be increased by the amount calculated using the formula:
Start formula Notional gross tainted turnover of partnership times Partner's interest end formula
where:
Notional gross tainted turnover of partnership means the notional gross tainted turnover of the partnership for the statutory accounting period.
Partner’s interest means the company’s percentage interest in the profits of the partnership for the statutory accounting period.
(e) the gross turnover of the company of the statutory accounting period is to be increased by the amount calculated using the formula:
Start formula Notional gross turnover of partnership times Partner's interest end formula
where:
Notional gross turnover of partnership means the notional gross turnover of the partnership for the statutory accounting period.
Partner’s interest means the company’s percentage interest in the profits of the partnership for the statutory accounting period.
(2) If:
(a) a company is a partner in one or more partnerships at any time during a statutory accounting period; and
(b) apart from this subsection, paragraph 432(1)(e) does not apply in relation to the company in relation to the statutory accounting period; and
(c) at all times during the statutory accounting period when:
(i) a particular one of those partnerships was in existence; and
(ii) the company was in existence and was a resident of a particular listed country, or of a particular unlisted country;
the partnership carried on business in that country at or through a permanent establishment of the partnership in that country;
subsection 432(1) has effect as if paragraph 432(1)(e) had applied in relation to the company in relation to the statutory accounting period.
Subdivision D—General interpretive provisions
438 Roll‑overs—asset disposals
(1) This section applies in determining the application of paragraph 434(1)(b) and section 445 in relation to a non‑taxable Australian asset of a company.
(2) If a CGT roll‑over provision applies to:
(a) the disposal of the asset by an entity (in this section called the transferor) to the company (in this section called the transferee); or
(b) the disposal of the asset by the company (in this section also called the transferor) to another entity (in this section also called the transferee);
the following provisions have effect:
(c) the transferee is taken to have paid, as consideration to acquire the asset, the sum of:
(i) the consideration (if any) paid or payable by the transferor to acquire the asset; and
(ii) the expenditure (if any) incurred by the transferor in making capital improvements to the asset; and
(d) the transferor is not taken to have:
(i) derived any gains; or
(ii) incurred any loss;
in respect of the disposal of the asset.
(2A) If:
(a) a CGT roll‑over provision applies to the disposal of the asset (in this subsection called the original asset) by the company; and
(b) the disposal is not to another entity; and
(c) the company acquires another asset (in this subsection called the replacement asset) that is referred to in the CGT roll‑over provision as being by way of replacement of, substitution for, or consideration for the disposal of, the original asset (whether or not exactly those expressions are used);
the following provisions have effect:
(d) the company is not taken to have:
(i) derived any gains; or
(ii) incurred any loss;
in respect of the disposal of the original asset; and
(e) the company is taken to have paid, as consideration to acquire the replacement asset, the sum of:
(i) the consideration (if any) paid or payable by the company to acquire the original asset; and
(ii) the expenditure (if any) incurred by the company in making improvements to the original asset.
(2B) For the purposes of subsections (2) and (2A), if an asset is disposed of by being cancelled, redeemed or consolidated into another asset, the disposal is taken not to be to another entity.
(3) For the purposes of this section, in determining whether a CGT roll‑over provision applies to the disposal of an asset, Parts 3‑1 and 3‑3 of the Income Tax Assessment Act 1997 have the effect they would have if:
(a) the company had failed the active income test in relation to the statutory accounting period concerned; and
(b) those Parts were being applied to calculate the attributable income of the company for the statutory accounting period in relation to any taxpayer.
(3A) For the purposes of applying Parts 3‑1 and 3‑3 of the Income Tax Assessment Act 1997 in relation to a statutory accounting period as mentioned in paragraph (3)(b), any election or choice that may be made by the company, or by the company and another entity, apart from this section under any of the CGT roll‑over provisions:
(a) on or before the date of lodgment of a particular return of income; or
(b) within such period as the Commissioner allows;
is to be made instead:
(c) if there is only one attributable taxpayer in relation to the company at the end of the statutory accounting period—on or before the date of lodgment of the taxpayer’s return of income of the year of income in which the end of the statutory accounting period occurs; or
(d) if there are 2 or more attributable taxpayers in relation to the company at the end of the statutory accounting period:
(i) if the taxpayers’ returns of income of the year of income in which the end of the statutory accounting period occurs are lodged on different dates—on or before the later or latest of those dates; or
(ii) if the taxpayers’ returns of income of the year of income in which the end of the statutory accounting period occurs are lodged on the same date—on or before that date; or
(e) in any case—within such further period as the Commissioner allows.
(3B) For the purposes of applying subsection (3A) to a company in relation to a statutory accounting period, if:
(a) the company is a CFC at the end of the statutory accounting period; and
(b) an entity (the designated entity) is the only attributable taxpayer in relation to the company at the end of the statutory accounting period; and
(c) the designated entity’s attribution percentage in relation to the company is 100% at the end of the statutory accounting period;
then, instead of the election being given or the choice being made by the company, or by the company and another entity (which other entity may be the designated entity), the election may be given or the choice may be made by:
(d) the designated entity; or
(e) if the designated entity is not the same as the other entity—the designated entity and the other entity;
as the case requires.
(4) A reference in this section to a non‑taxable Australian asset of a company is a reference to an asset of the company that is a CGT asset that is not taxable Australian property.
439 When currency exchange gains or losses relate to active income transactions
(1) For the purposes of this Part, a currency exchange gain, or a currency exchange loss, of a company for a statutory accounting period is to be taken to relate to an active income transaction if, and only if:
(a) the gain or loss was realised under any of the following transactions:
(i) a transaction that:
(A) gives rise to income, gains or a loss of the company; and
(B) is not taken into account in determining the passive income, tainted sales income or tainted services income of the company;
(ii) a transaction for the purchase of goods from an entity that, at the time the gain or loss was realised, was not an associate of the company;
(iii) a transaction for the purchase of a unit of property where:
(A) if the company were a resident within the meaning of section 6, depreciation would be allowable to the company under the former section 54 of this Act or the former Division 42 of the Income Tax Assessment Act 1997, or the company could deduct an amount for the decline in value of a depreciating asset under Division 40 of that Act, in respect of any year of income; and
(B) the unit of property is for use by the company exclusively or principally for the purpose of producing income other than passive income, tainted sales income or tainted services income;
(iv) if the company is an AFI subsidiary that carried on financial intermediary business at the time the gain or loss was realised—a transaction under which money was lent to the company;
(v) a transaction that was entered into by the company for the sole purpose of eliminating or reducing the risk of adverse financial consequences that might result for the company, under a transaction covered by any of the preceding subparagraphs, from currency exchange rate fluctuations; or
(b) both of the following subparagraphs apply:
(i) the gain or loss was realised in the course of carrying on a business of currency dealing;
(ii) the gain or loss was realised under a transaction and, at the time the gain or loss was realised, no other party to the transaction was:
(A) an associate of the company; or
(B) a Part X Australian resident.
(2) In determining whether an amount is passive income for the purposes of this section, paragraph 446(1)(n) is to be disregarded.
440 Asset disposals—revaluations and arm’s length amounts
In determining, for the purposes of this Part, whether a company passes the active income test, the following provisions apply in relation to an asset of the company (other than trading stock):
(a) the effect of an asset revaluation is to be disregarded;
(b) subject to section 438, if:
(i) any consideration paid or payable by the company in respect of the acquisition of the asset; or
(ii) any consideration paid or payable to the company in respect of the disposal of the asset; or
(iii) any expenditure incurred by the company in making capital improvements to the asset; or
(iv) any other amount payable to or by the company that is relevant to determining the revenue, gains or losses concerned;
is not equal to the amount (in this paragraph called the arm’s length amount) that the parties to the transaction concerned could have been reasonably expected to have paid if the parties had been acting at arm’s length in relation to the transaction—the amount of the consideration or expenditure is to be taken to be equal to the arm’s length amount.
441 Hire‑purchase and other property financing transactions
(1) For the purposes of this Part, in determining whether a company passes the active income test:
(a) a hire‑purchase transaction or any other transaction for the financing of the acquisition of property is to be treated as a loan of money; and
(b) income derived under the transaction is to be treated as interest.
(2) Nothing in subsection (1) limits the generality of the expressions “interest”, “loan” or “payment in the nature of interest”.
442 Assumption of rights of lender under a loan
In determining whether a company passes the active income test, if the company assumes the rights of a lender under a loan, this Part has effect, after that assumption, as if:
(a) the company had provided the loan to the borrower; and
(b) in a case where that assumption was made in the course of carrying on a particular business—interest, or a payment in the nature of interest, derived by the company from the loan had been derived from a loan made in the course of carrying on that business.