Commonwealth: Tax Laws Amendment (2007 Measures No. 3) Act 2007 (Cth)

Tax Laws Amendment (2007 Measures No. 3) Act 2007 No. 79, 2007 An Act to amend the law relating to taxation, and for related purposes Contents 1 Short title 2 Commencement 3 Schedule(s) Schedule 1—Distributions to entities connected with a private company and related issues Part 1—Main amendments Income Tax Assessment Act 1936 Income Tax Assessment Act 1997 Part 2—Other amendments Fringe Benefits Tax Assessment Act 1986 Income Tax Assessment Act 1936 Income Tax Assessment Act 1997 Part 3—Time limit for making franking assessments Income Tax Assessment Act 1997 Part 4—Application Schedule 2—Transitional excess non‑concessional contributions Income Tax (Transitional Provisions) Act 1997 Schedule 3—Capital gains of testamentary trusts Income Tax Assessment Act 1997 Schedule 4—Superannuation of deceased military and police Income Tax Assessment Act 1997 Schedule 5—Thin capitalisation Income Tax (Transitional Provisions) Act 1997 Schedule 6—Repeal of dividend tainting rules Income Tax Assessment Act 1936 Income Tax Assessment Act 1997 Schedule 7—Interest withholding tax Income Tax Assessment Act 1936 Schedule 8—Forestry managed investment schemes Part 1—Main amendments Income Tax Assessment Act 1936 Income Tax Assessment Act 1997 Taxation Administration Act 1953 Part 2—Other amendments Income Tax Assessment Act 1936 Income Tax Assessment Act 1997 Part 3—Application Schedule 9—Non‑resident trustee beneficiaries Income Tax Assessment Act 1936 Income Tax Assessment Act 1997 Income Tax Rates Act 1986 Schedule 10—Distributions to foreign residents from managed investment trusts Part 1—Main amendments Taxation Administration Act 1953 Part 2—Consequential amendments Income Tax Assessment Act 1936 Income Tax Assessment Act 1997 Taxation Administration Act 1953 Part 3—Application Tax Laws Amendment (2007 Measures No. 3) Act 2007 No. 79, 2007 An Act to amend the law relating to taxation, and for related purposes [Assented to 21 June 2007] The Parliament of Australia enacts: 1 Short title This Act may be cited as the Tax Laws Amendment (2007 Measures No. 3) Act 2007. 2 Commencement (1) Each provision of this Act specified in column 1 of the table commences, or is taken to have commenced, in accordance with column 2 of the table. Any other statement in column 2 has effect according to its terms. Commencement information Column 1 Column 2 Column 3 Provision(s) Commencement Date/Details 1. Sections 1 to 3 and anything in this Act not elsewhere covered by this table The day on which this Act receives the Royal Assent. 21 June 2007 2. Schedule 1 The day on which this Act receives the Royal Assent. 21 June 2007 3. Schedule 2 Immediately after the commencement of Schedule 1 to the Tax Laws Amendment (Simplified Superannuation) Act 2007. 15 March 2007 4. Schedules 3 to 7 The day on which this Act receives the Royal Assent. 21 June 2007 5. Schedule 8 1 July 2007. 1 July 2007 6. Schedules 9 and 10 The day on which this Act receives the Royal Assent. 21 June 2007 Note: This table relates only to the provisions of this Act as originally passed by both Houses of the Parliament and assented to. It will not be expanded to deal with provisions inserted in this Act after assent. (2) Column 3 of the table contains additional information that is not part of this Act. Information in this column may be added to or edited in any published version of this Act. 3 Schedule(s) Each Act that is specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this Act has effect according to its terms. Schedule 1—Distributions to entities connected with a private company and related issues Part 1—Main amendments Income Tax Assessment Act 1936 1 Section 109B Omit "and provides a basis for a debit arising in the company's franking account (under item 8 of the table in section 205‑30 of the Income Tax Assessment Act 1997)". 2 At the end of subsection 109C(3A) Add: Note: Payments converted to loans before the private company's lodgment day are treated as loans (see subsection 109D(4A)). 3 After subsection 109D(4) Insert: Payment converted to loan before lodgment day (4A) If: (a) a private company makes a payment to an entity at a time in a year of income; and (b) the payment is converted to a loan before the end of the private company's lodgment day for the year of income; for the purposes of this Division, treat the events mentioned in paragraphs (a) and (b) as the private company making a loan to the entity at the time mentioned in paragraph (a). 4 Paragraph 109E(1)(c) Repeal the paragraph, substitute: (c) the amount (if any) paid to the private company during the current year in relation to the amalgamated loan falls short of the minimum yearly repayment of the amalgamated loan worked out under subsection (5) for the current year; and (d) section 109Q does not apply in relation to the current year. 5 Subsection 109E(2) Omit "the amount of the amalgamated loan that has not been repaid at the end of the current year", substitute "the amount of the shortfall mentioned in paragraph (1)(c)". 6 After subsection 109E(3) Insert: (3A) Subsection (3B) applies if: (a) a private company is taken to have made an amalgamated loan (the old amalgamated loan) during a year of income (the original year of income); and (b) the maximum term of the old amalgamated loan under subsection 109N(3) was 7 years; and (c) in a later year of income (the later year of income): (i) a constituent loan taken account of by the old amalgamated loan becomes secured by a mortgage over real property; and (ii) the term of the constituent loan is extended; and (d) as a result of the mortgage, the maximum term of the constituent loan under subsection 109N(3) is 25 years; and (e) the term of the constituent loan after the extension (including the period before the extension during which the constituent loan was in existence) does not exceed 25 years. (3B) For the purposes of this Division in relation to the later year of income and subsequent years of income: (a) treat the constituent loan as a new amalgamated loan that takes account of that constituent loan; and (b) treat the new amalgamated loan as having been made just before the start of the later year of income; and (c) treat the amount of the new amalgamated loan just before the start of the later year of income as the amount of the constituent loan that had not been repaid at that time; and (d) unless paragraph (e) applies—reduce the amount of the old amalgamated loan just before the start of the later year of income by the amount of the new amalgamated loan at that time; and (e) if the constituent loan was the only constituent loan taken account of by the old amalgamated loan—disregard the old amalgamated loan. 7 Paragraph 109G(3)(a) Omit "or 109E". Note: The heading to subsection 109G(3) is altered by omitting "did give rise to dividend" and substituting "gives rise to dividend under section 109D". 8 Paragraph 109G(3)(b) Omit "subsection 108(1)", substitute "former subsection 108(1)". 9 After subsection 109G(3) Insert: Reduced dividend for forgiveness of loan debt if loan causes dividend under section 109E (3A) Subsection (3B) applies if: (a) a private company is taken under section 109F to pay a dividend at the end of a year of income because of the forgiveness of an amount of a debt resulting from a loan; and (b) the private company is taken under section 109E to pay a dividend at the end of an earlier year of income in relation to the loan. (3B) The amount of the dividend mentioned in paragraph (3A)(a) is reduced by the amount of the dividend mentioned in paragraph (3A)(b) (but not below zero). Note: There may be more than one reduction under this subsection if the private company has been taken under section 109E to pay more than one dividend in relation to the loan. 10 After subsection 109N(3) Insert: (3A) Reduce the maximum term under paragraph (3)(a) for a loan (the new loan) in accordance with subsection (3B) if: (a) the new loan results from the refinancing of another loan (the old loan); and (b) the maximum term of the old loan under subsection (3) was 7 years; and (c) the maximum term of the new loan under subsection (3) is 25 years (disregarding this subsection). (3B) The amount of the reduction is equal to the length of the period: (a) starting when the old loan was made; and (b) ending when the old loan was refinanced. (3C) Reduce the maximum term under paragraph (3)(b) for a loan (the new loan) in accordance with subsection (3D) if: (a) the new loan results from the refinancing of another loan (the old loan); and (b) the maximum term of the old loan under subsection (3) was 25 years; and (c) the maximum term of the new loan under subsection (3) is 7 years (disregarding this subsection); and (d) the length of the period: (i) starting when the old loan was made; and (ii) ending when the old loan was refinanced; exceeds 18 years. (3D) The amount of the reduction is the excess mentioned in paragraph (3C)(d). 11 Section 109P (note) Repeal the note, substitute: Note: A shortfall in a minimum yearly repayment of an amalgamated loan may be treated as a dividend under section 109E. 12 At the end of section 109R Add: (5) Subsection (2) does not apply to a payment if: (a) the payment is made to refinance the loan mentioned in subsection (1) (the old loan); and (b) the entity to which the old loan was made has another loan (the primary loan) from another entity; and (c) the old loan becomes subordinated to the primary loan; and (d) the refinancing of the old loan mentioned in paragraph (a) took place in connection with that subordination; and (e) that subordination arose as a result of circumstances beyond the control of the entity to which the old loan was made; and (f) the entity to which the old loan was made and the other entity dealt with each other at arm's length in relation to that subordination; and (g) the private company and the other entity dealt with each other at arm's length in relation to that subordination. (6) Subsection (2) does not apply to a payment if: (a) the payment is made to refinance the loan mentioned in subsection (1) (the old loan); and (b) the refinancing results in another loan (the new loan); and (c) the maximum term of the old loan under subsection 109N(3) was 7 years; and (d) the maximum term of the new loan under subsection 109N(3) is 25 years (reduced in accordance with subsection 109N(3B)). (7) Subsection (2) does not apply to a payment if: (a) the payment is made to refinance the loan mentioned in subsection (1) (the old loan); and (b) the refinancing results in another loan (the new loan); and (c) the maximum term of the old loan under subsection 109N(3) was 25 years; and (d) the maximum term of the new loan under subsection 109N(3) is: (i) unless subparagraph (ii) applies—7 years; or (ii) if subsection 109N(3D) applies—7 years reduced in accordance with that subsection. 13 After Subdivision DA of Division 7A Insert: Subdivision DB—Other exceptions 109RB Commissioner may disregard operation of Division or allow dividend to be franked (1) The Commissioner may make a decision under subsection (2) if: (a) this Division (disregarding this section) operates with the result that: (i) a private company is taken to pay a particular dividend to a particular entity (the recipient) under this Division; or (ii) a particular amount is included, as if it were a dividend, in the assessable income of a particular entity (also the recipient) in relation to a private company under Subdivision EA; and (b) the result mentioned in paragraph (a) arises because of an honest mistake or inadvertent omission by any of the following entities: (i) the recipient; (ii) the private company; (iii) any other entity whose conduct contributed to that result. (2) The Commissioner may decide in writing that: (a) the result mentioned in paragraph (1)(a) should be disregarded (see subsection (4)); or (b) the dividend mentioned in subparagraph (1)(a)(i) may be franked in accordance with Part 3‑6 of the Income Tax Assessment Act 1997 (see subsection (6)). (3) In making a decision under subsection (2) (or refusing to make such a decision), the Commissioner must have regard to the following: (a) the circumstances that led to the mistake or omission mentioned in paragraph (1)(b); (b) the extent to which any of the entities mentioned in paragraph (1)(b) have taken action to try to correct the mistake or omission and if so, how quickly that action was taken; (c) whether this Division has operated previously in relation to any of the entities mentioned in paragraph (1)(b), and if so, the circumstances in which this occurred; (d) any other matters that the Commissioner considers relevant. (4) The Commissioner may make a decision under subsection (2) subject to any of the following kinds of condition: (a) a condition that the recipient or another entity must make specified payments to the private company or another entity within a specified time; (b) a condition that a specified requirement in this Division must be met within a specified time. (5) This Division is taken not to operate with the result mentioned in paragraph (1)(a) if: (a) the Commissioner makes a decision under paragraph (2)(a); and (b) if the Commissioner makes the decision subject to a condition under subsection (4)—the condition is satisfied. (6) If the Commissioner makes a decision under paragraph (2)(b), subparagraph 202‑45(g)(i) of the Income Tax Assessment Act 1997 does not make the dividend mentioned in subparagraph (1)(a)(i) unfrankable. (7) Despite subsection 33(3A) of the Acts Interpretation Act 1901, each decision made under subsection (2) must relate only to one amount that would (disregarding this section): (a) be taken to be a dividend paid by the private company; or (b) be included, as if it were a dividend, in the assessable income of an entity. 109RC Dividend may be franked if taken to be paid because of family law obligation (1) This section applies if a dividend is taken to be paid under this Division because of a family law obligation. (2) Subparagraph 202‑45(g)(i) of the Income Tax Assessment Act 1997 does not make the amount of the dividend unfrankable. (3) The dividend can be franked in accordance with Part 3‑6 of the Income Tax Assessment Act 1997 only if: (a) the dividend is franked at the private company's benchmark franking percentage for the franking period in which the dividend is taken to be paid; or (b) if the private company does not have a benchmark franking percentage for the period—the dividend is franked at a franking percentage of 100%. (4) For the purposes of subsection (3), if the recipient of the dividend is not a member of the private company for the purposes of Part 3‑6 of the Income Tax Assessment Act 1997, treat that recipient as such a member. 109RD Commissioner may extend period for repayments of amalgamated loan (1) The Commissioner may make a decision under subsection (2) if: (a) section 109E operates with the result that a private company is taken to pay a particular dividend to a particular entity (the recipient); and (b) the shortfall mentioned in paragraph 109E(1)(c) arises because the recipient is unable to pay the private company the minimum yearly repayment mentioned in that paragraph because of circumstances beyond the recipient's control. (2) The Commissioner may decide in writing that the result mentioned in paragraph (1)(a) should be disregarded (see subsection (4)) if the recipient pays the private company the amount of the shortfall within a specified time. (3) In making a decision under subsection (2) (or refusing to make such a decision), the Commissioner must have regard to the following: (a) the nature of the circumstances mentioned in paragraph (1)(b); (b) any other matters that the Commissioner considers relevant. (4) This Division is taken not to operate with the result mentioned in paragraph (1)(a) if: (a) the Commissioner makes a decision under subsection (2); and (b) the recipient pays the private company the amount of the shortfall within the specified time. (5) Despite subsection 33(3A) of the Acts Interpretation Act 1901, each decision made under subsection (2) must relate only to one amount that would be taken to be a dividend paid by the private company (disregarding this section). 14 At the end of section 109UA Add: (5) Subsection (1) does not apply if: (a) as a result of the first entity's liability mentioned in that subsection, the target entity has a liability (other than a contingent liability) to make a payment to the first entity; and (b) because of section 109N, the liability to make a payment to the first entity is not treated under this Division as giving rise to a dividend paid to the first entity. 15 Subsection 109X(2) Repeal the subsection, substitute: (2) Subsections (3) and (4) apply if a notional loan arises under section 109W because an entity interposed between the private company and the target entity makes a loan (the actual loan) to the target entity. (3) For the purposes of section 109N, treat the agreement under which the actual loan was made as the agreement under which the notional loan was made. (4) For the purposes of section 109E: (a) treat the notional loan as an amalgamated loan from the private company to the target entity; and (b) treat the amount of the notional loan worked out under subsection 109W(1) as the amount of the amalgamated loan; and (c) treat the agreement under which the actual loan was made as the agreement under which the amalgamated loan was made; and (d) treat repayments by the target entity of the amount of the notional loan worked out under subsection 109W(3) as payments by the target entity to the private company in relation to the amalgamated loan. Note: The heading to section 109X is replaced by the heading "Operation of Subdivision D in relation to payment or loan". 16 Subsection 109Y(2) (definition of net assets) Omit "undervalue", substitute "undervalue or overvalue". 17 Subsection 109Y(2) (definition of net assets) Omit "overvalue", substitute "undervalue or overvalue". 18 Subsection 109Y(2) (paragraph (a) of the definition of repayments of non‑commercial loans) After "loans", insert "or amounts". 19 After subsection 109ZC(1) Insert: (1A) This section also sets out special rules for dealing with a dividend (also the later dividend) distributed by a private company if: (a) the private company distributes the later dividend to a shareholder in the company; and (b) the shareholder applies the amount of the dividend to repay all or part of a loan: (i) that was obtained from the private company by an associate of the shareholder; and (ii) in relation to which a dividend was previously taken under this Division to have been paid by the private company. 20 Subsection 109ZC(2) After "set off" (wherever occurring), insert "or applied". 21 Section 109ZD Insert: benchmark franking percentage has the same meaning as in the Income Tax Assessment Act 1997. 22 Section 109ZD Insert: deficit has the same meaning as in the Income Tax Assessment Act 1997. 23 Section 109ZD Insert: family law obligation means an order, agreement or award mentioned in paragraph 126‑5(1)(a), (b), (c), (d), (e) or (f) of the Income Tax Assessment Act 1997. 24 Section 109ZD Insert: franking account has the same meaning as in the Income Tax Assessment Act 1997. 25 Section 109ZD Insert: franking percentage has the same meaning as in the Income Tax Assessment Act 1997. 26 Section 109ZD Insert: franking period has the same meaning as in the Income Tax Assessment Act 1997. 27 Section 109ZD Insert: unfrankable has the same meaning as in the Income Tax Assessment Act 1997. Income Tax Assessment Act 1997 28 Subparagraph 202‑45(g)(i) Before "Division", insert "unless subsection 109RB(6) or 109RC(2) applies in relation to the amount—". 29 Section 205‑30 (table item 8) Repeal the item. Part 2—Other amendments Fringe Benefits Tax Assessment Act 1986 30 At the end of subsection 16(1) Add: Note: A loan benefit that is taken under this subsection to be provided in respect of a year of tax may not be provided as a fringe benefit if: (a) the loan was made in that year of tax or a previous year of tax; and (b) a dividend is not taken to be paid under section 109D of the Income Tax Assessment Act 1936 in relation to the loan, because of section 109N of that Act. See paragraph (s) of the definition of fringe benefit in subsection 136(1) of this Act. 31 Subsection 136(1) (paragraph (r) of the definition of fringe benefit) Omit "dividend.", substitute "dividend; or". 32 Subsection 136(1) (at the end of the definition of fringe benefit) Add: (s) a loan (within the meaning of section 109D of the Income Tax Assessment Act 1936), if: (i) a dividend is not taken to be paid under that section in relation to the loan, but would be if section 109N of that Act were disregarded; or (ii) an amount is not included, as if it were a dividend, in the assessable income of an entity under section 109XB of that Act in relation to the loan, but would be if section 109N of that Act were disregarded. Income Tax Assessment Act 1936 33 Section 108 Repeal the section. 34 Subsection 109Y(2) (definition of non‑commercial loans) Omit "section 108", substitute "former section 108". 35 Subsection 109Y(2) (definition of repayments of non‑commercial loans) Omit "section 108" (wherever occurring), substitute "former section 108, or section". 36 Subsection 109Y(2) (subparagraph (b)(i) of the definition of repayments of non‑commercial loans) Omit "subsection 108(2)", substitute "former subsection 108(2)". 37 Paragraph 160AEA(1)(d) Omit "or 108". 38 Paragraph 268‑40(5)(b) in Schedule 2F Repeal the paragraph. Income Tax Assessment Act 1997 39 Section 10‑5 (table item headed "shareholders") Omit "108,". 40 Paragraph 165‑60(5)(b) Repeal the paragraph. 41 Subparagraph 202‑45(g)(ii) Repeal the subparagraph. Part 3—Time limit for making franking assessments Income Tax Assessment Act 1997 42 After subsection 214‑60(1) Insert: (1A) However, the Commissioner must not make an assessment under subsection (1) for an entity for an income year if: (a) the entity is not required under Subdivision 214‑A to give the Commissioner a *franking return for the income year; and (b) the entity is not required under Division 214 of the Income Tax (Transitional Provisions) Act 1997 to give the Commissioner a franking return for the balancing period ending within the income year; and (c) the entity was required to lodge an *income tax return for the income year by a particular time; and (d) the entity has lodged that income tax return; and (e) 3 years have passed since the later of the following: (i) the time mentioned in paragraph (c); (ii) the time when the entity lodged that income tax return. Part 4—Application 43 Application (1) The amendments made by this Schedule apply to assessments for the income year in which 1 July 2006 occurred and later income years. (2) Despite subitem (1), the amendments made by this Schedule to the Fringe Benefits Tax Assessment Act 1986 apply to benefits provided in a year of tax that begins on or after 1 April 2007. (3) If: (a) a loan was made in a year of tax that began before 1 April 2007; and (b) the loan is covered under paragraph (s) of the definition of fringe benefit in the Fringe Benefits Tax Assessment Act 1986 (as added by this Schedule); and (c) because of the loan, a loan benefit is taken under subsection 16(1) of the Fringe Benefits Tax Assessment Act 1986 to be provided in respect of a year of tax that begins on or after 1 April 2007; treat the loan benefit as not being a fringe benefit for the purposes of that Act. (4) Despite subitem (1), the following rules apply: (a) the amendments made by this Schedule, to they extent that they relate to section 109RB of the Income Tax Assessment Act 1936, apply in relation to the 2001‑02 income year and later income years; (b) the Commissioner may make decisions under that section on and after the commencement of that section in relation to events that occurred before that commencement; (c) however, the Commissioner cannot make a decision under paragraph 109RB(2)(b) of that Act if the dividend mentioned in subparagraph 109RB(1)(a)(i) of that Act is taken to have been paid before 1 July 2002; (d) the Commissioner may amend a franking assessment made before the commencement of this item for the purpose of giving effect to a decision under section 109RB of that Act, if the amendment is made within 4 years after that commencement. (5) Section 170 of the Income Tax Assessment Act 1936 does not prevent the amendment of an assessment if: (a) the assessment was made before the commencement of this item; and (b) the amendment is made within 4 years after that commencement; and (c) the amendment is made for the purpose of giving effect to a decision of the Commissioner under section 109RB of that Act. (6) Despite subitem (1), the amendment made by Part 3 of this Schedule applies to franking assessments for the income year in which 1 July 2006 occurred and later income years. Schedule 2—Transitional excess non‑concessional contributions Income Tax (Transitional Provisions) Act 1997 1 At the end of paragraph 292‑80(3)(b) Add: (iii) included each contribution covered under subsection (7) in respect of the person; and 2 At the end of section 292‑80 Add: (7) A contribution is covered under this subsection if: (a) the contribution is made in respect of the person mentioned in subparagraph (3)(b)(iii) by another entity; and (b) the person is not an employee of the other entity; and (c) under Division 295 of the Income Tax Assessment Act 1997 (as that Division applies for the purposes of subsection (3)), the contribution is included in the assessable income of the superannuation provider in relation to the superannuation plan to which the contribution is made; and (d) the contribution is made after 6 December 2006. (8) For the purposes of paragraph (7)(b), treat the person as an employee of the other entity if the person would be treated as an employee of the other entity under Division 290 of the Income Tax Assessment Act 1997 (as that Division applies for the purposes of subsection (3)). Schedule 3—Capital gains of testamentary trusts Income Tax Assessment Act 1997 1 Before paragraph 103‑25(3)(a) Insert: (aa) subsection 115‑230(3) (relating to assessment of *capital gains of resident testamentary trusts) requires a trustee to make a choice by the time specified in subsection 115‑230(5); and 2 At the end of Subdivision 115‑C Add: 115‑230 Assessing capital gains of resident testamentary trusts Purpose (1) The purpose of this section is to allow a trustee of a resident testamentary trust to make a choice that has the effect that the trustee will be assessed on *capital gains of the trust in situations where: (a) the gains would otherwise form part of a share of the net income of the trust estate that would be included in the assessable income of a beneficiary who could not benefit from them; or (b) the trustee would otherwise be liable to tax on the gains on behalf of such a beneficiary under section 98 of the Income Tax Assessment Act 1936. Trusts for which choice can be made (2) A trustee can only make a choice under this section in relation to a trust estate: (a) that results from: (i) a will, a codicil or an order of a court that varied or modified the provisions of a will or a codicil; or (ii) an intestacy or an order of a court that varied or modified the application, in relation to the estate of a deceased person, of the provisions of the law relating to the distribution of the estates of persons who die intestate; and (b) that is, in the income year in respect of which the choice is made, a resident trust estate within the meaning of Division 6 of Part III of the Income Tax Assessment Act 1936. Circumstances in which choice can be made (3) If: (a) apart from this section: (i) a share of the net income of a trust estate that is attributable to *capital gains would be included in the assessable income of a beneficiary for an income year under section 97 of the Income Tax Assessment Act 1936; or (ii) a trustee would, on behalf of a beneficiary, be assessed and liable to pay tax for an income year under section 98 of the Income Tax Assessment Act 1936 in respect of a share of the net income of a trust estate that is attributable to capital gains; and (b) the beneficiary does not have a vested and indefeasible interest in trust property representing that share; and (c) trust property representing that share has not been paid to or applied for the benefit of the beneficiary; the trustee may, no later than the deadline in subsection (5), make a choice that subsection (4) applies in respect of the beneficiary's share. Consequences if trustee makes choice (4) These are the consequences if the trustee makes a choice that this subsection applies in respect of a beneficiary's share: (a) for the purposes of sections 97, 98A and 100 of the Income Tax Assessment Act 1936, the share is taken not to be included in the assessable income of the beneficiary; (b) the trustee is not assessed, and is not liable to pay tax, in respect of the share under section 98 of the Income Tax Assessment Act 1936. Note 1: Because of these consequences in relation to sections 97 and 98 of the Income Tax Assessment Act 1936, the trustee will be assessed on the beneficiary's share under section 99A or (at the Commissioner's discretion) 99 of that Act. Note 2: Section 115‑215 does not apply in relation to an amount to which this subsection applies. Deadline for making choice (5) The deadline for the purposes of subsection (3) is: (a) the day 2 months after the last day of the income year; or (b) a later day allowed by the Commissioner. Note: This deadline is an exception to the general rule about choices in section 103‑25. 3 Application (1) The amendments made by this Schedule apply in relation to the 2005‑2006 income year and later income years. (2) Despite subsection 115‑230(5) of the Income Tax Assessment Act 1997, a choice under subsection 115‑230(3) of that Act may be made no later than 2 years after the commencement of section 115‑230 (or a later time allowed by the Commissioner) if the choice is in respect of the 2005‑2006 income year. (3) Despite subsection 115‑230(5) of the Income Tax Assessment Act 1997, a choice under subsection 115‑230(3) of that Act may be made no later than 2 years after the commencement of section 115‑230 (or a later time allowed by the Commissioner) if: (a) section 115‑230 commences after the end of the 2006‑2007 income year; and (b) the choice is in respect of the 2006‑2007 income year. 4 Amendment of assessments Section 170 of the Income Tax Assessment Act 1936 does not prevent the amendment of an assessment if: (a) the assessment was made before the commencement of this item; and (b) an application to amend the assessment is made, in the form approved for the purposes of subsection 170(5), within 2 years of the commencement of this item; and (c) the amendment is made for the purpose of giving effect to a choice under subsection 115‑230(3) of the Income Tax Assessment Act 1997. Schedule 4—Superannuation of deceased military and police Income Tax Assessment Act 1997 1 Section 302‑195 Before "A", insert "(1)". 2 At the end of section 302‑195 Add: (2) For the purposes of this Division, treat an individual who receives a *superannuation lump sum because of the death of another person as a death benefits dependant of the deceased person in relation to the lump sum if the deceased person *died in the line of duty (see subsection (3)) as: (a) a member of the Defence Force; or (b) a member of the Australian Federal Police or the police force of a State or Territory; or (c) a protective service officer (within the meaning of the Australian Federal Police Act 1979). (3) For the purposes of subsection (2), a person died in the line of duty if the person died in the circumstances specified in the regulations. 3 Subsection 995‑1(1) Insert: died in the line of duty has the meaning given by subsection 302‑195(3). 4 Application The amendments made by this Schedule apply in relation to the 2007‑08 income year and later income years. 5 Payments by Commissioner in relation to lump sums paid before 1 July 2007 To avoid doubt, nothing in any taxation law (within the meaning of the Income Tax Assessment Act 1997) prevents the Commissioner of Taxation (on behalf of the Commonwealth) from making an ex‑gratia payment in relation to the tax treatment of a superannuation lump sum received in an income year ending before 1 July 2007 if: (a) the lump sum is received by a person because of the death of another person; and (b) the person who received the lump sum is not a dependant of the deceased person. Schedule 5—Thin capitalisation Income Tax (Transitional Provisions) Act 1997 1 Subsection 820‑45(1) Omit "3", substitute "4". Schedule 6—Repeal of dividend tainting rules Income Tax Assessment Act 1936 1 Sections 46G to 46M Repeal the sections. 2 After paragraph 177EA(17)(g) Insert: (ga) whether a distribution that is made or that flows indirectly under the scheme to the relevant taxpayer is sourced, directly or indirectly, from unrealised or untaxed profits; Income Tax Assessment Act 1997 3 Subsection 197‑50(1) (note) Repeal the note, substitute: Note: If a company's share capital account is tainted, then a distribution from the account is taxed as a dividend in the hands of the shareholder. This is because a tainted share capital account does not count as a share capital account for the purposes of paragraph (d) of the definition of dividend in subsection 6(1) of the Income Tax Assessment Act 1936 (see subsection 975‑300(3) of this Act). However, although the distribution is taxed as a dividend, the company cannot pass on to the shareholder the benefit of the tax it has paid, because a distribution from a share capital account (whether or not tainted) is unfrankable (see paragraphs 202‑45(e) and 975‑300(3)(ba) of this Act). 4 Paragraph 202‑45(e) Repeal the paragraph, substitute: (e) a distribution that is sourced, directly or indirectly, from a company's *share capital account; 5 Subsection 375‑872(4) Repeal the subsection, substitute: Paragraph 202‑45(e) does not apply (4) Paragraph 202‑45(e) does not apply to a payment that is taken to be a dividend under this section. Note: Paragraph 202‑45(e) provides that a distribution that is sourced, directly or indirectly, from a company's share capital account is unfrankable. 6 After paragraph 975‑300(3)(b) Insert: (ba) paragraph 202‑45(e); and 7 Paragraph 975‑300(3)(e) Repeal the paragraph. 8 Application The amendments made by this Schedule apply in relation to distributions made on or after 1 July 2004. Schedule 7—Interest withholding tax Income Tax Assessment Act 1936 1 Paragraph 128F(1)(e) Repeal the paragraph, substitute: (c) for a debt interest other than a debenture—the debt interest: (i) is a non‑equity share; or (ii) consists of 2 or more related schemes (within the meaning of the Income Tax Assessment Act 1997) where one or more of them is a non‑equity share; or (iii) is a syndicated loan; or (iv) is prescribed by the regulations for the purposes of this section; and (d) either: (i) the issue of the debenture or debt interest satisfies the public offer test set out in subsection (3) or (4); or (ii) for a syndicated loan—the invitation to become a lender under the relevant syndicated loan facility satisfies the public offer test set out in subsection (3A). 2 Paragraph 128F(1A)(d) Repeal the paragraph, substitute: (d) for a debt interest other than a debenture—the debt interest: (i) is a non‑equity share; or (ii) consists of 2 or more related schemes (within the meaning of the Income Tax Assessment Act 1997) where one or more of them is a non‑equity share; or (iii) is a syndicated loan; or (iv) is prescribed by the regulations for the purposes of this section; and (e) either: (i) the issue of the debenture or debt interest satisfies the public offer test set out in subsection (3) or (4); or (ii) for a syndicated loan—the invitation to become a lender under the relevant syndicated loan facility satisfies the public offer test set out in subsection (3A). 3 Paragraph 128F(1B)(b) Repeal the paragraph, substitute: (b) for a debt interest other than a debenture—the debt interest: (i) is a non‑equity share; or (ii) consists of 2 or more related schemes (within the meaning of the Income Tax Assessment Act 1997) where one or more of them is a non‑equity share; or (iii) is a syndicated loan; or (iv) is prescribed by the regulations for the purposes of this section; and (c) either: (i) the issue of the debenture or debt interest satisfies the public offer test set out in subsection (3) or (4); or (ii) for a syndicated loan—the invitation to become a lender under the relevant syndicated loan facility satisfies the public offer test set out in subsection (3A); 4 After subsection 128F(3) Insert: (3A) An invitation to become a lender under a syndicated loan facility by a company satisfies the public offer test if the invitation was made: (a) to at least 10 persons each of whom: (i) was carrying on a business of providing finance, or investing or dealing in securities, in the course of operating in financial markets; and (ii) was not known, or suspected, by the company to be an associate (see subsection (9)) of any of the other persons covered by this paragraph; or (b) publicly in electronic form, or in another form, that was used by financial markets for dealing in debentures or debt interests; or (c) to a dealer, manager or underwriter, in relation to the placement of debentures or debt interests, who, under an agreement with the company, made the invitation to become a lender under the facility within 30 days in a way covered by paragraph (a) or (b). 5 After subsection 128F(5) Insert: (5AA) An invitation to become a lender under a syndicated loan facility is taken never to have satisfied the public offer test if, at the time the invitation is made, the company knew, or had reasonable grounds to suspect, that: (a) an associate of the company is or will become a lender under the facility; and (b) either: (i) the associate is a non‑resident and the associate is not or would not become a lender under the facility in carrying on a business in Australia at or through a permanent establishment of the associate in Australia; or (ii) the associate is a resident of Australia and the associate is or would become a lender under the facility in carrying on a business in a country outside Australia at or through a permanent establishment of the associate in that country; and (c) the associate is not or would not become a lender under the facility in the capacity of: (i) a dealer, manager or underwriter in relation to the invitation; or (ii) a clearing house, custodian, funds manager or responsible entity of a registered scheme. Note: The heading to subsection 128F(5) is altered by omitting "Issues" and substituting "Issues and invitations". 6 Subsection 128F(9) Insert: syndicated loan means a loan or other form of financial accommodation that is provided under a syndicated loan facility, being a facility that has 2 or more lenders. 7 Subsection 128F(9) Insert: syndicated loan facility has the meaning given by subsections (11), (12) and (13). 8 At the end of section 128F Add: (11) A written agreement is a syndicated loan facility if: (a) the agreement describes itself as a syndicated loan facility or syndicated facility agreement; and (b) the agreement is between one or more borrowers and at least 2 lenders; and (c) under the agreement each lender severally, but not jointly, agrees to lend money to, or otherwise provide financial accommodation to, the borrower or borrowers; and (d) the amount to which the borrower or borrowers will have access at the time the first loan or other form of financial accommodation is to be provided under the agreement is at least $100,000,000 (or a prescribed amount). (12) A written agreement is also a syndicated loan facility if: (a) the agreement describes itself as a syndicated loan facility or syndicated facility agreement; and (b) the agreement is between one or more borrowers and one lender where the agreement provides for the addition of other lenders; and (c) the agreement provides that, when other lenders are added, each lender severally, but not jointly, agrees to lend money to, or otherwise provide financial accommodation to, the borrower or borrowers; and (d) the amount to which the borrower or borrowers will have access at the time the first loan or other form of financial accommodation is to be provided under the agreement is at least $100,000,000 (or a prescribed amount). (13) However, an agreement under which there are 2 or more borrowers is a syndicated loan facility only if all of them are: (a) members of the same wholly‑owned group (within the meaning of the Income Tax Assessment Act 1997); or (b) parties to the same joint venture; or (c) associates of each other. (14) For the purposes of this section, a change (including by novation) to the lenders under a syndicated loan facility does not result in a different agreement. (15) For a debt interest that consists of 2 or more related schemes (within the meaning of the Income Tax Assessment Act 1997) where one or more of them is a non‑equity share, this section applies only to interest paid in respect of the non‑equity share. Note: Subsection 128A(1AB) defines interest for the purposes of this Division. Under that subsection, dividends paid in respect of a non‑equity share are treated as being interest. (16) The rule in subsection (15) does not apply to the extent that interest in respect of the other related scheme or schemes would be interest to which this section applies in respect of a debenture or debt interest. 9 Subsection 128FA(1) Omit all the words after "issued by the trustee", substitute: if: (a) for a debt interest other than a debenture—the debt interest: (i) is a syndicated loan; or (ii) is prescribed by the regulations for the purposes of this section; and (b) either: (i) the issue of the debenture or debt interest satisfies the public offer test set (see subsection (6)); or (ii) for a syndicated loan—the invitation to become a lender under the relevant syndicated loan facility satisfies the public offer test (see subsection (6A)). 10 Paragraph 128FA(2)(b) Repeal the paragraph, substitute: (b) for a debt interest other than a debenture—the debt interest: (i) is a syndicated loan; or (ii) is prescribed by the regulations for the purposes of this section; and (c) either: (i) the issue of the debenture or debt interest satisfies the public offer test set (see subsection (6)); or (ii) for a syndicated loan—the invitation to become a lender under the relevant syndicated loan facility satisfies the public offer test (see subsection (6A)); 11 After subsection 128FA(6) Insert: (6A) For the purposes of working out under this section whether an invitation to become a lender under a syndicated loan facility satisfies the public offer test, subsections 128F(3A) and (5AA) apply to the trustee of the eligible unit trust in a corresponding way to the way in which those subsections apply to a company, subject to subsection (7) of this section. Note: The heading to subsection 128FA(6) is replaced by the heading "Public offer test". 12 Subsections 128FA(7) Omit "subsections 128F(3) to (5) as mentioned in subsection (6) of this section", substitute "subsection 128F(3), (3A), (4), (5) or (5AA) as mentioned in subsection (6) or (6A) of this section". 13 After subsection 128FA(7) Insert: (7A) For the purposes of this section, a change (including by novation) to the lenders under a syndicated loan facility does not result in a different agreement. 14 Subsection 128FA(8) Insert: syndicated loan has the same meaning as in section 128F. 15 Subsection 128FA(8) Insert: syndicated loan facility has the same meaning as in section 128F. 16 Application (1) The amendments made by this Schedule apply to interest paid in respect of debt interests issued on or after 7 December 2006 (the start day). (2) For the purposes of subitem (1), a debt interest is treated as being issued before the start day if it is issued under or results from a written agreement entered into on or after 21 March 2005 and before the start day. (3) However, subitem (2) does not apply to the extent that the agreement referred to in that subitem is altered after the start day to extend its term. Schedule 8—Forestry managed investment schemes Part 1—Main amendments Income Tax Assessment Act 1936 1 After section 82KZMG Insert: 82KZMGA Deductions for certain forestry expenditure (1) A taxpayer cannot deduct expenditure in relation to which the requirements in section 82KZMG are met if: (a) the taxpayer holds the taxpayer's interest in the agreement mentioned in section 82KZMG as an initial participant in the agreement; and (b) a CGT event happens in relation to that interest within 4 years after the end of the year of income in which the taxpayer first incurred expenditure under the agreement. (2) Despite section 170, the Commissioner may amend the taxpayer's assessment at any time within 2 years after the end of the year of income in which the CGT event happens, for the purpose of giving effect to this section. 82KZMGB CGT event in relation to interest in 82KZMG agreement (1) This section applies if: (a) a taxpayer holds an interest in an agreement mentioned in section 82KZMG as an initial participant in the agreement; and (b) at least one of these conditions is satisfied: (i) the taxpayer can deduct or has deducted an amount for a year of income in relation to the interest; (ii) the condition in subparagraph (i) would be satisfied if section 82KZMGA were disregarded; and (c) subsection 82KZMG(1) applies to the timing of the deduction (or would apply if section 82KZMGA were disregarded); and (d) a CGT event happens in relation to the interest, other than a CGT event that happens in respect of thinning. (2) The taxpayer's assessable income for the year of income in which the CGT event happens includes: (a) if, as a result of the CGT event, the taxpayer no longer holds the interest—the market value of the interest (worked out as at the time of the event); or (b) otherwise—the decrease (if any) in the market value of the interest as a result of the CGT event. (3) Any amount that the taxpayer actually receives because of the CGT event is not included in the taxpayer's assessable income (nor is it exempt income). Income Tax Assessment Act 1997 2 After Division 392 Insert: Division 394—Forestry managed investment schemes Guide to Division 394 394‑1 What this Division is about This Division sets out rules about deductions for contributions to forestry managed investment schemes. It also sets out the tax treatment of proceeds from the sale of interests in such schemes, and of proceeds from harvesting trees under such schemes. Table of sections 394‑5 Object of this Division 394‑10 Deduction for amounts paid under forestry managed investment schemes 394‑15 Forestry managed investment schemes and related concepts 394‑20 Payments on behalf of participant in forestry managed investment scheme 394‑25 CGT event in relation to forestry interest in forestry managed investment scheme—initial participant 394‑30 CGT event in relation to forestry interest in forestry managed investment scheme—subsequent participant 394‑35 70% DFE rule 394‑40 Payments under forestry managed investment scheme 394‑45 Direct forestry expenditure 394‑5 Object of this Division The object of this Division is to encourage the expansion of commercial plantation forestry in Australia through the establishment and tending of new plantations for felling. This is achieved by: (a) permitting investors to deduct amounts paid under a forestry scheme in the year of payment, if certain conditions are met (for example, that it is reasonable to expect that the manager of the scheme will spend at least 70% of investors' contributions, on a market value basis, on activities that establish, tend, fell and harvest trees); and (b) allowing secondary market trading of interests in such schemes, while minimising tax arbitrage and providing tax certainty for investors. 394‑10 Deduction for amounts paid under forestry managed investment schemes (1) You can deduct an amount if: (a) you hold a *forestry interest in a *forestry managed investment scheme; and (b) you pay the amount under the scheme; and (c) the scheme satisfies the *70% DFE rule (see section 394‑35) on 30 June in the income year in which a *participant in the scheme first pays an amount under the scheme; and (d) you do not have day to day control over the operation of the scheme (whether or not you have the right to be consulted or give directions); and (e) at least one of these conditions is satisfied: (i) there is more than one participant in the scheme; (ii) the *forestry manager of the scheme, or an *associate of the forestry manager, manages, arranges or promotes similar schemes; and (f) the condition in subsection (4) is satisfied. (2) You deduct the amount for the income year in which you pay it. (3) For the purposes of this Division, do not treat an amount as being paid under a *forestry managed investment scheme if: (a) you pay the amount in connection with a *CGT event in relation to a *forestry interest in the scheme; and (b) as a result of the CGT event: (i) another *participant in the scheme no longer holds the forestry interest; and (ii) you start to hold the forestry interest. (4) For the purposes of paragraph (1)(f), the condition in this subsection is satisfied unless: (a) 18 months have elapsed since the end of the income year in which an amount is first paid under the *forestry managed investment scheme by a *participant in the scheme; and (b) the trees intended to be established in accordance with the scheme have not all been established before the end of those 18 months. (5) You cannot deduct an amount under subsection (1) if: (a) you hold the *forestry interest mentioned in paragraph (1)(a) as an *initial participant; and (b) a *CGT event happens in relation to the forestry interest within 4 years after the end of the income year in which you first pay an amount under the scheme. If you have already deducted it, your assessment may be amended to disallow the deduction. (6) Despite section 170 of the Income Tax Assessment Act 1936, the Commissioner may amend your assessment at any time within 2 years after the *CGT event, for the purpose of giving effect to subsection (5). (7) Sections 82KZMD and 82KZMF of the Income Tax Assessment Act 1936 do not affect the timing of a deduction under this section. 394‑15 Forestry managed investment schemes and related concepts (1) A *scheme is a forestry managed investment scheme if the purpose of the scheme is for establishing and tending trees for felling in Australia. (2) The entity that manages, arranges or promotes a *forestry managed investment scheme is the forestry manager of the scheme. (3) A forestry interest in a *forestry managed investment scheme is a right to benefits produced by the scheme (whether the right is actual, prospective or contingent and whether it is enforceable or not). (4) An entity that holds a *forestry interest in a *forestry managed investment scheme (other than the *forestry manager of the scheme) is a participant in the scheme. (5) A *participant in a *forestry managed investment scheme holds a *forestry interest in the scheme as an initial participant if: (a) the participant obtains the forestry interest from the *forestry manager of the scheme; and (b) the payment by the participant to obtain the forestry interest results in the establishment of trees. 394‑20 Payments on behalf of participant in forestry managed investment scheme For the purposes of this Division, treat a payment to the *forestry manager of a *forestry managed investment on behalf of a *participant in the scheme as a payment by the participant to the forestry manager. 394‑25 CGT event in relation to forestry interest in forestry managed investment scheme—initial participant (1) This section applies if: (a) you hold a *forestry interest in a *forestry managed investment scheme as an *initial participant in the scheme; and (b) at least one of these conditions is satisfied: (i) you can deduct or have deducted an amount for an income year under section 394‑10 in relation to the forestry interest; (ii) the condition in subparagraph (i) would be satisfied if subsection 394‑10(5) were disregarded; and (c) a *CGT event happens in relation to the forestry interest, other than a CGT event that happens in respect of thinning. (2) Your assessable income for the income year in which the *CGT event happens includes: (a) if, as a result of the CGT event, you no longer hold the *forestry interest—the *market value of the forestry interest (worked out as at the time of the event); or (b) otherwise—the decrease (if any) in the market value of the forestry interest as a result of the CGT event. (3) Any amount that you actually receive because of the *CGT event is not included in your assessable income (nor is it *exempt income). 394‑30 CGT event in relation to forestry interest in forestry managed investment scheme—subsequent participant (1) This section applies if: (a) you hold a *forestry interest in a *forestry managed investment scheme otherwise than as an *initial participant in the scheme; and (b) at least one of these conditions is satisfied: (i) you can deduct or have deducted an amount for an income year under section 394‑10 in relation to the forestry interest; (ii) you could deduct an amount for an income year under section 394‑10 if you had paid the amount under the scheme in that year; and (c) a *CGT event happens in relation to the forestry interest, other than a CGT event that happens in respect of thinning. (2) Your assessable income for the income year in which the *CGT event happens includes the lesser of the following: (a) the *market value of the forestry interest (worked out as at the time of the event); (b) the amount (if any) by which the *total forestry scheme deductions in relation to the forestry interest exceeds the *incidental forestry scheme receipts in relation to the forestry interest. (3) The total forestry scheme deductions in relation to the *forestry interest is the total of each amount that you can deduct or have deducted under section 394‑10 for each income year in relation to the forestry interest. (4) The incidental forestry scheme receipts in relation to the *forestry interest is the total of each amount that you have received under the scheme in each income year in relation to the forestry interest for a reason otherwise than because of the *CGT event. (5) However, if you still hold the forestry interest despite the *CGT event, work out the amount included in your assessable income under subsection (2) using this formula (instead of using the amount worked out under subsection (2)): (6) If this section has operated previously in relation to the *forestry interest, disregard an amount for the purposes of subsections (3) and (4) to the extent that it has already been reflected in your assessable income under that previous operation in relation to the forestry interest. (7) These provisions do not apply to the *CGT event: (a) section 6‑5 (about *ordinary income); (b) any other provision that includes an amount in assessable income, other than the following: (i) a provision in Part 3‑1 or 3‑3; (ii) subsection (2) of this section; (c) section 8‑1 (about amounts you can deduct); (d) any other provision that allows you to deduct an amount from your assessable income; (e) section 118‑20. (8) However, the provisions referred to in subsection (7) can apply to the *CGT event if a *capital gain or *capital loss from the event is disregarded because of section 118‑25. (9) Just before the *CGT event, increase the *cost base and *reduced cost base of the *forestry interest by the amount included in your assessable income under subsection (2). 394‑35 70% DFE rule (1) A *forestry managed investment scheme satisfies the 70% DFE rule on 30 June in an income year if it is reasonable to expect on that 30 June that the amount of DFE under the scheme (see subsection (2)) is no less than 70% of the amount of the payments under the scheme (see subsection (3)). (2) The amount of DFE under the scheme is the amount of the net present value (on that 30 June) of all *direct forestry expenditure under the scheme that the *forestry manager of the scheme has paid or will pay under the scheme. (3) The amount of payments under the scheme is the amount of the net present value (on that 30 June) of all amounts that all current and future *participants in the scheme have paid or will pay under the scheme. (4) In working out the net present value of an amount paid before that 30 June: (a) unless paragraph (b) applies—treat the amount as having been paid on that 30 June; or (b) if the amount was paid in an income year ending before that 30 June—treat the amount as having been paid on the 30 June in that income year. (5) In working out the net present value of an amount expected to be paid after that 30 June, treat the amount as having been paid on 1 January in the income year in which it is expected to be paid. (6) Reduce an amount worked out under subsection (2) or (3) to the extent (if any) to which that amount can reasonably be expected to be recouped. (7) In working out the net present value of an amount for the purposes of this section, use the yield on Australian Government Treasury Bonds with the maturity closest to 10 years (as published by the Reserve Bank of Australia). (8) For the purposes of subsection (2), if: (a) the *forestry manager of the scheme has paid or will pay an amount under the scheme in a transaction; and (b) the forestry manager and at least one other party to the transaction did not or will not deal at *arm's length in relation to the transaction; and (c) the amount is or will be more or less than the *market value of what it is for; treat the amount as that market value. 394‑40 Payments under forestry managed investment scheme For the purposes of this Division, do not treat the following payments as payments under a *forestry managed investment scheme by a *participant in the scheme: (a) payments for *borrowing money; (b) payments of interest and payments in the nature of interest; (c) payments of stamp duty; (d) payments of *GST; (e) payments that relate to one or more of the matters mentioned in paragraphs 394‑45(4)(a), (b) or (c). 394‑45 Direct forestry expenditure (1) Direct forestry expenditure under a *forestry managed investment scheme means: (a) an amount paid under the scheme that is attributable to establishing, tending, felling and harvesting trees; and (b) notional amounts reflecting the *market value of goods, services or the use of land, provided by the *forestry manager of the scheme, for establishing, tending, felling and harvesting trees. Example 1: Notional amounts reflecting the value of the use of land owned by the forestry manager that is provided for establishing, tending, felling and harvesting trees. Example 2: Notional amounts reflecting the value of tree felling services provided by the forestry manager. (2) Treat *direct forestry expenditure covered by paragraph (1)(b) as paid annually for each income year of the *forestry manager of the scheme based on the *market value of the goods, services, or the use of the land. Treat the day on which it is paid as: (a) unless paragraph (b) or (c) applies—1 January in the income year; or (b) if the first time an amount is paid under the scheme is later than the first day of the income year—the last day of the income year; or (c) if the scheme comes to an end on a day before the end of the income year—that day. Exclusions—general (3) However, direct forestry expenditure under the scheme does not include amounts paid under the scheme to the extent that they relate to any of the following: (a) marketing of the scheme; Example: Advertising, sales, sponsorship and entertainment. (b) insurance, contingency funds or provisions (other than provisions for employee entitlements); (c) financing; (d) lobbying; (e) general business overheads (but not overheads directly related to forestry); (f) subscriptions to industry bodies; (g) commissions for financial planners or financial advisers; (h) compliance with requirements related to the structure and operations of the *forestry manager of the scheme; Example: Product design and preparation of product disclosure statements. (i) supervision and auditing of contracts, other than direct supervision of direct forestry activities (such as establishing trees for felling); (j) legal fees relating to any matter mentioned in this subsection. Exclusions—expenditure after harvest etc. (4) Also, direct forestry expenditure under the scheme does not include amounts paid under the scheme to the extent that they relate to any of the following: (a) transportation and handling of felled trees that happens after the earliest of the following: (i) sale of the trees; (ii) arrival of the trees at the mill door; (iii) arrival of the trees at the port; (iv) arrival of the trees at the place of processing (other than where processing happens in‑field); (b) processing; (c) stockpiling (other than in‑field stockpiling); (d) marketing and sale of forestry produce. Taxation Administration Act 1953 3 At the end of Part 5‑25 in Schedule 1 Add: Division 394—Reporting about forestry managed investment schemes Guide to Division 394 394‑1 What this Division is about A forestry manager of a forestry managed investment scheme must give the Commissioner information about initial contributions by participants in the scheme. The forestry manager must also inform the Commissioner if the trees are not established under the scheme within 18 months of the first investment in the scheme. Table of sections 394‑5 Statements about initial contributions to scheme 394‑10 Statements about failure to establish trees within 18 months 394‑5 Statements about initial contributions to scheme (1) The *forestry manager of a *forestry managed investment scheme must give the Commissioner a statement in relation to the scheme if: (a) the scheme satisfies the requirement in paragraph 394‑10(1)(c) of the Income Tax Assessment Act 1997 (the *70% DFE rule); and (b) the forestry manager (or an *associate of the forestry manager) receives an amount under the scheme that is included in the forestry manager's (or the associate's) assessable income under section 15‑46 of that Act; and (c) that amount is the amount that is first paid under the schem