(a) net tainted commodity gains are to be taken to have accrued to a company in a statutory accounting period if, and only if, the sum of the tainted commodity gains of the company for the statutory accounting period exceeds the sum of the tainted commodity losses of the company for the statutory accounting period; and
(b) the amount of the net tainted commodity gains is equal to the amount of the excess.
444 Net tainted currency exchange gains
For the purposes of this Part:
(a) net tainted currency exchange gains are to be taken to have accrued to a company in a statutory accounting period if, and only if, the sum of the tainted currency exchange gains of the company for the statutory accounting period exceeds the sum of any tainted currency exchange losses of the company for the statutory accounting period; and
(b) the amount of the net tainted currency exchange gains is equal to the amount of the excess.
445 Net gains—disposal of tainted assets
(1) For the purposes of this Part:
(a) net gains are to be taken to have accrued to a company in a statutory accounting period in relation to the disposal of tainted assets owned by the company if, and only if, the sum of the gains of the company in relation to the disposal of tainted assets during the statutory accounting period exceeds the sum of the losses (if any) of the company in relation to the disposal of tainted assets during the statutory accounting period; and
(b) the amount of the net gains is equal to the amount of the excess.
(2) In paragraph (1)(a):
gains includes capital gains the company would have made in the statutory accounting period because of CGT event J1, if the assumptions in paragraphs 383(a) to (c) applied.
losses includes capital losses the company would have made in the statutory accounting period because of CGT event J1, if the assumptions in paragraphs 383(a) to (c) applied.
Note 1: CGT event J1 is about companies ceasing to be related after a roll‑over.
Note 2: Basically, the effect of the assumptions in paragraphs 383(a) to (c) is that the company concerned is taken to be a taxpayer and a resident and CGT event J1 may therefore be taken to have happened.
Subdivision E—Passive income, tainted sales income and tainted services income
446 Passive income
(1) Subject to this Division, for the purposes of this Part, the following amounts are passive income of a company of a statutory accounting period:
(a) dividends (within the meaning of section 6) paid to the company in the statutory accounting period;
(b) unit trust dividends (within the meaning of Division 6C of Part III) paid to the company in the statutory accounting period;
(c) a distribution made to the company where the distribution is taken to be a dividend because of section 47;
(d) tainted interest income derived by the company in the statutory accounting period;
(e) annuities derived by the company in the statutory accounting period;
(f) tainted rental income derived by the company in the statutory accounting period;
(g) tainted royalty income derived by the company in the statutory accounting period;
(h) an amount derived by the company in the statutory accounting period as consideration for the assignment, in whole or in part, of any copyright, patent, design, trade mark or other like property or right;
(j) income derived from carrying on a business of trading in tainted assets;
(k) net gains that accrued to the company in the statutory accounting period in respect of the disposal of tainted assets;
(m) net tainted commodity gains that accrued to the company during the statutory accounting period;
(n) net tainted currency exchange gains that accrued to the company during the statutory accounting period.
(2) Despite anything in subsection (1), the passive income of a life assurance company of a statutory accounting period is calculated using the formula:
Start formula Adjusted passive income times start fraction Total assets minus Untainted policy liabilities over Total assets end fraction end formula
where:
adjusted passive income means the amount that, apart from this subsection, would be the passive income of the company of the statutory accounting period.
total assets means the average of the total assets of the company for the statutory accounting period.
untainted policy liabilities means so much of the company’s policy liabilities, as defined in the Valuation Standard (within the meaning of the Income Tax Assessment Act 1997), as calculated by a Fellow or Accredited Member of the Institute of Actuaries of Australia, for the statutory accounting period as is referable to life assurance policies that do not give rise to tainted services income of the company of any statutory accounting period.
(4) Despite anything in subsection (1), the passive income of a general insurance company of a statutory accounting period is worked out using the formula:
Start formula Adjusted passive income times start fraction Net assets plus Tainted outstanding claims minus Solvency amount over Total assets end fraction end formula
where:
adjusted passive income means the amount that, apart from this subsection, would be the passive income of the company of the statutory accounting period.
net assets means the excess at the end of the statutory accounting period of the total assets of the company over the total liabilities of the company.
outstanding claims means the amount that the company would, at the end of the statutory accounting period, based on proper and reasonable estimates, need to set aside and invest in order to meet liabilities of the company that have arisen or will arise:
(a) under general insurance policies (including reinsurance policies, but not including life assurance policies); and
(b) in respect of events that occurred during or before the period.
solvency amount is the amount worked out under subsection (5).
tainted outstanding claims means so much of the outstanding claims of the company at the end of the statutory accounting period as is referable to general insurance policies that give rise to tainted services income of the company of any statutory accounting period.
total assets means the total assets of the company at the end of the statutory accounting period.
(5) In subsection (4):
solvency amount is the amount worked out using the formula:
Start formula open bracket Minimum solvency plus Maximum event retention end bracket times open bracket 1 minus start fraction Tainted outstanding claims over Outstanding claims end fraction close bracket end formula
where:
maximum event retention means the amount that, at the end of the statutory accounting period, the company has determined is the maximum that would be payable to the owners of policies as a result of the happening of any one event. The amount must be worked out on the basis of a reasonable and proper estimate.
minimum solvency means the greater of:
(a) 20% of the company’s premium income (within the meaning of the Insurance Act 1973) during the statutory accounting period; and
(b) 15% of the company’s outstanding claims as at the end of the statutory accounting period.
outstanding claims means the amount that the company would, at the end of the statutory accounting period, based on proper and reasonable estimates, need to set aside and invest in order to meet liabilities of the company that have arisen or will arise:
(a) under general insurance policies (including reinsurance policies, but not including life assurance policies); and
(b) in respect of events that occurred during or before the period.
tainted outstanding claims means so much of the outstanding claims of the company at the end of the statutory accounting period as is referable to general insurance policies that give rise to tainted services income of the company of any statutory accounting period.
447 Tainted sales income
(1) Subject to this Division, for the purposes of this Part, the following amounts are tainted sales income of a company of a statutory accounting period:
(a) income from the sale of goods by the company where all of the following conditions are satisfied:
(i) the goods were sold to the company by another entity;
(ii) either of the following sub‑subparagraphs applies at the time of the sale of the goods to the company:
(A) the seller of the goods to the company was an associate of the company and a Part X Australian resident;
(B) the goods were sold to the company by an associate of the company who was not a Part X Australian resident, in the course of a business carried on by the associate at or through a permanent establishment of the associate in Australia;
(iii) if the goods were altered by the company—the income does not pass the substantial alteration test set out in subsection (4);
(b) income from the sale of goods by the company where all of the following conditions are satisfied:
(i) the goods were sold to the company by another entity;
(ii) either of the following sub‑subparagraphs applies at the time of the purchase of the goods from the company:
(A) the purchaser of the goods from the company was an associate of the company and a Part X Australian resident;
(B) the purchaser of the goods from the company was an associate of the company who was not a Part X Australian resident and the purchase was made in the course of a business carried on by the purchaser at or through a permanent establishment of the purchaser in Australia;
(iii) if the goods were altered by the company—the income does not pass the substantial alteration test set out in subsection (4);
(c) income from the sale of goods (in this paragraph called the manufactured goods) by the company where all of the following conditions are satisfied:
(i) the manufactured goods were manufactured by the company;
(ii) any of the raw materials or goods from which the manufactured goods were manufactured were sold to the company by another entity;
(iii) either of the following sub‑subparagraphs applies at the time of the sale to the company of the raw materials or goods from which the manufactured goods were manufactured:
(A) the entity who sold to the company the raw materials or goods from which the manufactured goods were manufactured was an associate of the company and a Part X Australian resident;
(B) the raw materials or goods from which the manufactured goods were manufactured were sold to the company by an associate of the company who was not a Part X Australian resident, in the course of a business carried on by the associate at or through a permanent establishment of the associate in Australia;
(iv) the income does not pass the substantial manufacture test set out in subsection (4A);
(d) income from the sale of goods (in this paragraph called the manufactured goods) by the company where all of the following conditions are satisfied:
(i) the manufactured goods were manufactured by the company;
(ii) any of the raw materials or goods from which the manufactured goods were manufactured were sold to the company by another entity;
(iii) either of the following sub‑subparagraphs applies at the time of the purchase of the manufactured goods from the company:
(A) the purchaser of the manufactured goods from the company was an associate of the company and a Part X Australian resident;
(B) the purchaser of the manufactured goods from the company was an associate of the company who was not a Part X Australian resident and the purchase was made in the course of a business carried on by the purchaser at or through a permanent establishment of the purchaser in Australia;
(iv) the income does not pass the substantial manufacture test set out in subsection (4A);
(e) income from the sale of goods (in this paragraph called the primary production goods) by the company where all of the following conditions are satisfied:
(i) the primary production goods were:
(A) primary products produced, raised or grown by the company; or
(B) goods manufactured by the company, in whole or in part, from primary products produced, raised or grown by the company;
(ii) any of the propagative material from which the primary products were produced, raised or grown was sold to the company by another entity;
(iii) either of the following sub‑subparagraphs applies at the time of the sale to the company of the propagative material:
(A) the entity who sold the propagative material to the company was an associate of the company and a Part X Australian resident;
(B) the propagative material was sold to the company by an associate of the company who was not a Part X Australian resident, in the course of a business carried on by the associate at or through a permanent establishment of the associate in Australia;
(iv) the income does not pass the substantial production test set out in subsection (4B);
(f) income from the sale of goods (in this paragraph called the primary production goods) by the company where all of the following conditions are satisfied:
(i) the primary production goods were:
(A) primary products produced, raised or grown by the company; or
(B) goods manufactured by the company, in whole or in part, from primary products produced, raised or grown by the company;
(ii) any of the propagative material from which the primary products were produced, raised or grown was sold to the company by another entity;
(iii) either of the following sub‑subparagraphs applies at the time of the purchase of the primary production goods from the company:
(A) the purchaser of the primary production goods from the company was an associate of the company and a Part X Australian resident;
(B) the purchaser of the primary production goods from the company was an associate of the company who was not a Part X Australian resident and the purchase was made in the course of a business carried on by the purchaser at or through a permanent establishment of the purchaser in Australia;
(iv) the income does not pass the substantial production test set out in subsection (4B).
(2) Where:
(a) a company provides any of the following services:
(i) drinks and meals;
(ii) accommodation in a hotel, motel, guest‑house or similar place;
(iii) the provision of, or the use of facilities for, entertainment, recreation or instruction; and
(b) if subparagraph (a)(ii) or (iii) applies—the transaction for the provision of the services includes the sale of goods of a kind that are commonly supplied in connection with the services concerned;
the tainted sales income of the company does not include income from the sale of:
(c) if subparagraph (a)(i) applies—the drink or food concerned; or
(d) if subparagraph (a)(ii) or (iii) applies—the goods referred to in paragraph (b).
(3) The tainted sales income of a company of a statutory accounting period does not include passive income of the company of the statutory accounting period.
(4) For the purposes of this section, income from the sale of goods by a company passes the substantial alteration test if:
(a) the company substantially altered the goods; and
(b) a substantial part of that alteration was carried out by the directors or employees of the company.
(4A) For the purposes of this section, income from the sale of goods by a company passes the substantial manufacture test if a substantial part of the manufacture of the goods was carried out by the directors or employees of the company.
(4B) For the purposes of this section, income from the sale of goods by a company passes the substantial production test if:
(a) if the goods are primary products—a substantial part of the production, raising or growing of the goods was carried out by the directors or employees of the company; or
(b) if the goods are manufactured by the company, in whole or in part, from primary products produced, raised or grown by the company—a substantial part of:
(i) the manufacture of the goods; and
(ii) those production, raising or growing activities;
was carried out by the directors or employees of the company.
(4C) For the purposes of subsections (4), (4A) and (4B), the effect of an activity on the market value of the goods concerned is to be ignored.
(5) If, apart from this subsection, goods are purchased or sold by 2 or more entities acting jointly, subsection (1) is to be applied successively as if each such entity were the sole purchaser or seller, as the case may be.
(6) In this section:
animals includes fish.
primary products means:
(a) agricultural or horticultural produce; or
(b) trees or crops, whether on or attached to land or not; or
(c) timber; or
(d) animals (whether dead or alive); or
(e) the bodily produce (including natural increase) of animals.
448 Tainted services income
(1) Subject to this Division, for the purposes of this Part, the following amounts are tainted services income of a company of a statutory accounting period:
(a) income (other than premium income) from the provision of services by the company to an entity, if:
(i) the entity was a Part X Australian resident at the time the income was derived; and
(ii) the services were not provided in connection with a business carried on by the entity at that time at or through a permanent establishment of the entity in a listed or unlisted country;
(b) income (other than premium income) from the provision of services by the company to an entity who was not a Part X Australian resident at the time the income was derived, in connection with a business carried on by the entity at that time at or through a permanent establishment of the entity in Australia;
(c) income consisting of life assurance premiums in respect of a life assurance policy if, at the time the policy was entered into, the owner of the policy was a Part X Australian resident;