Commonwealth: Tax Laws Amendment (2007 Measures No. 5) Act 2007 (Cth)

Tax Laws Amendment (2007 Measures No. 5) Act 2007 Act No. 164 of 2007 as amended This compilation was prepared on 8 July 2011 taking into account amendments up to Act No. 41 of 2011 The text of any of those amendments not in force on that date is appended in the Notes section The operation of amendments that have been incorporated may be affected by application provisions that are set out in the Notes section Prepared by the Office of Legislative Drafting and Publishing, Attorney‑General's Department, Canberra Contents 1 Short title [see Note 1]........................... 2 Commencement 3 Schedule(s) 4 Amendment of assessments Schedule 1—Tax preferred entities (asset financing) Part 1—Main amendments Income Tax Assessment Act 1997 Part 2—Consequential amendments Development Allowance Authority Act 1992 Income Tax Assessment Act 1936 Income Tax Assessment Act 1997 Taxation Administration Act 1953 Part 3—Application Schedule 2—Thin capitalisation: excluded equity interests Income Tax Assessment Act 1997 Schedule 3—Thin capitalisation: groups containing certain ADIs Income Tax Assessment Act 1997 Schedule 4—Extending the CGT small superannuation funds roll‑over on marriage breakdown Income Tax Assessment Act 1997 Schedule 5—Prime Minister's Prizes Income Tax Assessment Act 1997 Schedule 6—Removal of the same business test cap Part 1—Main amendments Income Tax Assessment Act 1997 Part 2—Consequential amendments Income Tax Assessment Act 1997 Part 3—Application Schedule 7—Statutory licences Part 1—Main amendments Income Tax Assessment Act 1997 Income Tax (Transitional Provisions) Act 1997 Part 2—Consequential and other amendments Income Tax Assessment Act 1997 Income Tax (Transitional Provisions) Act 1997 Part 3—Application Schedule 8—Australian property trusts and stapled securities Part 1—Main amendments Income Tax Assessment Act 1936 Income Tax Assessment Act 1997 Part 2—Consequential amendments Income Tax Assessment Act 1997 Part 3—Application Schedule 9—Deductible gift recipients Income Tax Assessment Act 1997 Schedule 10—Streamlining concessions for Australian films and Australian film production Part 1—Main amendments Income Tax Assessment Act 1997 Part 2—Consequential and other amendments Income Tax Assessment Act 1936 Income Tax Assessment Act 1997 Part 3—Repeal of Divisions 10B and 10BA Income Tax Assessment Act 1936 Income Tax Assessment Act 1997 Income Tax (Transitional Provisions) Act 1997 Part 4—Application and saving provisions Schedule 11—Research and development Part 1—Amendment of the Income Tax Assessment Act 1936 Part 2—Amendment of the Industry Research and Development Act 1986 Part 3—Application and transitional provisions Schedule 12—Innovation Australia Part 1—Main amendments Industry Research and Development Act 1986 Pooled Development Funds Act 1992 Part 2—Consequential amendments Income Tax Assessment Act 1936 Income Tax Assessment Act 1997 Venture Capital Act 2002 Part 3—Transitional provisions Notes An Act to amend the law relating to taxation, and for related purposes 1 Short title [see Note 1] This Act may be cited as the Tax Laws Amendment (2007 Measures No. 5) 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 4 and anything in this Act not elsewhere covered by this table The day on which this Act receives the Royal Assent. 25 September 2007 2. Schedules 1 to 7 The day on which this Act receives the Royal Assent. 25 September 2007 3. Schedule 8 The later of: 25 September 2007 (a) the day on which this Act receives the Royal Assent; and (paragraph (a) applies) (b) the day on which the Tax Laws Amendment (2007 Measures No. 4) Act 2007 receives the Royal Assent. However, the provision(s) do not commence at all if the event mentioned in paragraph (b) does not occur. 4. Schedule 9 The day on which this Act receives the Royal Assent. 25 September 2007 5. Schedule 10, Parts 1 and 2 The day on which this Act receives the Royal Assent. 25 September 2007 6. Schedule 10, Part 3 1 July 2010. 1 July 2010 7. Schedule 10, Part 4 The day on which this Act receives the Royal Assent. 25 September 2007 8. Schedule 11 The day on which this Act receives the Royal Assent. 25 September 2007 9. Schedule 12 A single day to be fixed by Proclamation. 27 September 2007 (see F2007L03842) However, if any of the provision(s) do not commence within the period of 6 months beginning on the day on which this Act receives the Royal Assent, they commence on the first day after the end of that period. 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. 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 section; 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 Schedule 2. Schedule 1—Tax preferred entities (asset financing) Part 1—Main amendments Income Tax Assessment Act 1997 1 At the end of Part 3‑10 Add: Division 250—Assets put to tax preferred use Table of Subdivisions Guide to Division 250 250‑A Objects 250‑B When this Division applies to you and an asset 250‑C Denial of, or reduction in, capital allowance deductions 250‑D Deemed loan treatment of financial benefits provided for tax preferred use 250‑E Taxation of deemed loan 250‑F Treatment of asset when Division ceases to apply to the asset 250‑G Objections against determinations and decisions by the Commissioner Guide to Division 250 250‑1 What this Division is about This Division denies or reduces certain capital allowance deductions that would otherwise be available to you in relation to an asset if the asset is put to a tax preferred use in certain circumstances. If the capital allowance deductions are denied or reduced, certain financial benefits in relation to the tax preferred use of the asset are assessed only to the extent of a notional gain component. This component is worked out on the basis of treating the arrangements under which the asset is put to a tax preferred use, and financial benefits are provided in relation to that tax preferred use, as a loan. Subdivision 250‑E then applies to determine the amounts that are to be assessed. Subdivision 250‑A—Objects Table of sections 250‑5 Main objects 250‑5 Main objects The main objects of this Division are: (a) to deny or reduce your *capital allowance deductions in respect of an asset if the asset is put to a *tax preferred use and you have insufficient economic interest in the asset; and (b) if your capital allowance deductions are denied or reduced, to treat the *arrangement for the tax preferred use of the asset as a loan that is taxed as a financial arrangement (on a compounding accruals basis). Subdivision 250‑B—When this Division applies to you and an asset Table of sections Overall test 250‑10 When this Division applies to you and an asset 250‑15 General test 250‑20 First exclusion—small business entities 250‑25 Second exclusion—financial benefits under minimum value limit 250‑30 Third exclusion—certain short term or low value arrangements 250‑35 Exceptions to section 250‑30 250‑40 Fourth exclusion—sum of present values of financial benefits less that amount otherwise assessable 250‑45 Fifth exclusion—Commissioner determination Tax preferred use of asset 250‑50 End user of an asset 250‑55 Tax preferred end user 250‑60 Tax preferred use of an asset 250‑65 Arrangement period for tax preferred use 250‑70 New tax preferred use at end of arrangement period if tax preferred use continues 250‑75 What constitutes a separate asset for the purposes of this Division 250‑80 Treatment of particular arrangements in the same way as leases Financial benefits in relation to tax preferred use 250‑85 Financial benefits in relation to tax preferred use of an asset 250‑90 Financial benefit provided directly or indirectly 250‑95 Expected financial benefits in relation to an asset put to tax preferred use 250‑100 Present value of financial benefit that has already been provided Discount rate to be used in working out present values 250‑105 Discount rate to be used in working out present values Predominant economic interest 250‑110 Predominant economic interest 250‑115 Limited recourse debt test 250‑120 Right to acquire asset test 250‑125 Effectively non‑cancellable, long term arrangement test 250‑130 Meaning of effectively non‑cancellable arrangement 250‑135 Level of expected financial benefits test 250‑140 When to retest predominant economic interest under section 250‑135 Overall test 250‑10 When this Division applies to you and an asset This Division applies to you and an asset at a particular time if: (a) the general test in section 250‑15 is satisfied in relation to you and the asset; and (b) none of the exclusions in sections 250‑20, 250‑25, 250‑30, 250‑40 and 250‑45 apply. 250‑15 General test This Division applies to you and an asset at a particular time if: (a) the asset is being *put to a tax preferred use; and (b) the *arrangement period for the *tax preferred use of the asset is greater than 12 months; and (c) *financial benefits in relation to the tax preferred use of the asset have been, will be or can reasonably be expected to be, *provided to you (or a *connected entity) by: (i) a *tax preferred end user (or a connected entity); or (ii) any *tax preferred entity (or a connected entity); or (iii) any entity that is not an Australian resident; and (d) disregarding this Division, you would be entitled to a *capital allowance in relation to: (i) a decline in the value of the asset; or (ii) expenditure in relation to the asset; and (e) you lack a *predominant economic interest in the asset at that time. 250‑20 First exclusion—small business entities This Division does not apply to you and an asset if: (a) you are a *small business entity for the income year in which the *arrangement period for the *tax preferred use of the asset starts; and (b) you choose to deduct amounts under Subdivision 328‑D for the asset for that income year. 250‑25 Second exclusion—financial benefits under minimum value limit (1) This Division does not apply to you and an asset that is being *put to a tax preferred use under a particular *arrangement if, at the start of the *arrangement period, the total of the nominal values of all the *financial benefits that have been, or will be or can reasonably be expected to be, provided to you (or a *connected entity): (a) by *members of the tax preferred sector; and (b) in relation to the *tax preferred use of the asset or any other asset that is being, or is to be, put to a tax preferred use under the arrangement; does not exceed $5 million. (2) The amount referred to in subsection (1) is indexed annually. Note: Subdivision 960‑M shows you how to index amounts. 250‑30 Third exclusion—certain short term or low value arrangements Certain short term or low value arrangements generally excluded (1) This Division does not apply to you and an asset that is being *put to a tax preferred use under a particular *arrangement if: (a) the *arrangement period for the *tax preferred use of the asset does not exceed: (i) 5 years if the asset is real property and the tax preferred use of the asset is a lease; or (ii) 3 years in any other case; or (b) at the start of the arrangement period, the total of the nominal values of all the *financial benefits that have been, will be or can reasonably be expected to be, provided to you (or a *connected entity): (i) by *members of the tax preferred sector; and (ii) in relation to the tax preferred use of the asset or any other asset that is being, or is to be, put to a tax preferred use under the arrangement; does not exceed: (iii) $50 million if the asset is real property and the tax preferred use of the asset is a lease; or (iv) $30 million in any other case; or (c) at the start of the arrangement period, the total of the values of all the assets that are put to a tax preferred use under the arrangement does not exceed: (i) $40 million if the asset is real property and the tax preferred use of the asset is a lease; or (ii) $20 million in any other case. This subsection has effect subject to section 250‑35. (2) The amounts referred to in paragraphs (1)(b) and (c) are indexed annually. Note: Subdivision 960‑M shows you how to index amounts. 250‑35 Exceptions to section 250‑30 Debt interests (1) Section 250‑30 does not apply if the *arrangement (either alone or together with any arrangement in relation to the *tax preferred use of the asset or the provision of *financial benefits in relation to the tax preferred use of the asset) is a *debt interest. (2) In applying subsection (1), disregard subsection 974‑130(4). Member of tax preferred sector having certain rights in relation to the asset (3) Section 250‑30 does not apply if: (a) a *member of the tax preferred sector has: (i) a right, obligation or contingent obligation to purchase or acquire the asset or a legal or equitable interest in the asset; or (ii) a right to require the transfer of the asset or a legal or equitable interest in the asset; or (iii) a residual or reversionary interest in the asset that will arise or become exercisable at or after the end of the *arrangement period; and (b) the consideration for the purchase, acquisition or transfer of the right, obligation or interest is not fixed as the *market value of the asset at the time of the purchase, acquisition or transfer. To avoid doubt, this subsection does not apply to the asset merely because your interest in the asset is one that ceases to exist after the passage of a particular period of time. Member of tax preferred sector providing financing (4) Section 250‑30 does not apply if a *member of the tax preferred sector provides financing, or support for financing, in relation to your interest in the asset (including by way of a loan, a guarantee, an indemnity, a security, hedging or undertaking to provide *financial benefits in the event of the termination of an *arrangement). Finance leases, non‑cancellable operating leases, service concessions and similar arrangements (5) Section 250‑30 does not apply if an *arrangement in relation to the *tax preferred use of the asset, or the provision of *financial benefits in relation to the tax preferred use of the asset, is or involves: (a) a finance lease; or (b) a non‑cancellable operating lease; or (c) a service concession or similar arrangement; that generally accepted accounting principles, as in force at the start of the *arrangement period, require to be included as an asset or a liability in your balance sheet. Financial benefits irregular, not based on comparable market‑based rates or not reflecting value of tax preferred use of asset (6) Section 250‑30 does not apply if the *financial benefits that have been, or are to be provided, to you (or a *connected entity) by *members of the tax preferred sector in relation to the *tax preferred use of the asset: (a) are not provided on a regular periodic basis (and at least annually); or (b) are not based on comparable market‑based rates; or (c) do not reflect the value of the tax preferred use of the asset. Special rules if tax preferred use is a lease or hire of the asset (7) If the *tax preferred use of the asset is a lease or hire of the asset (or the use of the asset under a lease or hire arrangement), section 250‑30 does not apply if: (a) the asset is so specialised that the *end user could not carry out one or more of its functions effectively without the asset; and (b) you would be unlikely to be able to re‑lease, re‑hire or resell the asset to another person who is not a *member of the tax preferred end user group. Note: For particular arrangements that are treated as leases, see section 250‑80. Special rules if tax preferred use is not a lease or hire of the asset (8) If the *tax preferred use of the asset is not the lease or hire of the asset (or the use of the asset under a lease or hire arrangement), section 250‑30 does not apply if: (a) a *member of the tax preferred sector has a right, if particular circumstances occur, to manage, or to assume control over, the asset (other than temporarily for the purpose of ensuring public health or safety, protecting the environment or continuing the supply of an essential service); or (b) the asset is so specialised that it is unlikely that it could effectively be put to any use other than the tax preferred use; or (c) neither you (nor a *connected entity) has effective day to day control and physical possession of the asset. Note: For particular arrangements that are treated as leases, see section 250‑80. 250‑40 Fourth exclusion—sum of present values of financial benefits less than amount otherwise assessable (1) This Division does not apply to you and an asset that is being *put to a tax preferred use under a particular *arrangement if, when that *tax preferred use of the asset starts, the Division 250 assessable amount is less than the alternative assessable amount. (2) For the purposes of subsection (1), the Division 250 assessable amount is the sum of the present values of all the amounts that would be likely to be included in your assessable income under this Division in relation to the *tax preferred use of the asset if this Division applied to you and the asset. (3) This is how to work out the alternative assessable amount for the purposes of subsection (1): Method statement Step 1. Add up the present values of the amounts that would be included in your assessable income in relation to the *financial benefits *provided in relation to the tax preferred use of the asset during the *arrangement period if this Division did not apply to you and the asset. Step 2. Add up the present values of the amounts that you would be able to deduct in relation to the asset, or expenditure in relation to the asset, under Division 40 or Division 43 in relation to the *arrangement period if this Division did not apply to you and the asset. Step 3. Deduct the amount obtained in Step 2 from the amount obtained in Step 1. The result is the alternative assessable amount. (4) To avoid doubt, the amounts referred to in subsections (2) and (3) are all the amounts that would be likely to be included in your assessable income, or deducted, for all the income years during the whole, or a part, of which the asset is *put to the tax preferred use. (5) The point in time to be used in determining, for the purposes of this section: (a) the present value of an amount that is included in your assessable income for an income year; or (b) the present value of an amount that you would be able to deduct for an income year; is the end of the income year. 250‑45 Fifth exclusion—Commissioner determination This Division does not apply to you and an asset at a particular time if: (a) you request the Commissioner to make a determination under this subsection; and (b) the Commissioner determines that it is unreasonable that the Division should apply to you and the asset at that time, having regard to: (i) the circumstances because of which this Division would apply to you and the asset; and (ii) any other relevant circumstances. Tax preferred use of asset 250‑50 End user of an asset (1) An entity (other than you) is an end user of an asset if the entity (or a *connected entity): (a) uses, or effectively controls the use of, the asset; or (b) will use, or effectively control the use of, the asset; or (c) is able to use, or effectively control the use of, the asset; or (d) will be able to use, or effectively control the use of, the asset. (2) The control referred to in subsection (1) may be direct or indirect. (3) For the purposes of subsection (1), disregard any temporary control of the asset that is for the purpose of ensuring public health or safety, protecting the environment or continuing the supply of an essential service. (4) To avoid doubt, an entity is taken to be an end user of an asset if the entity (or a *connected entity) holds rights as a lessee under a lease of the asset. Note: For particular arrangements that are treated as leases, see section 250‑80. 250‑55 Tax preferred end user An *end user of an asset is a tax preferred end user if: (a) the end user (or a *connected entity) is a *tax preferred entity; or (b) the end user is an entity that is not an Australian resident. 250‑60 Tax preferred use of an asset (1) An asset is put to a tax preferred use at a particular time if: (a) an *end user (or a *connected entity) holds, at that time, rights as lessee under a lease of the asset; and (b) either or both of the following subparagraphs is satisfied at that time: (i) the asset is, or is to be, used by or on behalf of an end user who is a *tax preferred end user because of paragraph 250‑55(a) (tax preferred entity); (ii) the asset is, or is to be, used wholly or principally outside Australia and an end user of the asset is a tax preferred end user because of paragraph 250‑55(b) (non‑resident). If this subsection applies, the tax preferred use of the asset is the lease referred to in paragraph (a). Note: For particular arrangements that are treated as leases, see section 250‑80. (2) An asset is also put to a tax preferred use at a particular time if: (a) at that time the asset is, or is to be, used (whether or not by you) wholly or partly in connection with: (i) the production, supply, carriage, transmission or delivery of goods; or (ii) the provision of services or facilities; and (b) either or both of the following subparagraphs is satisfied at that time: (i) some or all of the goods, services or facilities are, or are to be, produced for or supplied, carried, transmitted or delivered to or for an *end user who is a *tax preferred end user because of paragraph 250‑55(a) (tax preferred entity) but is not an *exempt foreign government agency; (ii) the asset is, or is to be, used wholly or principally outside Australia and an end user of the asset is a tax preferred end user because of paragraph 250‑55(b) (non‑resident). If this subsection applies, the tax preferred use of the asset is the production, supply, carriage, transmission, delivery or provision referred to in paragraph (a). (3) To avoid doubt, the facilities referred to in subsection (2) include: (a) hospital or medical facilities; or (b) prison facilities; or (c) educational facilities; or (d) *land transport facilities; or (e) other transport facilities; or (f) the supply of water, gas or electricity; or (g) housing or accommodation; or (h) premises from which to operate a *business or other undertaking. (4) If the asset is being *put to a tax preferred use: (a) the members of the tax preferred end user group are: (i) the *tax preferred end user; and (ii) the *connected entities of the tax preferred end user; and (b) the members of the tax preferred sector are: (i) the tax preferred end user (and connected entities); and (ii) any *tax preferred entity (or a connected entity); and (iii) any entity that is not an Australian resident. 250‑65 Arrangement period for tax preferred use Start of the arrangement period (1) The arrangement period for a particular *tax preferred use of an asset starts when that tax preferred use of the asset starts. End of the arrangement period (2) Subject to subsection (3), the arrangement period for a particular *tax preferred use of an asset is taken to end on the day that is the date on which the tax preferred use of the asset may reasonably be expected, or is likely, to end. (3) The arrangement period for the *tax preferred use of the asset ends when this Division ceases to apply to you and the asset if that happens before the day referred to in subsection (2). (4) In determining when a particular *tax preferred use of an asset is likely to end: (a) regard must be had to: (i) the terms of, and any other circumstances relating to, any *arrangement dealing with that tax preferred use of the asset; and (ii) the terms of, and any other circumstances relating to, any arrangement dealing with the *provision of *financial benefits in relation to that tax preferred use of the asset; and (b) it must be assumed that any right that an entity has to renew or extend such an arrangement will not be exercised (unless it is reasonable to assume that the right will be exercised because of the commercial consequences for the entity (or a *connected entity) of not exercising the right). Tax preferred uses of asset by entity and connected entity (5) For the purposes of this section: (a) the *tax preferred use of an asset by an entity; and (b) the tax preferred use of the asset by a *connected entity of that entity; are taken to constitute a single tax preferred use of the asset. 250‑70 New tax preferred use at end of arrangement period if tax preferred use continues If: (a) this Division applies to you and an asset because the asset is *put to a tax preferred use; and (b) the *arrangement period for the *tax preferred use of the asset ends on a particular date (the termination date); and (c) the asset continues to be put to the tax preferred use after the termination date; the tax preferred use of the asset after the termination date is taken to be a separate and distinct tax preferred use of the asset from the tax preferred use of the asset before the termination date. Note: This means, among other things, that there is a new arrangement period for the tax preferred use after the termination date and that the arrangement is retested under section 250‑15 against circumstances as they stand immediately after the termination date. 250‑75 What constitutes a separate asset for the purposes of this Division (1) This Division applies to: (a) an improvement to land; or (b) a fixture on land; whether the improvement or fixture is removable or not, as if it were an asset separate from the land. (2) Whether a particular composite item is itself an asset or whether its components are separate assets is a question of fact and degree which can only be determined in the light of all the circumstances of the particular case. Example 1: A car is made up of many separate components, but usually the car is an asset rather than each component. Example 2: A floating restaurant consists of many separate components (like the ship itself, stoves, fridges, furniture, crockery and cutlery), but usually these components are treated as separate assets. (3) This Division applies to a renewal or extension of an asset that is a right as if the renewal or extension were a continuation of the original right. (4) This Division applies to an asset (the underlying asset) in which: (a) you have an interest; and (b) one or more other entities also have an interest; as if your interest in the underlying asset were itself the underlying asset. 250‑80 Treatment of particular arrangements in the same way as leases This Division applies to an *arrangement that: (a) in substance or effect, depends on the use of a specific asset that is: (i) real property; or (ii) goods or a personal chattel (other than money or a money equivalent); and (b) gives a right to control the use of the asset (other than temporarily for the purpose of ensuring public health or safety, protecting the environment or continuing the supply of an essential service); and (c) is not a lease; in the same way as it applies to a lease. Note: Even if this section applies to treat an arrangement in relation to an asset as a lease, the requirements in section 250‑50 still need to be satisfied before an entity can be an end user of the asset. Financial benefits in relation to tax preferred use 250‑85 Financial benefits in relation to tax preferred use of an asset (1) For the purposes of this Division, the *financial benefits provided in relation to a tax preferred use of an asset include (but are not limited to): (a) a financial benefit provided in relation to: (i) bringing the asset into a state, condition or location in which it can be *put to the tax preferred use; or (ii) the start of the *tax preferred use of the asset; and (b) a financial benefit provided in relation to the end of the tax preferred use of the asset; and (c) a financial benefit provided in relation to the termination or expiration of an *arrangement that deals with: (i) the tax preferred use of the asset; or (ii) the provision of financial benefits in relation to the tax preferred use of the asset; and (d) a financial benefit provided in relation to the purchase or acquisition of the asset by, or transfer of the asset to, the *tax preferred end user (or a *connected entity). (2) Without limiting paragraph (1)(b), if the asset has a *guaranteed residual value: (a) the amount of the guaranteed residual value is taken to be a *financial benefit provided in relation to the tax preferred use of the asset; and (b) that financial benefit is taken to be provided when the relevant payment is made in relation to the guaranteed residual value. (3) The asset has a guaranteed residual value if there is an *arrangement that provides to the effect that if: (a) on or after the end of the *arrangement period, you (or a *connected entity) sell or otherwise dispose of the asset to any person; and (b) you (or a connected entity) receives in respect of the sale or disposal: (i) no consideration; or (ii) consideration that is less than an amount (the guaranteed amount) specified in, or ascertainable under, the provision; a *member of the tax preferred sector will pay to you (or a connected entity), or to someone else for your benefit (or for the benefit of a connected entity), an amount equal to: (c) the guaranteed amount if subparagraph (b)(i) applies; or (d) the amount by which the guaranteed amount exceeds the consideration if subparagraph (b)(ii) applies. The amount of the guaranteed residual value is taken to be the guaranteed amount. (4) If: (a) an asset is *put to a tax preferred use; and (b) an entity is an *end user of the asset because the entity manages the asset or the use to which the asset is put; any *financial benefit that the entity (or a *connected entity) provides that is calculated by reference to the receipts, revenue or income generated by the use of the asset is also taken to be a financial benefit provided in relation to the tax preferred use of the asset. (5) For the purposes of this Division (other than this subsection), a *financial benefit provided by a *member of the tax preferred sector is taken not to be provided in relation to the tax preferred use of an asset to the extent to which the financial benefit merely passes on, or represents: (a) financial benefits provided in relation to the use of the asset; or (b) something derived from the use of the asset; by someone who is not a member of the tax preferred sector. (6) For the purposes of this Division, disregard a *financial benefit *provided in relation to the tax preferred use of the asset to the extent to which it consists solely of routine maintenance of the asset. (7) For the purposes of this Division, if a *financial benefit is provided in relation to the use of a number of assets, a separate financial benefit of an amount or value that is reasonably attributable to each asset is taken to be provided in relation to each asset. (8) To avoid doubt, a *financial benefit may be provided in relation to a tax preferred use of an asset even though it is provided before the *tax preferred use of the asset starts. (9) For the purposes of this Division: (a) a *financial benefit that is not an amount: (i) is taken to become due and payable when the entity providing the financial benefit becomes liable to provide the financial benefit; and (ii) is taken to be paid when it is provided; and (b) a financial benefit that is paid without becoming due and payable is taken to have become due and payable on the day on which it was paid. 250‑90 Financial benefit provided directly or indirectly For the purposes of this Division, a person (the provider) is taken to provide a *financial benefit to a person (the recipient) in relation to a *tax preferred use of an asset whether the financial benefit is provided to the recipient: (a) directly; or (b) indirectly (including indirectly through an entity that is not a *connected entity of the recipient and is not a connected entity of the provider). 250‑95 Expected financial benefits in relation to an asset put to tax preferred use For the purposes this Division, the expected financial benefits at a particular time in relation to an asset that is *put to a tax preferred use are the *financial benefits that, at that time: (a) have been; or (b) will, assuming normal operating conditions, be; or (c) can, assuming normal operating conditions, reasonably be expected to be; *provided in relation to the tax preferred use of the asset by a *member of the tax preferred sector to someone who is not a member of the tax preferred sector. Note: Paragraphs 250‑85(1)(b), (c) and (d) provide for certain benefits provided in relation to the end of the tax preferred use of the asset or in relation to the purchase, disposal or transfer of the asset to be treated as financial benefits provided in relation to the tax preferred use of the asset. 250‑100 Present value of financial benefit that has already been provided For the purposes of this Division, the present value of a *financial benefit at a particular time is the nominal amount or value of the financial benefit if the financial benefit has been provided before that time. Discount rate to be used in working out present values 250‑105 Discount rate to be used in working out present values (1) For the purposes of section 250‑40, the discount rate to be used in working out the present value of a future amount is: (a) the average, expressed as a decimal fraction, of the assessed secondary market yields in respect of 10‑year non‑rebate Treasury bonds published by the Reserve Bank during the *financial year in which the relevant *arrangement period starts; or (b) if no assessed secondary market yield in respect of bonds of that kind was published by the Reserve Bank during the year—the decimal fraction determined by the Treasurer for the purposes of the definition of long‑term bond rate in section 2 of the Petroleum Resource Rent Tax Assessment Act 1987 in relation to the financial year in which the relevant arrangement period starts. (2) For the purposes of section 250‑135 and Subdivisions 250‑C and 250‑D, the discount rate to be used in working out the present value of a future amount is a rate that reflects a constant periodic rate of return (worked out on a compounding basis) on the investment in: (a) the asset referred to in subparagraph 250‑15(d)(i) if that subparagraph applies; or (b) the expenditure referred to in paragraph 250‑15(d)(ii) if that subparagraph applies; that is implicit in the *arrangements under which the asset is *put to a tax preferred use and *financial benefits are *provided in relation to that tax preferred use. Predominant economic interest 250‑110 Predominant economic interest You lack a predominant economic interest in an asset at a particular time only if one or more of the following sections apply to you and the asset at that time: (a) section 250‑115 (limited recourse debt test); (b) section 250‑120 (right to acquire asset test); (c) section 250‑125 (effectively non‑cancellable, long term arrangement test); (d) section 250‑135 (level of expected financial benefits test). 250‑115 Limited recourse debt test (1) You lack a predominant economic interest in an asset at a particular time if more than the allowable percentage of the cost of your acquiring or constructing the asset is financed (directly or indirectly) by a *limited recourse debt or debts. (2) For the purposes of subsection (1): (a) the amount of a *limited recourse debt is to be reduced by the value of any * debt property (other than the *financed property) that is provided as security for the debt; and (b) if the limited recourse debt finances the acquisition or construction of 2 or more assets, only the amount of the debt that is reasonably attributable to the asset referred to in subsection (1) is to be taken into account. (3) For the purposes of subsection (1), the allowable percentage is: (a) 80% if the asset is taken to be *put to a tax preferred use because of subparagraph 250‑60(1)(b)(i) or (2)(b)(i) (end use by *tax preferred entities); or (b) 55% if the asset is taken to be put to a tax preferred use because of subparagraph 250‑60(1)(b)(ii) or (2)(b)(ii) (end use by non‑residents). (4) This section does not apply to the asset if: (a) you are a *corporate tax entity; and (b) the *tax preferred use of the asset is not the lease or hire of the asset (and is not the use of the asset under a lease or hire arrangement); and (c) the asset is *put to the tax preferred use wholly or principally in Australia; and (d) no *member of the tax preferred sector provides financing, or support for financing, in relation to your interest in the asset (including by way of a loan, a guarantee, an indemnity, a security, hedging or undertaking to provide *financial benefits in the event of the termination of an *arrangement). (5) Paragraph (4)(b) does not apply if: (a) the asset is real property (or an interest in real property); and (b) the *tax preferred use of the asset is a lease; and (c) the space within the property that is occupied by tenants who are *members of the tax preferred sector is less than half of the total space within the property that is either occupied by tenants or available to be occupied by tenants. (6) This section also does not apply to the asset if: (a) you hold the asset as a trustee; and (b) the asset is real property (or an interest in real property); and (c) the *tax preferred use of the asset is a lease; and (d) the space within the property that is occupied by tenants who are *members of the tax preferred sector is less than half of the total space within the property that is either occupied by tenants or available to be occupied by tenants; and (e) the asset is *put to the tax preferred use wholly or principally in Australia; and (f) no member of the tax preferred sector provides financing, or support for financing, in relation to your interest in the asset (including by way of a loan, a guarantee, an indemnity, a security, hedging or undertaking to provide *financial benefits in the event of the termination of an *arrangement). 250‑120 Right to acquire asset test (1) You lack a predominant economic interest in an asset at a particular time if, at that time: (a) the asset is to be transferred to a *member of the tax preferred sector after the end of the *arrangement period; and (b) the consideration for the transfer is not fixed as the *market value of the asset at the time of the transfer. (2) You also lack a predominant economic interest in an asset at a particular time if, at that time: (a) a *member of the tax preferred end user group has, or will have: (i) a right, obligation or contingent obligation to purchase or acquire the asset or a legal or equitable interest in the asset; or (ii) a right to require the transfer of the asset or a legal or equitable interest in the asset; and (b) the consideration for the purchase, acquisition or transfer is not fixed as the *market value of the asset at the time of the purchase, acquisition or transfer. To avoid doubt, this section does not apply to the asset merely because your interest in the asset is one that ceases to exist after the passage of a particular period of time. 250‑125 Effectively non‑cancellable, long term arrangement test (1) You lack a predominant economic interest in an asset at a particular time if: (a) any *arrangement that relates to: (i) the *tax preferred use of the asset; or (ii) the *financial benefits to be *provided by the *members of the tax preferred sector in relation to the tax preferred use of the asset; is *effectively non‑cancellable (see section 250‑130); and (b) the *arrangement period for the tax preferred use of the asset is: (i) greater than 30 years; or (ii) if the arrangement period is less than or equal to 30 years—75% or more of that part of the asset's *effective life that remains when the tax preferred use of the asset starts. (2) Disregard section 40‑102 in working out the asset's *effective life for the purposes of subparagraph (1)(b)(ii). 250‑130 Meaning of effectively non‑cancellable arrangement (1) An *arrangement that relates to *financial benefits to be *provided by a *member of the tax preferred sector in relation to the tax preferred use of an asset is effectively non‑cancellable if: (a) the arrangement can be cancelled only with: (i) your permission; or (ii) the permission of a *connected entity of yours; or (iii) an agent or entity acting on your behalf (or on behalf of a connected entity of yours); or (b) the arrangement can be cancelled without the permission of an entity referred to in paragraph (a) but, if the arrangement were cancelled, the member of the tax preferred sector or another member of the tax preferred sector: (i) would be required to enter into a new arrangement for the *provision of financial benefits in relation to the tax preferred use of the asset; or (ii) would incur a penalty and the magnitude of the penalty would be such as to discourage cancellation. (2) For these purposes, if a *member of the tax preferred sector defaults under an *arrangement and the arrangement is cancelled, the arrangement is to be taken to have been cancelled without the permission of an entity referred to in paragraph (1)(a). 250‑135 Level of expected financial benefits test Effective guarantee or indemnity for value of asset (1) You lack a predominant economic interest in an asset at a particular time if the asset has a *guaranteed residual value at that time. Likely financial benefits exceeding 70% limit (2) You also lack a predominant economic interest in an asset at a particular time if, at that time: (a) the *arrangement under which the asset is *put to the tax preferred use (either alone or together with any other arrangement in relation to the *tax preferred use of the asset or the *provision of *financial benefits in relation to the tax preferred use of the asset) is a *debt interest; or (b) the sum of the present values of the *expected financial benefits that *members of the tax preferred sector have provided, or are or are reasonably likely to provide, to you (or a *connected entity) in relation to the tax preferred use of the asset exceeds 70% of: (i) the *market value of the asset if subparagraph 250‑15(d)(i) applies; or (ii) so much of the market value of the asset as is attributable to the expenditure referred to subparagraph 250‑15(d)(ii) if that subparagraph applies. 250‑140 When to retest predominant economic interest under section 250‑135 Purpose for applying section (1) This section applies for the purposes of working out whether this Division applies to you and to an asset that is *put to a tax preferred use. No need to keep retesting if section 250‑135 does not apply at start of tax preferred use of asset (2) If section 250‑135 does not apply to you and the asset at the time when the *tax preferred use of the asset starts, that section is taken, subject to subsection (4), to continue not to apply to you and the asset. Note: This subsection means that if section 250‑135 does not apply to the arrangement when the tax preferred use of the asset starts, the arrangement does not need to be retested against section 250‑135 until a change of the kind referred to in subsection (4) occurs. No need to keep retesting if section 250‑135 does not apply when you do something to increase value of expected financial benefits (3) If: (a) you (or a *connected entity), or a *member of the tax preferred sector, do something, or omit to do something, at a particular time that increases the value of the *expected financial benefits in relation to the *tax preferred use of the asset; and (b) section 250‑135 does not apply to the asset at that time; that section is taken, subject to subsection (4), to continue not to apply to you and the asset. Note: This subsection means that if the arrangement is retested against section 250‑135 at a particular time and section 250‑135 does not apply to the arrangement on that retesting, the arrangement does not need to be again retested against section 250‑135 until a change of the kind referred to in subsection (4) occurs. Retesting when you do something to increase the value of expected financial benefits (4) Subsection (2) or (3) ceases to apply to you and the asset if you (or a *connected entity), or a *member of the tax preferred sector, do something, or omit to do something, that increases the value of the *expected financial benefits in relation to the *tax preferred use of the asset. Certain financial benefits ignored when retesting (5) For the purposes of reapplying section 250‑135 to the asset, disregard *financial benefits provided before subsection (2) or (3) of this section ceased to apply to the asset. Note: If: (a) subsection (2) or (3) ceases to apply to the asset at a particular time under this subsection; and (b) the asset is retested at that time against section 250‑135; and (c) on the retesting, that section is found to apply to the asset at that time; subsection (3) will start to apply to the asset again from that time because paragraph (3)(b) will have been satisfied. Clarification that retesting only required if you do something to increase value of expected benefits (6) To avoid doubt, subsection (2) or (3) does not cease to apply merely because the value of the *expected financial benefits in relation to the asset increase because of something other than action taken, or an omission made, by you (or a *connected entity) or a *member of the tax preferred sector. Note: This subsection means that retesting under subsection (4) is not triggered by an increase in the value of expected financial benefits that happens because of external circumstances (circumstances external to activities and omissions of yours, your connected entities and members of the tax preferred sector). Subdivision 250‑C—Denial of, or reduction in, capital allowance deductions Table of sections 250‑145 Denial of capital allowance deductions 250‑150 Apportionment rule 250‑145 Denial of capital allowance deductions (1) If this Division applies to you and an asset at a particular time, any condition that needs to be satisfied for you to be able to deduct an amount under a *capital allowance provision in relation to: (a) a decline in the value of the asset; or (b) expenditure in relation to the asset; is taken not to be satisfied at that time. (2) This section has effect subject to section 250‑150. 250‑150 Apportionment rule (1) This section applies if: (a) this Division applies to you and an asset that is *put to a tax preferred use; and (b) it is reasonable to expect that, during the *arrangement period for the *tax preferred use of the asset, particular *financial benefits will be provided to you (or a *connected entity); and (c) it is reasonable to expect that those financial benefits: (i) will be provided in relation to a use of the asset that is not that tax preferred use and is not a private use; or (ii) will be *provided in relation to that tax preferred use of the asset but will not be attributable, directly or indirectly, to financial benefits that are provided by *members of the tax preferred sector; and (d) the amount or value of those financial benefits is known or can reasonably be estimated; and (e) you choose to have this section apply to the asset. In applying paragraph (c), disregard financial benefits that are provided under an *arrangement that is a *debt interest. (2) A choice under paragraph (1)(e) in relation to an asset: (a) must be made before the due date for you to lodge your *income tax return for the income year in which the *arrangement period for the *tax preferred use of the asset starts; and (b) must be made for the whole of the arrangement period for the tax preferred use of the asset; and (c) must extend to all assets that are, or are to be, *put to a tax preferred use under the *arrangement under which the asset is put to that use; and (d) is irrevocable. The choice may extend to an asset referred to in paragraph (c) even if it is likely that paragraphs (1)(b) and (c) will not apply to that asset. (3) If this section applies, section 250‑145 applies to you and the asset only to the extent of the *disallowed capital allowance percentage. (4) Subject to subsection (6), the disallowed capital allowance percentage is the following ratio (expressed as a percentage): (5) The Commissioner may, before the due date for you to lodge your *income tax return for the income year to which the *arrangement period for the *tax preferred use of the asset starts, approve an alternative method for working out the *disallowed capital allowance percentage for you and the asset. (6) If the Commissioner approves an alternative method under subsection (5), the disallowed capital allowance percentage is the percentage worked out in accordance with that alternative method. Subdivision 250‑D—Deemed loan treatment of financial benefits provided for tax preferred use Table of sections 250‑155 Arrangement treated as loan 250‑160 Financial benefits that are subject to deemed loan treatment 250‑165 Financial arrangement 250‑170 Financial arrangement (equity interest or right or obligation in relation to equity interest) 250‑175 Rights, obligations and arrangements (grouping and disaggregation rules) 250‑180 End value of asset 250‑185 Financial benefits subject to deemed loan treatment not assessed 250‑155 Arrangement treated as loan Loan with characteristics provided for in this section taken to exist (1) If this Division applies to you and an asset at a particular time in an income year, a *financial arrangement in the form of a loan (with the characteristics provided for in this section) is taken to exist at that time for the purposes of working out your taxable income for that income year. Note: See Subdivision 250‑E for the taxation treatment of the financial arrangement. Lender (2) You are taken to be the lender in relation to the loan. Amount lent and unpaid at the start of the arrangement period (3) The amount worked out under subsection (4) is taken to be the amount that you have lent, and that the borrower has not repaid, at the start of the *arrangement period. (4) The amount is worked out by taking: (a) the amount that, at the start of the *arrangement period, is: (i) the *adjustable value of the asset if subparagraph 250‑15(d)(i) applies; or (ii) the amount worked out under subsection (5) if subparagraph 250‑15(d)(ii) applies; or (b) if section 250‑150 applies—the amount that, at the start of the arrangement period, is the *disallowed capital allowance percentage of: (i) the adjustable value of the asset if subparagraph 250‑15(d)(i) applies; or (ii) the amount worked out under subsection (5) if subparagraph 250‑15(d)(ii) applies; and deducting the sum of all *financial benefits that are *subject to deemed loan treatment and that have become due and payable before the start of the arrangement period. (5) If subparagraph 250‑15(d)(ii) applies, the amount worked out under this subsection for the purposes of subsection (4) is: Item If the expenditure referred to in that subparagraph is ... the amount is ... 1 capital expenditure under Division 40 the amount of the capital expenditure in respect of which a deduction has not been allowed (disregarding this Division) under the relevant Subdivision of Division 40 2 capital expenditure under Division 43 the *undeducted construction expenditure in relation to the capital expenditure Amounts paid to you by borrower under the loan (6) Any *financial benefit that: (a) a person provides; and (b) is *subject to deemed loan treatment; is taken to be an amount that the borrower pays you under the loan. Note 1: Section 250‑160 tells you which financial benefits are subject to the deemed loan treatment. Note 2: These benefits may be ones that are provided either to you or to a connected entity. Period of the loan (7) The *arrangement period is taken to be the period of the loan. Applying Subdivision 250‑E to the loan (8) For the purposes of applying Subdivision 250‑E to the loan: (a) you are taken to have an overall gain from the loan and that overall gain is taken to be sufficiently certain at the time when you start to have the loan; and (b) the amount of that overall gain is taken to be the sum of the *financial benefits that are *subject to the deemed loan treatment less the amount worked out under subsection (4); and (c) you are taken: (i) to start to have the loan at the start of the *arrangement period; and (ii) to cease to have the loan at the end of the arrangement period; and (d) any right that you (or a connected entity) have to a financial benefit that is subject to deemed loan treatment is taken to be a right that you have under the loan; and (e) if a *connected entity transfers to another person a right to a financial benefit subject to deemed loan treatment: (i) you are taken to transfer the right to that other person; and (ii) any consideration that the connected entity receives in relation to the transfer is taken to be consideration that you receive in relation to the transfer; and (f) if a right that a connected entity has to a financial benefit subject to deemed loan treatment ceases and the connected entity receives consideration in relation to that cessation—you are taken to receive that consideration in relation to the cessation; and (g) you are taken to start to have the loan, or to cease to have the loan, as consideration for something if you start to have the rights to the financial benefits that are subject to deemed loan treatment, or cease to have those rights, as consideration for that thing; and (h) in applying sections 250‑265 to 250‑275: (i) the amount that you are taken, under subsections (3), (4) and (5), to have lent are the only financial benefits that you provide under the loan; and (ii) the financial benefits you have received under the loan are taken to include financial benefits that are subject to deemed loan treatment that a person is, at the end of the arrangement period, liable to provide to you. (9) If, under subsection 250‑160(2), a particular percentage of a reasonable estimate of the *end value of the asset was taken to be a *financial benefit that is *subject to the deemed loan treatment, subsection 250‑275(1) applies to the loan at the end of the *arrangement period as if you had received under the loan a financial benefit equal to the relevant percentage of the end value of the asset. 250‑160 Financial benefits that are subject to deemed loan treatment General rule (1) Subject to subsections (3) and (4), a *financial benefit is subject to deemed loan treatment if: (a) the financial benefit: (i) has been; or (ii) will, assuming normal operating conditions, be; or (iii) can, assuming normal operating conditions, reasonably be expected to be; provided to you (or a *connected entity); and (b) the financial benefit has been, will be or can reasonably be expected to be *provided directly or indirectly by a *member of the tax preferred sector in relation to the *tax preferred use of the asset; and (c) the right to receive, or the obligation to provide, the financial benefit is *cash settlable; and (d) the financial benefit has not been, will not be or can be expected not to be provided by one of your connected entities. Note: Paragraph (d) stops a financial benefit passing between you and any of your connected entities from being counted twice. End value also taken to be financial benefit subject to deemed loan treatment (2) The relevant percentage of a reasonable estimate of the *end value of the asset is also taken to be a *financial benefit that is subject to deemed loan treatment if: (a) the asset is not to be purchased or acquired by, or transferred to, a *member of the tax preferred sector at the end of the *arrangement period under a legally enforceable *arrangement; or (b) the asset: (i) is, or is to become, a *privatised asset; or (ii) would be, or would become, a privatised asset if it were a *depreciating asset; or (iii) would be a privatised asset if the asset were a depreciating asset and paragraphs 58‑5(2)(a) and 58‑5(4)(a) were not limited to acquisitions of depreciating assets that occurred on or after 1 July 2001. The relevant percentage is the *disallowed capital allowance percentage if section 250‑150 applies. Otherwise it is 100%. Note: See section 250‑180 for how to work out the end value of the asset. Financial benefits only subject to deemed loan treatment to the extent to which they represent a return on investment (3) The *financial benefit is subject to deemed loan treatment only to the extent to which it reasonably represents a return of, or on, an investment in the asset (as distinct, for example, from representing consideration for the provision of services or the recovery of production costs), having regard to: (a) the *market value of the asset; and (b) the discount rate applicable under subsection 250‑105(2); and (c) your costs in relation to funding your interest in the asset; and (d) any other relevant matter. The regulations may provide rules to be applied in determining the extent to which a financial benefit reasonably represents a return of or on an investment in the asset. Only financial benefits provided after Division starts applying to you and the asset (4) If the *tax preferred use of the asset starts before this Division starts applying to you and the asset, only *financial benefits provided after this Division starts applying to you and the asset are subject to deemed loan treatment. 250‑165 Financial arrangement (1) You have a financial arrangement if you have, under an *arrangement: (a) a *cash settlable legal or equitable right to receive a *financial benefit; or (b) a cash settlable legal or equitable obligation to provide a financial benefit; or (c) a combination of one or more such rights and/or one or more such obligations; unless: (d) you also have under the arrangement one or more legal or equitable rights to receive something and/or one or more legal or equitable obligations to provide something; and (e) for one or more of the rights and/or obligations covered by paragraph (d): (i) the thing that you have the right to receive, or the obligation to provide, is not a financial benefit; or (ii) the right or obligation is not cash settlable; and (f) the one or more rights and/or obligations covered by paragraph (e) are not insignificant in comparison with the right, obligation or combination covered by paragraph (a), (b) or (c). The right, obligation or combination covered by paragraph (a), (b) or (c) constitutes the financial arrangement. (2) A right you have to receive, or an obligation you have to provide, a *financial benefit is cash settlable if, and only if: (a) the benefit is money or a *money equivalent; or (b) in the case of a right—you intend to satisfy or settle it by receiving money, or a money equivalent, or by starting to have, or ceasing to have, another *financial arrangement; or (c) in the case of an obligation—you intend to satisfy or settle it by providing money, or a money equivalent, or by starting to have, or ceasing to have, another financial arrangement; or (d) you have a practice of satisfying or settling similar rights or obligations as mentioned in paragraph (b) or (c) (whether or not you intend to satisfy or settle the right or obligation in that way); or (e) you deal with the right or obligation, or with similar rights or obligations, in order to generate a profit from short‑term fluctuations in price, from a dealer's margin, or from both; or (f) none of paragraphs (a) to (e) applies but: (i) the financial benefit is readily convertible into money or a money equivalent or there is a market for the financial benefit that has a high degree of liquidity; and (ii)