2004-2005-2006-2007

The Parliament of the
Commonwealth of Australia

HOUSE OF REPRESENTATIVES

EXPOSURE DRAFT (08/05/2007)

Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2007

No.      , 2007

(Treasury)

A Bill for an Act to amend the law relating to taxation, and for related purposes

Contents
1	Short title	1
2	Commencement	1
3	Schedule(s)	3
Schedule 1—Amendments	4
Part 1—Main amendments	4
Income Tax Assessment Act 1997	4
Part 2—Consequential amendments	79
Income Tax Assessment Act 1936	79
Income Tax Assessment Act 1997	81
New Business Tax System (Taxation of Financial Arrangements) Act (No. 1) 2003	88
Taxation Administration Act 1953	89
Part 3—Application and transitional provisions	90

A Bill for an Act to amend the law relating to taxation, and for related purposes
The Parliament of Australia enacts:
1  Short title
		This Act may be cited as the Tax Laws Amendment (Taxation of Financial Arrangements) 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.		
2.  Schedule 1, items 1 to 13	The day on which this Act receives the Royal Assent.		
3.  Schedule 1, item 14	1 July 2003	1 July 2003	
4.  Schedule 1, items 15 to 50	The day on which this Act receives the Royal Assent.		
5.  Schedule 1, items 51 and 52	Immediately after the commencement of the New Business Tax System (Taxation of Financial Arrangements) Act (No. 1) 2003	17 December 2003	
6.  Schedule 1, item 53	The day on which this Act receives the Royal Assent.		
7.  Schedule 1, item 54	Immediately after the commencement of the New Business Tax System (Taxation of Financial Arrangements) Act (No. 1) 2003	17 December 2003	
8.  Schedule 1, items 55 to 67	The day on which this Act receives the Royal Assent.		
9.  Schedule 1, item 68	Immediately after the commencement of the New Business Tax System (Taxation of Financial Arrangements) Act (No. 1) 2003	17 December 2003	
10.  Schedule 1, item 69	The day on which this Act receives the Royal Assent.		
11.  Schedule 1, item 70	Immediately after the commencement of the New Business Tax System (Taxation of Financial Arrangements) Act (No. 1) 2003	17 December 2003	
12.  Schedule 1, items 71 to 74	The day on which this Act receives the Royal Assent.		
13.  Schedule 1, item 75	Immediately after the commencement of the New Business Tax System (Taxation of Financial Arrangements) Act (No. 1) 2003	17 December 2003	
14.  Schedule 1, items 76 to 82	The day on which this Act receives the Royal Assent.		
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—Amendments
Part 1—Main amendments
Income Tax Assessment Act 1997
1  Before Division 240
Insert:
Division 230—Taxation of financial arrangements
Table of Subdivisions
	Guide to Division 230
230-A	Core rules
230-B	The accruals/realisation methods
230-C	Fair value method
230-D	Foreign exchange retranslation method
230-E	Hedging financial arrangements method
230-F	Reliance on financial reports
230-G	Balancing adjustment on ceasing to have a financial arrangement
230-H	Exceptions
230-I	Other provisions
230-J	Additional operation of Division
Guide to Division 230
@230-1  What this Division is about
This Division is about the tax treatment of gains and losses from your financial arrangements.
You recognise the gains and losses, as appropriate, over the life of a financial arrangement and ignore distinctions between income and capital unless specific rules apply.
If it is sufficiently certain that you will make a gain or a loss, you use a compounding accruals method to recognise the gain or loss. Otherwise you use a realisation method. Instead of either, you can choose to use a fair value or hedging method or to rely on your financial reports. You can also choose to recognise foreign exchange gains and losses using a retranslation method.
@230-5  Scope of this Division
	(1)	You have a financial arrangement if you have one or more legal or equitable rights and/or obligations to receive or provide a financial benefit of a monetary nature.
	(2)	This Division does not apply to all financial arrangements. The main exceptions are if:
	(a)	you are an individual, or you are an entity whose annual turnover is less than $20 million, and the financial arrangement is not a qualifying security; or
	(b)	the financial arrangement is an equity interest and none of the elective methods apply to the arrangement.
Note:	Section @230-310 provides for the exception referred to in paragraph (a).
Subdivision 230-A—Core rules
Table of sections
Objects
@230-10	Objects of this Division
Tax treatment of gains and losses from financial arrangements
@230-15	Gains are assessable and losses deductible
@230-20	Gain or loss to be taken into account only once under this Act
@230-25	Disregard some gains and losses
Method to be applied to take account of gain or loss
@230-30	Methods for taking gain or loss into account
Financial arrangement concept
@230-35	Financial arrangement (overview)
@230-40	Financial arrangement (primary test)
@230-45	Financial arrangement (secondary test)
@230-50	Financial arrangement (equity interest)
@230-55	Financial arrangement (general provisions)
General rules
@230-60	When financial benefit provided or received under financial arrangement
@230-65	Apportionment of financial benefits or received
@230-70	Consistency in working out gains or losses (integrity measure)
@230-75	Obligation or right ceasing
Objects
@230-10  Objects of this Division
		The objects of this Division are:
	(a)	to minimise the extent to which the tax treatment of gains and losses from your *financial arrangements distorts, by providing inappropriate impediments and stimulation, your trading, financing and investment decisions and your risk taking and risk management; and
	(b)	to do so by aligning more closely the tax and commercial recognition of gains and losses from your financial arrangements in the following ways:
	(i)	by allocating the gains and losses to income years throughout the life of your financial arrangements on a reasonable basis;
	(ii)	by generally recognising gains and losses on revenue rather than capital account;
	(iii)	by appropriately taking account of, and minimising, your compliance costs.
Tax treatment of gains and losses from financial arrangements
@230-15  Gains are assessable and losses deductible
Gains
	(1)	Your assessable income includes a gain you make from a *financial arrangement.
Losses
	(2)	You can deduct a loss you make from a *financial arrangement, but only to the extent that:
	(a)	you make it in gaining or producing your assessable income; or
	(b)	you necessarily make it in carrying on a *business for the purpose of gaining or producing your assessable income.
	(3)	You can also deduct a loss you make from a *financial arrangement if:
	(a)	you are an *Australian entity; and
	(b)	you make the loss in deriving income from a foreign source; and
	(c)	the income is *non-assessable non-exempt income under section 23AI, 23AJ or 23AK of the Income Tax Assessment Act 1936; and
	(d)	the loss is one that is covered by the definition of debt deduction in subsection 820-40(4).
Note:	This Division does not apply to gains or losses that are subject to exceptions under Subdivision 230-H.
@230-20  Gain or loss to be taken into account only once under this Act
Purpose of this section
	(1)	The purpose of this section is to ensure that your gains that are assessable under this Division, and your losses that are deductible under this Division, are taken into account only once under this Act in working out your taxable income.
Gain or loss
	(2)	If a gain or loss is, or is to be, included in your assessable income or allowable as a deduction to you for an income year under this Division, the gain or loss is not to be (to any extent):
	(a)	included in your assessable income; or
	(b)	allowable as a deduction to you; or
	(c)	taken into account in working out the amount of a *capital gain or a *capital loss;
under any other provisions of this Act for the same or any other income year.
Associated financial benefits
	(3)	If the amount or value of a *financial benefit is taken into account in working out whether you have, or the amount of, a gain or loss that is, or is to be, included in your assessable income or allowable as a deduction for you for an income year under this Division, the benefit is not to be (to any extent):
	(a)	included in your assessable income; or
	(b)	allowable as a deduction to you;
under any other provision of this Act for the same or any other income year.
@230-25  Disregard some gains and losses
Exempt or non-assessable non-exempt income
	(1)	A gain or loss you make from a *financial arrangement is disregarded to the extent that you make it in gaining or producing your *exempt income or your *non-assessable non-exempt income.
	(2)	Subsection (1) does not prevent you from deducting a loss under subsection @230-15(3).
Gain or loss of private or domestic nature
	(3)	A gain or loss you make from a *financial arrangement is disregarded:
	(a)	if you raise finance under the arrangement—to the extent that the finance is used for a private or domestic purpose; or
	(b)	if you are an individual and the arrangement is a *derivative financial arrangement—to the extent that the arrangement is held or used for a private or domestic purpose.
@230-27  Treatment of offshore banking units
		If an *offshore banking unit consists of:
	(a)	one or more *permanent establishments in Australia at or through which the offshore banking unit carries on what are *OB activities; and
	(b)	one or more other permanent establishments either in Australia or outside Australia; and
this Division applies as if:
	(c)	the offshore banking unit consisted only of the permanent establishments referred to in paragraph (a); and
	(d)	the permanent establishments referred to in paragraph (b) were separate persons.
Note:	This means that it is possible for the OBU to have a financial arrangement between the permanent establishments referred to in paragraph (a) and the permanent establishments referred to in paragraph (b) and for the OBU to have a gain or loss from such an arrangement.
@230-28  Treatment of foreign bank branches
	(1)	If the accounting records of an Australian branch (as defined in Part IIIB of the Income Tax Assessment Act 1936) of a *foreign bank reflect a *derivative financial arrangement notionally entered into between the branch and another component of the bank, this Division applies, for the purposes of working out the bank’s gains and losses from the derivative financial arrangement, as if:
	(a)	the bank consisted only of the branch; and
	(b)	the branch and the other component of the bank were separate persons.
Note:	This means that it is possible for the bank to have a derivative financial arrangement between the branch and the other component of the bank and for the bank to have a gain or loss from such an arrangement.
	(2)	If the accounting records of an Australian branch (as defined in Part IIIB of the Income Tax Assessment Act 1936) of a *foreign bank reflect a *financial arrangement that relates to changes in currency rates notionally entered into between the branch and another component of the bank, this Division applies, for the purposes of working out the bank’s gains and losses from the arrangement, as if:
	(a)	the bank consisted only of the branch; and
	(b)	the branch and the other component of the bank were separate persons.
Note:	This means that it is possible for the bank to have a foreign exchange transaction between the branch and the other component of the bank and for the bank to have a gain or loss from such an arrangement.
Method to be applied to take account of gain or loss
@230-30  Methods for taking gain or loss into account
Methods available
	(1)	The methods that can be applied to take account of a gain or loss you make from a *financial arrangement are:
	(a)	the accruals and realisation methods provided for in Subdivision 230-B; or
	(b)	the fair value method provided for in Subdivision 230-C; or
	(c)	the foreign exchange retranslation method provided for in Subdivision 230-D; or
	(d)	the hedging financial arrangement method provided for in Subdivision 230-E; or
	(e)	the method of relying on your financial reports provided for in Subdivision 230-F; or
	(f)	a balancing adjustment provided for in Subdivision 230-G when you cease to have the arrangement.
Note:	The methods referred to in paragraphs (b) to (e) only apply if you make an election under the relevant Subdivision and you must meet certain requirements before you can make such an election.
Elections override accruals and realisation methods
	(2)	Subdivision 230-B (accruals and realisation method) does not apply to a gain or loss you have from a *financial arrangement:
	(a)	if Subdivision 230-C (fair value method) applies to the arrangement; or
	(b)	to the extent that Subdivision 230-D (foreign exchange retranslation method) applies to the gain or loss; or
	(c)	to the extent that Subdivision 230-E (hedging financial arrangements method) applies to the arrangement; or
	(d)	if Subdivision 230-F (method of relying on financial report) applies to the arrangement; or
	(e)	if the arrangement is an *equity interest.
Priorities among election methods
	(3)	Subdivision 230-C (fair value method) does not apply to a gain or a loss from a *financial arrangement:
	(a)	to the extent that Subdivision 230-E (hedging financial arrangements method) applies to the arrangement; or
	(b)	if Subdivision 230-F (method of relying on financial reports) applies to the arrangement.
	(4)	Subdivision 230-D (foreign exchange retranslation method) does not apply to a gain or a loss from a *financial arrangement:
	(a)	if Subdivision 230-C (fair value method) applies to the arrangement; or
	(b)	to the extent that Subdivision 230-E (hedging financial arrangements method) applies to the arrangement; or
	(c)	if Subdivision 230-F (method of relying on financial reports) applies to the arrangement.
	(5)	Subdivision 230-F (method of relying on financial reports) does not apply to a gain or a loss from a *financial arrangement to the extent that Subdivision 230-E (hedging financial arrangements method) applies to the arrangement.
Financial arrangement concept
@230-35  Financial arrangement (overview)
		You can have a financial arrangement:
	(a)	under section @230-40 (a primary test that focuses on the nature of the rights and obligations under the arrangement concerned); or
	(b)	under section @230-45 (a secondary test that focuses on the practices, the intentions and the course of dealings of the parties to the arrangement concerned); or
	(c)	under section @230-50 (equity interests).
Note:	Whether an arrangement is a financial arrangement can change over time depending on changes either to the terms of the arrangement or external circumstances such as particular rights or obligations under the arrangement being satisfied by the parties.
@230-40  Financial arrangement (primary test)
Primary test
	(1)	You have a financial arrangement if, under an *arrangement, you have any of the following:
	(a)	a right of a kind covered by subsection (2) or (4);
	(b)	an obligation of a kind covered by subsection (3) or (5);
	(c)	a combination of one or more such rights and/or one or more such obligations.
That right or obligation, or that combination of rights and/or obligations, constitutes the financial arrangement.
Note:	The operative provisions of this Division do not apply to all financial arrangements, and only apply partially to some: see the exceptions in Subdivision 230-H.
Right to receive financial benefit of a monetary nature
	(2)	This subsection covers a legal or equitable right to receive a *financial benefit that has a *monetary nature.
Obligation to provide financial benefit of a monetary nature
	(3)	This subsection covers a legal or equitable obligation to provide a *financial benefit that has a *monetary nature.
Right to receive financial benefit that can be satisfied by money or another financial arrangement
	(4)	This subsection covers a legal or equitable right to receive a *financial benefit that does not have a *monetary nature if the right may, because of an *arrangement between the person who has the right and the person with the obligation to satisfy the right, be satisfied or settled by:
	(a)	paying money or providing a *money equivalent; or
	(b)	transferring, entering into or exchanging another *financial arrangement.
Obligation to provide financial benefit that can be satisfied by money or another financial arrangement
	(5)	This subsection covers a legal or equitable obligation to provide a *financial benefit that does not have a *monetary nature if the obligation may, because of an *arrangement between the person who owes the obligation and the person to whom the obligation is owed, be satisfied or settled by:
	(a)	paying money or providing a *money equivalent; or
	(b)	transferring, entering into or exchanging another *financial arrangement.
Exception to primary test
	(6)	You do not have a financial arrangement because of subsection (2) or (3) because you have a right or obligation under an *arrangement to receive or provide a *financial benefit of a *monetary nature if:
	(a)	under the arrangement you also have a right or obligation to receive or provide something that is not a financial benefit of a monetary nature; and
	(b)	that right or obligation is not insignificant in comparison with your rights and obligations under the arrangement to provide financial benefits that are of a monetary nature.
Note:	This subsection means that a derivative that can only be settled by delivering something other than money or a money equivalent is not a financial arrangement because of subsections (2) and (3).
Meaning of financial benefit of a monetary nature
	(7)	A right to receive (or an obligation to provide) a *financial benefit of a monetary nature means a right to receive (or obligation to provide):
	(a)	money; or
	(b)	a *money equivalent.
	(8)	To avoid doubt, a right to receive (or an obligation to provide) a *financial benefit of a monetary nature does not include a right to receive (or obligation to provide):
	(a)	property or goods (other than money or a *money equivalent); or
	(b)	services that are not a monetary equivalent.
Note:	This subsection means that making a prepayment for property or goods (other than money or a money equivalent) or services does not give rise to a financial arrangement.
@230-45  Financial arrangement (secondary test)
Secondary test
	(1)	You also have a financial arrangement if under an *arrangement:
	(a)	you have any of the following:
	(i)	a legal or equitable right to receive a *financial benefit;
	(ii)	a legal or equitable obligation to provide a financial benefit;
	(iii)	a combination of one or more such rights and/or one or more such obligations; and
	(b)	a financial benefit referred to in subparagraph (a)(i) or (ii) is not of a *monetary nature; and
	(c)	the right or obligation, or the combination of rights and/or obligations, does not give rise to a *financial arrangement under section @230-40 only because the benefit referred to in paragraph (b) is not of a monetary nature; and
	(d)	subsection (2), (3), (4) or (6) is satisfied in relation to the right or obligation in relation to that benefit.
That right or obligation, or that combination of rights and/or obligations, constitutes the financial arrangement.
Practice in relation to satisfying or settling rights or obligations
	(2)	This subsection is satisfied in relation to a right or obligation if you have a practice of satisfying or settling similar rights or obligations by:
	(a)	paying or receiving money; or
	(b)	providing or receiving a *money equivalent; or
	(c)	transferring, having transferred to you, entering into or exchanging another *financial arrangement.
Intention in relation to satisfying or settling rights or obligations
	(3)	This subsection is satisfied in relation to a right or obligation if you intend to satisfy or settle the right or obligation by:
	(a)	paying or receiving money; or
	(b)	providing or receiving a *money equivalent; or
	(c)	transferring, having transferred to you, entering into or exchanging another *financial arrangement.
Dealing in rights or obligations
	(4)	This subsection is satisfied in relation to a right or obligation if you deal with the right or obligation, or similar rights or obligations, for either or both of the following purposes:
	(a)	the purpose of generating a profit from short-term fluctuations in price;
	(b)	the purpose of generating a profit from a dealer’s margin.
	(5)	The ways in which the dealing referred to in subsection (4) may occur include:
	(a)	your dealing with the right or obligation, or similar rights or obligations, on a frequent basis, a short term basis or frequent and short term basis; or
	(b)	your taking delivery of a thing (other than money or a *money equivalent) and selling it within a relatively short period; or
	(c)	your acquiring the right or obligation, or similar rights or obligations, and managing the resulting risk by entering into offsetting arrangements that provide you with a profit margin.
Financial benefits readily convertible into money or money equivalent
	(6)	This subsection is satisfied in relation to a right or obligation in relation to a *financial benefit if:
	(a)	none of subsections (2), (3) and (4) apply; and
	(b)	the benefit is readily convertible into money or a *money equivalent; and
	(c)	you do not have, as your sole or dominant purpose for entering into the relevant *arrangement, receiving or delivering the benefit as part of your expected purchase, sale or usage requirements.
@230-50  Financial arrangement (equity interest)
		An *equity interest is also a financial arrangement.
Note:	Paragraph @230-30(2)(e) prevents the accruals method or the realisation method being applied to an equity interest.
@230-55  Financial arrangement (general provisions)
Single right or obligation or multiple rights or obligations?
	(1)	Subsection (2) applies if you are, under an *arrangement, entitled to receive (or obliged to provide):
	(a)	a *financial benefit that is of a *monetary nature; and
	(b)	a financial benefit that is not of a monetary nature.
	(2)	To avoid doubt, you are taken, for the purposes of this Division, to have:
	(a)	a right to receive (or obligation to provide) the *financial benefit that is of a *monetary nature; and
	(b)	a separate right to receive (or obligation to provide) the financial benefit that is not of a monetary nature.
Matters relevant to determining what rights and/or obligations comprise particular financial arrangements
	(3)	Whether a number of rights and/or obligations are themselves a *financial arrangement or are 2 or more separate financial arrangements is a question of fact and degree that you determine having regard to the following:
	(a)	the nature of the rights and/or obligations;
	(b)	their terms and conditions (including those relating to any payment or other consideration for them);
	(c)	the circumstances surrounding their creation and their proposed exercise or performance (including what can reasonably be seen as the purposes of persons involved);
	(d)	normal commercial understandings and practices in relation to them;
	(e)	the objects of this Division.
Example:	Your rights and obligations under a typical convertible note, including the right to convert the note into a share or shares, would comprise one financial arrangement.
Note 1:	If you raised funds by means of a contract that you would not have entered into without entering into another contract, and neither contract could be assigned to a third party without the other also being assigned, this would tend to indicate that your rights and obligations under the 2 contracts together comprise one financial arrangement.
Note 2:	If the commercial effect of your individual rights and/or obligations in a group or series cannot be understood without reference to the group or series as a whole, this would tend to indicate that all of your rights and/or obligations in the group or series together comprise one financial arrangement.
General rules
@230-60  When financial benefit provided or received under financial arrangement
Financial benefit provided under financial arrangement
	(1)	A *financial benefit that you provide in relation to a *financial arrangement to someone who is not a party to the arrangement is taken, for the purposes of this Division, to be a financial benefit that you provide under the arrangement but only if the benefit plays an integral role in determining whether you have a gain or loss from the arrangement.
Note:	This means that the financial benefits you provide to acquire the financial arrangement (whether to the issuer, a previous holder or a third party) are taken to be financial benefits you provide under the arrangement. The financial benefits you provide may include, for example, fees paid or the forgoing of rights to receive a financial benefit.
Financial benefit received under financial arrangement
	(2)	A *financial benefit that you receive in relation to a *financial arrangement from someone who is not a party to the arrangement is taken, for the purposes of this Division, to be a financial benefit that you receive under the arrangement but only if the benefit plays an integral role in determining whether you have a gain or loss from the arrangement.
Note:	The financial benefits you receive may include, for example, the waiving of an obligation you have to provide a financial benefit.
@230-65  Apportionment of financial benefits or received
Apportionment when financial benefit received or right ceases
	(1)	Apply subsection (2) in working out whether you have, or will have, a gain or loss (and the amount of the gain or loss) when:
	(a)	you receive a particular *financial benefit under a *financial arrangement; or
	(b)	one of your rights under a financial arrangement *ceases.
The gain or loss is to be calculated in nominal (and not *present value) terms.
	(2)	You must have regard to the extent to which the *financial benefits that you have provided, or are to provide, under the *financial arrangement are reasonably attributable to the benefit or right referred to in paragraph (1)(a) or (b).
Apportionment when financial benefit provided or obligation ceases
	(3)	Apply subsection (4) in working out whether you have, or will have, a gain or loss (and the amount of the gain or loss) when:
	(a)	you provide a particular *financial benefit under the *financial arrangement; or
	(b)	one of your obligations under a financial arrangement *ceases.
The gain or loss is to be calculated in nominal (and not *present value) terms.
	(4)	You must have regard to the extent to which the *financial benefits that you have received, or are to receive, under the *financial arrangement are reasonably attributable to the benefit or obligation referred to in paragraph (3)(a) or (b).
Apportionment must reflect appropriate and commercially accepted valuation principles
	(5)	Any attribution made under subsection (2) or (4) must reflect appropriate and commercially accepted valuation principles that properly take into account:
	(a)	the nature of the rights and obligations under the *financial arrangement; and
	(b)	the risks associated with each *financial benefit, right and obligation under the arrangement; and
	(c)	the time value of money.
@230-70  Consistency in working out gains or losses (integrity measure)
Object of section
	(1)	The object of this section is to stop you obtaining an inappropriate tax benefit from not working out your gains and losses in a consistent manner.
Consistent treatment for particular financial arrangement
	(2)	If:
	(a)	this Division provides that a particular method applies to gains or losses you make from a *financial arrangement; and
	(b)	that method allows you to choose the particular manner in which you apply that method;
you must use that manner consistently for the arrangement for all income years.
Consistent treatment for financial arrangements of essentially the same nature
	(3)	If:
	(a)	this Division provides that a particular method applies to gains or losses you make from 2 or more *financial arrangements; and
	(b)	that method allows you to choose the particular manner in which you apply that method;
you must use that same manner consistently for all of those financial arrangements that are essentially of the same nature.
@230-75  Obligation or right ceasing
	(1)	For the purposes of this Division, an obligation or right of yours under a *financial arrangement ceases if your obligation or right comes to an end.
	(2)	Subsection (1) applies whether your obligation or right comes to an end:
	(a)	because the obligation or right is satisfied; or
	(b)	because the obligation or right expires with the passage of time; or
	(c)	because the parties to the arrangement take action to bring the obligation or right to an end; or
	(d)	because you transfer the obligation or right to another person; or
	(e)	for some other reason.
Subdivision 230-B—The accruals/realisation methods
Table of sections
	Guide to Subdivision 230-B
@230-80	What this Subdivision is about
Objects of Subdivision
@230-85	Objects of this Subdivision
When accruals method or realisation method applies
@230-90	When accruals or realisation method applies
@230-95	Sufficiently certain gains and losses
@230-100	Sufficiently certain financial benefits
The accruals method
@230-105	Overview of the accruals method
@230-110	Applying accruals method to work out period over which gain or loss is to be spread
@230-115	How gain or loss is spread
@230-120	Allocating gain or loss to income years
@230-125	Running balancing adjustments
Realisation method
@230-130	Realisation method
Reassessment and re-estimation
@230-135	When to reassess
@230-140	When to re-estimate
Guide to Subdivision 230-B
@230-80  What this Subdivision is about
This Subdivision applies the accruals method to determine the amount and timing of gains and losses from a financial arrangement if they are sufficiently certain for such accrual to be done.
This Subdivision applies the realisation method to determine the amount and timing of gains and losses if they are not sufficiently certain to be dealt with under the accruals method.
If the accruals method is applied to a gain or loss on the basis of an estimate of a financial benefit and the benefit when received or provided is more or less than the estimate, a balancing adjustment is made to correct for the underestimate or overestimate.
If the accruals method is being applied to gains and losses from the financial arrangement and there is a material change to the financial arrangement, or the circumstances in which it operates, a reassessment is made of whether the accruals method or the realisation method should apply to gains and losses from the arrangement.
A change in circumstances may also cause a re-estimation of gains and losses that the accruals method is being applied to.
Objects of Subdivision
@230-85  Objects of this Subdivision
		The objects of this Subdivision are:
	(a)	to properly recognise gains and losses from *financial arrangements by allocating them to appropriate periods of time; and
	(b)	to reduce compliance costs by reflecting commercial accounting concepts where appropriate; and
	(c)	to minimise tax deferral.
When accruals method or realisation method applies
@230-90  When accruals or realisation method applies
When accruals method applies and when realisation method applies
	(1)	This section tells you when to apply the accruals method and when to apply the realisation method if this Subdivision applies to gains and losses from a *financial arrangement.
Accruals method—sufficiently certain overall gain or loss at start time
	(2)	The accruals method provided for in this Subdivision applies to a gain or loss you have from a *financial arrangement if:
	(a)	the gain or loss is an overall gain or loss from the arrangement; and
	(b)	the gain or loss is sufficiently certain at the time when you start to have the arrangement.
Note:	Subsection @230-95(1) tells you when you have a sufficiently certain overall gain or loss.
Accruals method—particular sufficiently certain gain or loss
	(3)	The accruals method provided for in this Subdivision also applies to a gain or loss you have from a *financial arrangement if:
	(a)	the gain or loss arises from a *financial benefit that you are to receive or are to provide under the arrangement; and
	(b)	the gain or loss:
	(i)	is sufficiently certain at the time when you start to have the arrangement and before you are to receive or provide the benefit; or
	(ii)	becomes sufficiently certain after the time when you start to have the arrangement and before you are to receive or provide the benefit; and
	(c)	the benefit has not already been taken into account in applying:
	(i)	the accrual method provided for in this Subdivision; or
	(ii)	the realisation method provided for in this Subdivision;
		to another gain or loss from the arrangement.
This subsection has effect subject to subsection (4).
Note:	Subsection @230-95(3) tells you when you have a sufficiently certain gain or loss at a particular time.
	(4)	Subsection (3) does not apply to a gain or loss that you make from a *financial arrangement if:
	(a)	you are:
	(i)	an individual; or
	(ii)	an entity (other than an individual) that satisfies subsection @230-310(2) for the income year in which you start to have the arrangement; and
	(b)	the arrangement is a qualifying security (within the meaning of Division 16E of Part III of the Income Tax Assessment Act 1936); and
	(c)	you have not made an election under subsection @230-310(4).
Realisation method—gain or loss not sufficiently certain
	(5)	The realisation method provided for in this Subdivision applies to a gain or loss that you make from a *financial arrangement if the accruals method provided for in that Subdivision does not apply to that gain or loss.
Note:	Section @230-130 tells you how to apply the realisation method to the gain or loss.
@230-95  Sufficiently certain gains and losses
Overall gain or loss
	(1)	You have a sufficiently certain overall gain or loss from a *financial arrangement at the time when you start to have the arrangement only if it is sufficiently certain at that time that you will have an overall gain or loss from the arrangement of:
	(a)	a particular amount; or
	(b)	at least a particular amount.
The amount of the gain or loss is the amount referred to in paragraph (a) or (b).
	(2)	In applying subsection (1), you must assume that you will continue to have the *financial arrangement until maturity.
Gain or loss from particular event
	(3)	You have a sufficiently certain gain or loss from a *financial arrangement at a particular time if it is sufficiently certain at that time that you will have a gain or loss from the arrangement of:
	(a)	a particular amount; or
	(b)	at least a particular amount;
when one of the following occurs:
	(c)	you receive a particular *financial benefit under the arrangement or one of your rights under the arrangement *ceases;
	(d)	you provide a particular financial benefit under the arrangement or one of your obligations under the arrangement ceases.
The amount of the gain or loss is the amount referred to in paragraph (a) or (b).
	(4)	In applying subsection (3) to work out whether you have a sufficiently certain gain or loss at a particular time:
	(a)	have regard to the extent of the risk that a *financial benefit that you are not sufficiently certain to provide or receive under the arrangement may reduce the amount of the gain or loss; and
	(b)	disregard any financial benefit that has already been taken into account in working out whether you have, or the amount of, a sufficiently certain overall gain or loss from the *financial arrangement under subsection (1) at the time when you started to have the arrangement.
Note:	Section @230-65 allows you to apportion financial benefits provided and financial benefits received in working out the amount of a gain or loss.
@230-100  Sufficiently certain financial benefits
	(1)	In deciding for the purposes of this Division whether it is sufficiently certain at a particular time that you will have a gain or loss from a *financial arrangement, a *financial benefit that you are to receive or provide is to be treated as one that you are sufficiently certain to receive or to provide only if:
	(a)	the right to receive, or the obligation to provide, the benefit is, at that time, effectively non-contingent; and
	(b)	the amount or value of the benefit is, at that time, fixed or determinable with reasonable accuracy.
	(2)	You must have regard to the pricing, terms and conditions of the *financial arrangement in applying paragraph (1)(a).
	(3)	In applying paragraph (1)(b) at a particular time to a *financial benefit that depends on a variable that:
	(a)	is based on:
	(i)	an interest rate; or
	(ii)	a rate that solely or primarily reflects the time value of money; or
	(iii)	a rate that solely or primarily reflects a consumer price index; or
	(iv)	a rate that solely or primarily reflects an index prescribed by the regulations for the purposes of this paragraph; and
	(b)	has a particular value at that time;
you must assume that that variable will continue to have that value.
The accruals method
@230-105  Overview of the accruals method
		If the accruals method applies to a gain or loss you make from a *financial arrangement:
	(a)	you use section @230-110 to work out the period over which the gain or loss is to be spread; and
	(b)	you use section @230-115 to work out how to allocate the gain or loss to particular intervals within the period over which the gain or loss is to be spread; and
	(c)	if an interval to which part of the gain or loss is allocated straddles 2 income years, you use section @230-120 to work out how to allocate that part of the gain or loss allocated between those 2 income years.
@230-110  Applying accruals method to work out period over which gain or loss is to be spread
Period over which overall gain or loss is to be spread
	(1)	If you have a sufficiently certain overall gain or loss from a *financial arrangement under subsection @230-95(1), the period over which the gain or loss is to be spread is the period that:
	(a)	starts when you start to have the arrangement; and
	(b)	ends when you will cease to have the arrangement.
In applying paragraph (b), you must assume that you will continue to have the arrangement until maturity.
Period over which particular gain or loss is to be spread
	(2)	If you have a sufficiently certain gain or loss from a *financial arrangement under subsection @230-95(3), the period over which the gain or loss is to be spread is the period to which the gain or loss relates. Have regard to the pricing, terms and conditions of the arrangement in working out the period to which the gain or loss relates. This subsection has effect subject to subsections (3) and (4).
	(3)	The start of the period over which a gain or loss to which subsection (2) applies is to be spread must:
	(a)	not start earlier than the time when you start to have the *financial arrangement; and
	(b)	not start earlier than the start of the income year during which it becomes sufficiently certain that you will have the gain or loss.
	(4)	The end of the period over which a gain or loss to which subsection (2) applies is to be spread must:
	(a)	not end later than the time when you will cease to have the *financial arrangement; and
	(b)	not end later than the end of the income year during which:
	(i)	the *financial benefit that gives rise to the gain or loss is to be received or provided; or
	(ii)	the right or obligation whose *ceasing gives rise to the gain or loss is to cease.
@230-115  How gain or loss is spread
How to spread gain or loss
	(1)	This section tells you how to spread a gain or loss to which the accruals method applies.
Compounding accruals or approximation
	(2)	The gain or loss is to be spread using:
	(a)	compounding accruals (with the intervals to which parts of the gain or loss are allocated complying with subsection (3)); or
	(b)	a method whose results approximate those obtained using the method referred to in paragraph (a) (having regard to the length of the period over which the gain or loss is to be spread).
Intervals to which parts of gain or loss allocated
	(3)	The intervals to which parts of the gain or loss are allocated must:
	(a)	be less than 12 months; and
	(b)	all be of the same length.
Paragraph (b) does not apply to the first and last intervals. These may be shorter than the other intervals.
Assumption of continuing hold until maturity
	(4)	The gain or loss is to be spread assuming that you will continue to have the *financial arrangement until maturity.
@230-120  Allocating gain or loss to income years
	(1)	You are taken, for the purposes of section @230-15, to have, for an income year, a gain or loss equal to a part of a gain or loss if:
	(a)	that part of the gain or loss is allocated to an interval under section @230-115; and
	(b)	that interval falls wholly within that income year.
	(2)	If:
	(a)	a part of a gain or loss is allocated to an interval under section @230-115; and
	(b)	that interval straddles 2 income years;
you are taken, for purposes of section @230-15, to have a gain or loss equal to so much of that part of the gain or loss as is allocated between those income years on a reasonable basis.
@230-125  Running balancing adjustments
Overestimate of financial benefit to be received
	(1)	You are taken for the purposes of this Division to have a loss from a *financial arrangement if:
	(a)	a provision of this Subdivision has applied on the basis that you were sufficiently certain, at a particular time, to receive a *financial benefit of, or of at least, a particular amount under the arrangement; and
	(b)	when the time comes for you to receive the benefit, the amount you are to receive is nil or is less than the amount estimated.
The amount of the loss is equal to the difference between the amount estimated and the amount you are to receive. You are taken to have made the loss for the income year in which the time comes for you to receive the benefit.
Underestimate of financial benefit to be received
	(2)	You are taken for the purposes of this Division to have a gain from a *financial arrangement if:
	(a)	a provision of this Subdivision has applied on the basis that you were sufficiently certain at a particular time to receive a *financial benefit of, or of at least, a particular amount under the arrangement; and
	(b)	when the time comes for you to receive the benefit the amount you are to receive is more than the amount estimated.
The amount of the gain is equal to the difference between the amount estimated and the amount you are to receive. You are taken to have made that gain in the income year in which the time comes for you to receive the benefit.
Overestimate of financial benefit to be provided
	(3)	You are taken for the purposes of this Division to have a gain from a *financial arrangement if:
	(a)	a provision of this Subdivision has applied on the basis that you were sufficiently certain at a particular time to provide a *financial benefit of, or of at least, a particular amount under the arrangement; and
	(b)	when the time comes for you to provide the benefit the amount you are to provide is nil or is less than the amount estimated.
The amount of the gain is equal to the difference between the amount estimated and the amount you are to provide. You are taken to have made that gain in the income year in which the time comes for you to provide the benefit.
Underestimate of financial benefit to be provided
	(4)	You are taken for the purposes of this Division to have a loss from a *financial arrangement if:
	(a)	a provision of this Subdivision has applied on the basis that you were sufficiently certain at a particular time to provide a *financial benefit of, or of at least, a particular amount under the arrangement; and
	(b)	when the time comes for you to provide the benefit the amount you are to provide is more than the estimated amount referred to in paragraph (a).
The amount of the loss is equal to the difference between the amount estimated and the amount you are to provide. You are taken to have made that loss in the income year in which the time comes for you to provide the benefit.
Realisation method
@230-130  Realisation method
		If a gain or loss is to be taken into account using the realisation method, you are taken, for the purposes of section @230-15, to make the gain or loss for the income year in which the gain or loss occurs.
Note:	Section @230-65 allows you to apportion financial benefits provided and financial benefits received in working out the amount of the gain or loss.
Reassessment and re-estimation
@230-135  When to reassess
	(1)	You must make a fresh assessment of which gains and losses from a *financial arrangement the accruals method should apply to, and which gains and losses from that arrangement the realisation method should apply to, if:
	(a)	the accruals method, or the realisation method, provided for in this Subdivision applies to gains and losses from the arrangement; and
	(b)	there is a material change to:
	(i)	the terms and conditions of the arrangement; or
	(ii)	circumstances that affect the arrangement.
	(2)	Without limiting subsection (1), the following changes are material changes to the terms and conditions of, or circumstances that affect, the *financial arrangement:
	(a)	a change to the terms or conditions of the arrangement in a way that alters the essential nature of the arrangement (for example, by altering it from a *debt interest to an *equity interest or from an equity interest to a debt interest);
	(b)	a change to the terms or conditions of the arrangement in a way that materially affects the contingencies on which significant obligations and rights under the arrangement are dependant (for example, by introducing such a contingency or removing such a contingency);
	(c)	a change in circumstances that makes something that:
	(i)	materially affects significant obligations and rights under the arrangement; and
	(ii)	was previously dependant on a contingency;
		no longer dependant on a contingency (because, for example, only one of a number of previously possible contingencies is realised);
	(d)	a change to:
	(i)	the terms on which credit is to be provided to a person who is not a party to the arrangement; or
	(ii)	the credit rating of a person who is not a party to the arrangement;
		if a significant obligation or right under the arrangement is dependant on that credit being provided or that rating being maintained;
	(e)	if the arrangement is, or includes, a loan and you prepare your financial reports in accordance with:
	(i)	the *accounting standards; or
	(ii)	if those standards do not apply to the preparation of the financial report—comparable accounting standards made under a *foreign law that apply to the preparation of the financial report under a foreign law;
		a change to the terms or conditions of, or circumstances that affect, the arrangement that are sufficient for the loan to be treated as impaired for the purposes of those standards.
	(3)	You do not need to make a reassessment under this section merely because of a change in the fair value of the *financial arrangement.
@230-140  When to re-estimate
When re-estimation necessary
	(1)	You re-estimate a gain or loss from a *financial arrangement under subsection (3) if:
	(a)	the accruals method applies to the gain or loss; and
	(b)	circumstances arise that materially affect:
	(i)	the amount or value; or
	(ii)	the timing;
		of *financial benefits that were taken into account in working out the amount of the gain or loss.
You must re-estimate the gain or loss as soon as reasonably practicable after you become aware of the circumstances referred to in paragraph (b).
	(2)	Without limiting subsection (1), the following are circumstances of the kind referred to in paragraph (1)(b):
	(a)	a material change in market conditions that are relevant to the amount or value of the *financial benefits to be received or provided under the *financial arrangement;
	(b)	cash flows that were previously estimated becoming known;
	(c)	a right to, or a part of a right to, a financial benefit under the arrangement is written off as a bad debt;
	(d)	you have made a reassessment under section @230-135 in relation to gains or losses under the arrangement and you have determined on the reassessment under that section that the accruals method should continue to apply to those gains or losses.
Nature of re-estimation
	(3)	Making a re-estimation in relation to a gain or loss under this subsection involves:
	(a)	a fresh determination of the amount of the gain or loss; and
	(b)	a reapplication of the accruals method to the gain or loss to make a fresh allocation of the gain or loss to an income year or income years.
Basis for re-estimation
	(4)	You may make the fresh allocation of the gain or loss under subsection (3) to an income year or income years on either of the following bases:
	(a)	by maintaining the rate of return being used and adjusting the amount to which you apply the rate of return;
	(b)	adjusting the rate of return and maintaining the amount to which you apply the rate of return.
The object to be achieved by both bases is allow you to bring the gain or loss based on the new estimates properly to account over the whole period over which you spread the gain or loss.
	(5)	If you adopt a particular basis under subsection (4) for a gain or loss from a *financial arrangement, you must use the same basis for all the re-estimations you make under this section in relation to your gains and losses from all your financial arrangements.
Balancing adjustment if rate of return maintained
	(6)	If you make a fresh allocation of the gain or loss on the basis referred to in paragraph (4)(a), you must make the following balancing adjustment:
	(a)	if you re-estimate a gain and the amount to which you apply the rate of return increases—you have a gain from the *financial arrangement, for the income year in which you make the re-estimation, equal to the amount of the increase;
	(b)	if you re-estimate a gain and the amount to which you apply the rate of return decreases—you have a loss from the arrangement, for the income year in which you make the re-estimation, equal to the amount of the decrease;
	(c)	if you re-estimate a loss and the amount to which you apply the rate of return increases—you have a loss from the arrangement, for the income year in which you make the re-estimation, equal to the amount of the increase;
	(d)	if you re-estimate a loss and the amount to which you apply the rate of return decreases—you have a gain from the arrangement, the income year in which you make the re-estimation, equal to the amount of the decrease.
Subdivision 230-C—Fair value method
Table of sections
@230-145	Objects of this Subdivision
@230-150	Fair value election
@230-155	Applying fair value method to gains and losses
@230-160	Splitting financial arrangements into 2 financial arrangements
@230-165	When election ceases to apply
@230-170	Balancing adjustment if election ceases to apply
@230-145  Objects of this Subdivision
		The objects of this Subdivision are:
	(a)	to allow you to align the tax treatment of gains and losses from *financial arrangements with the accounting treatment that applies where financial assets and liabilities are classified as at fair value through profit and loss; and
	(b)	to facilitate efficient price-making; and
	(c)	to achieve the above objects without allowing you to obtain an inappropriate tax benefit.
@230-150  Fair value election
Election
	(1)	You may make a fair value election if:
	(a)	you prepare financial reports in accordance with:
	(i)	the *accounting standards; or
	(ii)	if those standards do not apply to the preparation of the financial report—comparable accounting standards made under a *foreign law that apply to the preparation of the financial report under a foreign law; and
	(b)	the financial reports:
	(i)	are required by a law of the Commonwealth, or of a State or Territory, to be audited in accordance with the *auditing standards; or
	(ii)	if those standards do not apply to the auditing of those reports—are required by a foreign law to be audited in accordance with comparable auditing standards made under a foreign law that apply to the auditing of those reports.
Note:	Subparagraphs (a)(ii) and (b)(ii)—section @230-340 allows regulations to be made specifying particular foreign accounting and auditing standards as ones that are to be treated as comparable with Australian accounting and auditing standards for the purposes of this Division.
Financial arrangements election applies to
	(2)	The election under subsection (1) applies in relation to *financial arrangements that:
	(a)	are financial arrangements to which this Division applies; and
	(b)	are recognised in financial reports referred to in paragraph (1)(a); and
	(c)	are assets or liabilities that you are required (whether or not as a result of a choice you make) by:
	(i)	the *accounting standards; or
	(ii)	if those standards do not apply to the preparation of the financial report—comparable accounting standards that apply to the preparation of the financial report under a *foreign law;
		to classify, in the financial reports, as at fair value through profit and loss; and
	(d)	you start to have in the income year in which you make the election or in a later income year.
Financial arrangements election does not apply to
	(3)	The *fair value election does not apply to a *financial arrangement if:
	(a)	the arrangement is an *equity interest; and
	(b)	you are the issuer of the equity interest.
	(4)	The *fair value election does not apply to a *financial arrangement if:
	(a)	you are:
	(i)	an individual; or
	(ii)	an entity (other than an individual) that satisfies subsection @230-310(2) for the income year in which you start to have the arrangement; and
	(b)	the arrangement is a qualifying security (within the meaning of Division 16E of Part III of the Income Tax Assessment Act 1936); and
	(c)	you have not made an election under subsection @230-310(4).
Election irrevocable
	(5)	A *fair value election is irrevocable.
Note:	The election may cease to apply under section @230-165.
@230-155  Applying fair value method to gains and losses
		If a *fair value election applies to your *financial arrangement, your gain or loss from the arrangement for an income year is the gain or loss that the standards referred to in paragraph @230-150(1)(a) require you to recognise for the income year on the financial asset or liability mentioned in that paragraph.
Note:	Subsection @230-30(3) provides that an election under Subdivision 230-E (hedging financial arrangements method) or Subdivision 230-F (method of relying on financial reports) may override a fair value election.
@230-160  Splitting financial arrangements into 2 financial arrangements
	(1)	The other provisions of this Division apply to a *financial arrangement as if it were instead 2 separate financial arrangements if:
	(a)	a *fair value election applies to the financial arrangement; and
	(b)	the asset or liability mentioned in paragraph @230-150(2)(c) comprises only part of the financial arrangement.
	(2)	The 2 separate *financial arrangements are:
	(a)	one consisting of the part referred to in paragraph (1)(b); and
	(b)	one consisting of the remaining part.
@230-165  When election ceases to apply
		A *fair value election ceases to apply to a *financial arrangement from the start of an income year during which:
	(a)	you cease to satisfy a requirement of subsection @230-150(1); or
	(b)	the arrangement ceases to satisfy a requirement of paragraph @230-150(2)(b) or (c).
The election cannot subsequently reapply to that arrangement (even if those requirements are satisfied once more in relation to the arrangement).
Note:	You will be able to make a new election under subsection @230-150(1) if those requirements are satisfied once more but the new election will only apply to financial arrangements you start to have after the start of the income year in which the new election is made.
@230-170  Balancing adjustment if election ceases to apply
	(1)	You must make a balancing adjustment under this section if a *fair value election ceases to apply to a *financial arrangement.
	(2)	The balancing adjustment is the balancing adjustment you would make under Subdivision 230-G if:
	(a)	you disposed of the *financial arrangement for its fair value when the election ceases to apply; and
	(b)	you immediately reacquired it for that value.
Subdivision 230-D—Foreign exchange retranslation method
Table of sections
@230-175	Objects of this Subdivision
@230-180	Foreign exchange retranslation election
@230-185	Applying foreign exchange retranslation method to gains and losses
@230-190	When election ceases to apply
@230-195	Balancing adjustment if election ceases to apply
@230-175  Objects of this Subdivision
		The objects of this Subdivision are:
	(a)	to allow you to align the tax treatment of gains and losses from foreign exchange rate changes with the accounting treatment of profits and losses from such changes; and
	(b)	to achieve this without allowing you to obtain an inappropriate tax benefit.
@230-180  Foreign exchange retranslation election
General election
	(1)	You may make a foreign exchange retranslation election under this subsection if:
	(a)	you prepare financial reports in accordance with:
	(i)	the *accounting standards; or
	(ii)	if those standards do not apply to the preparation of the financial report—comparable accounting standards made under a *foreign law that apply to the preparation of the financial report under a foreign law; and
	(b)	the financial reports:
	(i)	are required by a law of the Commonwealth, or of a State or Territory, to be audited in accordance with the *auditing standards; or
	(ii)	if those standards do not apply to the auditing of those reports—are required by a foreign law to be audited in accordance with comparable auditing standards made under a foreign law that apply to the auditing of those reports.
Note:	Subparagraphs (a)(ii) and (b)(ii)—Section @230-340 allows regulations to be made specifying particular foreign accounting and auditing standards as ones that are to be treated as comparable with Australian accounting and auditing standards for the purposes of this Division.
Financial arrangements general election applies to
	(2)	The election made under subsection (1) applies to each of your *financial arrangements:
	(a)	that are financial arrangements to which this Division applies; and
	(b)	that are recognised in financial reports referred to in paragraph (1)(a); and
	(c)	in relation to which you are required by:
	(i)	*accounting standard AASB 121 (or another accounting standard prescribed for the purposes of this paragraph); or
	(ii)	if that standard does not apply to the preparation of the financial report—a comparable accounting standard that applies to the preparation of the financial report under a *foreign law;
		to recognise, in the financial reports, amounts in profit or loss (if any) that are attributable to changes in currency exchange rates; and
	(d)	that you start to have in the income year in which you make the election or in a later income year.
This subsection has effect subject to subsections (3) and (4).
Financial arrangements general election does not apply to
	(3)	A *foreign exchange retranslation election made under subsection (1) does not apply to a *financial arrangement if:
	(a)	the arrangement is an *equity interest; and
	(b)	you are the issuer of the equity interest.
	(4)	A *foreign exchange retranslation election made under subsection (1) does not apply to a *financial arrangement if:
	(a)	you are:
	(i)	an individual; or
	(ii)	an entity (other than an individual) that satisfies subsection @230-310(2) for the income year in which you start to have the arrangement; and
	(b)	the arrangement is a qualifying security (within the meaning of Division 16E of Part III of the Income Tax Assessment Act 1936); and
	(c)	you have not made an election under subsection @230-310(4).
Election in relation to qualifying forex accounts
	(5)	You may make a foreign exchange retranslation election under this subsection in relation to a *financial arrangement if:
	(a)	the arrangement is a *qualifying forex account; and
	(b)	you have not made a *foreign exchange retranslation election under subsection (1) that applies to the account.
You may make the election even if you start to have the arrangement before you make the election.
	(6)	The election under subsection (5) applies to the *financial arrangement:
	(a)	from the time when you start to have the arrangement if the election is made before you start to have the arrangement; or
	(b)	from the start of the income year in which the election is made if you make the election after you start to have the arrangement.
	(7)	If you make the election under subsection (5) after you start to have the *financial arrangement, you must make a balancing adjustment. The balancing adjustment is the balancing adjustment you would make under Subdivision 230-G if you ceased to have the arrangement at the time when the election started to apply to the arrangement.
Elections irrevocable
	(8)	A *foreign exchange retranslation election is irrevocable.
Note:	The election may cease to apply under section @230-190.
@230-185  Applying foreign exchange retranslation method to gains and losses
General election
	(1)	You have a gain or loss from a *financial arrangement for an income year if:
	(a)	a *foreign exchange retranslation election under subsection @230-180(1) applies to the arrangement; and
	(b)	the standard referred to in paragraph @230-180(2)(c) requires you to recognise a particular amount in profit or loss in relation to that arrangement for that income year.
The amount of the gain or loss is the amount the standard requires you to recognise.
Note:	See subsection @230-30(4).
Election in relation to qualifying forex accounts
	(2)	You have a gain or loss from a *financial arrangement for an income year if:
	(a)	a *foreign exchange retranslation election under subsection @230-180(5) applies to the arrangement; and
	(b)	the standard referred to in paragraph @230-180(2)(c):
	(i)	requires you to recognise a particular amount in profit or loss in relation to that arrangement for that income year; or
	(ii)	would require you to recognise a particular amount in profit or loss in relation to that arrangement for that income year if that standard applied to the arrangement.
The amount of the gain or loss is the amount the standard requires you to recognise.
@230-190  When election ceases to apply
General election
	(1)	A *foreign exchange retranslation election under subsection @230-180(1) ceases to apply to a *financial arrangement from the start of an income year during which:
	(a)	you cease to satisfy a requirement of subsection @230-180(1); or
	(b)	the arrangement ceases to satisfy a requirement of paragraph @230-180(2)(b) or (c).
The election cannot subsequently reapply to that arrangement (even if those requirements are satisfied once more in relation to the arrangement).
Note:	You will be able to make a new election under subsection @230-180(1) if those requirements are satisfied once more, but the new election will only apply to financial arrangements you start to have after the start of the income year in which the new election is made.
Election in relation to qualifying forex accounts
	(2)	A *foreign exchange retranslation election under subsection @230-180(5) ceases to apply to a *financial arrangement from the start of an income year during which the arrangement ceases to satisfy a requirement of subsection @230-180(5). The election cannot subsequently reapply to that arrangement (even if those requirements are satisfied once more in relation to the arrangement).
@230-195  Balancing adjustment if election ceases to apply
	(1)	You must make a balancing adjustment under this section if a *foreign currency retranslation election ceases to apply to a *financial arrangement.
	(2)	The balancing adjustment is the balancing adjustment you would make under Subdivision 230-G if:
	(a)	you disposed of the *financial arrangement for its fair value when the election ceases to apply to the financial arrangement; and
	(b)	you immediately reacquired it for that value.
Subdivision 230-E—Hedging financial arrangements method
Table of sections
@230-200	Objects of this Subdivision
@230-205	Applying hedging financial arrangement method to gains and losses
@230-210	Table of events and allocation rules
@230-215	Aligning tax treatment of gain or loss from hedging financial arrangement with tax treatment of hedged item
@230-220	Hedging financial arrangement election
@230-225	Hedging financial arrangement and hedged item
@230-230	Derivative financial arrangement and foreign currency hedge
@230-235	Recording requirements
@230-240	Determining basis for allocating gains and losses
@230-245	Determining tax treatment of gains and losses
@230-250	Effectiveness of the hedge
@230-255	Where requirements not met
@230-260	You may be excluded from this Division for deliberate failures to comply with requirements
@230-200  Objects of this Subdivision
		The objects of this Subdivision are:
	(a)	to facilitate the efficient management of financial risk by reducing after-tax mismatches and better aligning tax treatment where hedging takes place; and
	(b)	to minimise tax deferral and tax motivated practices (including tax deferral arising from such practices as tax advantaged selection from among possible hedges and inappropriate selection of tax treatment).
@230-205  Applying hedging financial arrangement method to gains and losses
	(1)	If you have a *hedging financial arrangement to which a *hedging financial arrangement election applies, your gain or loss for an income year from the hedging financial arrangement is worked out under this section and section @230-215 instead of under Subdivision 230-B, 230-C, 230-D, 230-F or 230-G.
	(2)	Except where subsection (3) applies, your gain or loss is equal to your overall gain or loss from the *hedging financial arrangement, and is allocated over income years according to the determination referred to in subsection @230-240(1).
Note 1:	The allocation is capable of extending to income years after you cease to have the hedging financial arrangement.
Note 2:	The determination must be included in the record made under section @230-235.
	(3)	If an event listed in the table in section @230-210 occurs:
	(a)	your gain or loss is equal to any gain or loss that you would realise if you ceased to have your *hedging financial arrangement for its fair value at the time of the event, and the gain or loss is allocated over income years according to the table; and
	(b)	this Division further applies as if, just after the event, you had acquired the *financial arrangement for its fair value at the time of the event.
@230-210  Table of events and allocation rules
		For the purposes of paragraph @230-205(3)(a), the following table lists events and their consequences:

Table of events and allocation rules	
Item	If this event occurs ...	Your gain or loss is allocated ...	
1	(a) you revoke the hedging designation; or
(b) you redesignate your *hedging financial arrangement; or
(c) you cease to meet the requirement of section @230-250 in relation to your hedging financial arrangement.	over income years according to the basis determined under subsection @230-240(1).	
2	(a) you cease to have the *hedged item or all of the hedged items; or
(b) you cease to expect that the hedged item or items will come into existence.	to the income year in which the event occurs	

@230-215  Aligning tax treatment of gain or loss from hedging financial arrangement with tax treatment of hedged item
	(1)	The object of this section is to better align, in particular circumstances, the tax treatment of a gain or loss made on a *hedging financial arrangement with the tax treatment of the item that is hedged.
	(2)	This section applies if:
	(a)	you have a gain or a loss from a *hedging financial arrangement for an income year; and
	(b)	a *hedging financial arrangement election applies to the arrangement.
	(3)	Subject to subsections (4) and (5):
	(a)	if you have a gain from the arrangement—your assessable income includes the gain in accordance with subsection @230-15(1); and
	(b)	if you have a loss from the arrangement—you may deduct the loss in accordance with subsections @230-15(2) and (3).
	(4)	If a gain or loss from a *hedging financial arrangement is reasonably attributable to a risk that:
	(a)	is the sole or dominant risk that the arrangement hedges; and
	(b)	an item in the following table applies to that risk;
the gain or loss is dealt with in the way indicated in that item for the arrangement:

Special tax treatment for gains and losses	
Item	If the risk is in relation to the amount or value of a hedged item that is ...	the gain ...	the loss ...	
1	a *CGT asset if any net capital gain in relation to the asset would be assessable under Parts 3-1 and 3-3	is treated as a capital gain	is treated as a capital loss	
2	a CGT asset that is *taxable Australian property	is treated as a capital gain for a CGT asset that is taxable Australian property	is treated as a capital loss for a CGT asset that is taxable Australian property	
3	a CGT asset your capital gains and losses in relation to which are disregarded under Division 855	is disregarded	is disregarded	
4	*non-assessable non-exempt income	is treated as non-assessable non-exempt income	is not deductible	
5	a share in a company that is a foreign resident if the capital gain or loss you make from a CGT event that happens to the share is reduced by a particular percentage under Division 768-G	is treated as a capital gain and is reduced by the same percentage	is treated as a capital loss and is reduced by the same percentage	
6	ordinary income or statutory income from an Australian source	is treated as ordinary income or statutory income from an Australian source	is treated as a loss incurred in gaining or producing your ordinary income or statutory income from an Australian source	
7	ordinary income or statutory income from a source out of Australia	is treated as ordinary income or statutory income from a source out of Australia	is treated as a loss incurred in gaining or producing ordinary income or statutory income from a source out of Australia	
8	a loss or outgoing incurred in earning ordinary income or statutory income from a source outside Australia that is assessable income	reduces the amount of the deduction that is allowable in relation to the loss or outgoing against the income by the amount of the gain	increases the amount of the deduction that is allowable in relation to the loss or outgoing against the income by the amount of the loss	
9	a loss or outgoing incurred in earning ordinary income or statutory income from a source in Australia that is assessable income	reduces the amount of the deduction that is allowable in relation to the loss or outgoing against the income by the amount of the gain	increases the amount of the deduction that is allowable in relation to the loss or outgoing against the income by the amount of the loss	
10	a loss or outgoing that is not allowed as a deduction	reduces the amount of the loss or outgoing by the amount of the gain	increases the amount of the loss or outgoing by the amount of the loss	
11	ordinary income or statutory income that is not assessable because you are a foreign resident	is treated as *non-assessable non-exempt income	is treated as not being allowable as a deduction	

Note:	In some circumstances, more than one item can apply to the same hedging financial arrangement. For example, item 1 might apply to make the gain on the arrangement a capital gain and item 2 might apply to treat the capital gain as being made on an asset that is taxable Australian property.
	(5)	An item of the table in subsection (4) applies to a risk hedged by a *hedging financial arrangement only if you have recorded that risk as the sole or dominant risk that the arrangement hedges in the record required by section @230-245.
@230-220  Hedging financial arrangement election
Election
	(1)	You can make a hedging financial arrangement election in relation to all your *hedging financial arrangements.
Financial arrangements election applies to
	(2)	The *hedging financial arrangement election applies to a *hedging financial arrangement if:
	(a)	you start to have the arrangement in the income year in which you make the election or in a later income year; and
	(b)	the requirements in sections @230-235 to @230-250 are met in relation to the arrangement.
Note:	Paragraph (b)—see section @230-255 for the Commissioner’s discretion in relation to failures to meet the requirements of sections @230-235 to @230-250.
Financial arrangements election does not apply to
	(3)	The *hedging financial arrangement election does not apply to a *financial arrangement if:
	(a)	the arrangement is an *equity interest; or
	(b)	you are:
	(i)	an individual; or
	(ii)	an entity (other than an individual) that satisfies subsection @230-310(2) for the income year in which you start to have the arrangement;
		and the arrangement is a qualifying security (within the meaning of Division 16E of Part III of the Income Tax Assessment Act 1936).
Election irrevocable
	(4)	The *hedging financial arrangement election is irrevocable.
Note:	The election may cease to apply under section @230-260.
@230-225  Hedging financial arrangement and hedged item
Hedging financial arrangement
	(1)	A *financial arrangement that you have that is a *derivative financial arrangement, or is not a derivative financial arrangement but is a *foreign currency hedge, is a hedging financial arrangement if:
	(a)	you create, acquire or apply the arrangement for the purpose of hedging a risk or risks in relation to an asset, liability or current or future transaction; and
	(b)	you prepare a financial report in accordance with:
	(i)	the *accounting standards; or
	(ii)	if those standards do not apply to the preparation of the financial report—comparable accounting standards made under a *foreign law that apply to the preparation of the financial report under a foreign law; and
	(c)	the financial report:
	(i)	is required by a law of the Commonwealth, or of a State or Territory, to be audited in accordance with the *auditing standards; or
	(ii)	if those standards do not apply to the auditing of those reports—is required by a foreign law to be audited in accordance with comparable auditing standards made under a foreign law that apply to the auditing of those reports; and
	(d)	at the time you do so, the arrangement satisfies the requirements of the standards referred to in paragraph (b) to be a hedging instrument; and
	(e)	the arrangement is recorded as a hedging instrument in:
	(i)	your financial report; or
	(ii)	if the hedging financial arrangement is not a derivative financial arrangement and hedges a risk in relation to foreign currency—the financial report of a consolidated entity in which you are included;
		for the income year in which the rights and/or obligations are created, acquired or applied.
Note:	Subparagraphs (b)(ii) and (c)(ii)—Section @230-340 allows regulations to be made specifying particular foreign accounting and auditing standards as ones that are to be treated as comparable with Australian accounting and auditing standards for the purposes of this Division.
Generally whole arrangement must be financial hedging arrangement
	(2)	Subject to subsections (3), (4), (5) and (6), the whole of a *financial arrangement must satisfy the requirements of subsection (1) for the arrangement to be a hedging financial arrangement.
Partial hedges
	(3)	If a *financial arrangement:
	(a)	is an options contract; and
	(b)	hedges risk only in part by reference to changes in the intrinsic value of the options;
the arrangement is to be treated as a hedging financial arrangement to the extent to which the part of the arrangement referred to in paragraph (b) satisfies the requirements of subsection (1).
	(4)	If a *financial arrangement:
	(a)	is a forward contract; and
	(b)	has a spot price element and an interest element;
the arrangement is to be treated as a hedging financial arrangement to the extent to which the spot price element satisfies the requirements of subsection (1).
Proportionate hedges
	(5)	A specified proportion of a *financial arrangement may be treated as a hedging financial arrangement to the extent to which that proportion of the arrangement satisfies the requirements of subsection (1).
Extent to which arrangement is actually effective in hedging risk
	(6)	To the extent that the standards referred to in paragraph (1)(b) provide that only that part of a gain or loss on the financial assets or financial liabilities that comprise a *financial arrangement that is actually effective in hedging a risk is to obtain hedge accounting treatment, the arrangement is to be treated as a hedging financial arrangement only to the extent to which the arrangement is actually effective in hedging that risk.
Financial arrangement hedging more than one type of risk
	(7)	A*financial arrangement that hedges more than one type of risk may only be a hedging financial arrangement if the standards referred to in paragraph (1)(b) allow the arrangement to be designated as a hedge of those risks.
More than one financial arrangement hedging the one risk
	(8)	If 2 or more *financial arrangements hedge the same risk or risks, each of the arrangements may only be a hedging financial arrangement if the standards referred to in paragraph (1)(b) allow those arrangements to be viewed in combination and jointly designated as hedging that risk or those risks.
Where some requirements not satisfied
	(9)	If a *derivative financial arrangement, or a *foreign currency hedge, that you have would not be a *hedging financial arrangement only because the requirements of paragraph (1)(d) or (e), or both, are not satisfied, it is nevertheless a hedging financial arrangement if the Commissioner considers this appropriate having regard to:
	(a)	in the case only of paragraph (1)(d)—the respects in which, and extent to which, it does not satisfy the requirements of the relevant standards; and
	(b)	in the case of either paragraph—the reasons for the paragraph not being satisfied and the objects of this Subdivision.
Hedged item
	(10)	If a *hedging financial arrangement that you have hedges a risk in relation to:
	(a)	an asset; or
	(b)	a liability; or
	(c)	a current or future transaction;
the asset, liability or transaction is a hedged item for the arrangement.
@230-230  Derivative financial arrangement and foreign currency hedge
Derivative financial arrangement
	(1)	A derivative financial arrangement is a *financial arrangement that you have where:
	(a)	its value changes in response to changes in a specified variable or variables; and
	(b)	there is no requirement for a net investment, or there is such a requirement but the net investment is smaller than would be required for other types of financial arrangement that would be expected to have a similar response to changes in market factors.
Note:	Paragraph (a)—A specified variable includes an interest rate, foreign exchange rate, credit rating or index, commodity or financial instrument price.
Foreign currency hedge
	(2)	A foreign currency hedge is a *financial arrangement that you have if:
	(a)	paragraph (1)(a) is satisfied but paragraph (1)(b) is not; and
	(b)	the arrangement hedges a risk in relation to movements in currency exchange rates.
@230-235  Recording requirements
	(1)	The requirement of this section is that you must make a record that:
	(a)	contains a description of the following:
	(i)	the *hedging financial arrangement in relation to which the election is made;
	(ii)	the purpose of the hedging;
	(iii)	the nature of the risk being hedged;
	(iv)	the *hedged item or items;
	(v)	how you will assess the effectiveness of hedging the risk in reducing your exposure to changes in the fair value of the hedged item or items or cash flows attributable to them; and
	(b)	sets out the terms of the determinations you make under sections @230-240 and @230-245.
	(2)	The description must be sufficiently precise that the following are clear:
	(a)	that the risk in respect of the particular *hedged item or items was the one hedged by the *hedging financial arrangement;
	(b)	the extent to which the risk was hedged;
	(c)	that the rights and/or obligations comprising the hedging financial arrangement were in fact those created, acquired or applied for the purpose of hedging the risk.
@230-240  Determining basis for allocating gains and losses
	(1)	A requirement of this section is that you must determine the basis on which your gains and losses from the *hedging financial arrangement are to be allocated over income years for the purposes of this Division.
	(2)	It is also a requirement of this section that the basis that you determine must:
	(a)	be objective; and
	(b)	fairly and reasonably correspond with the basis on which you allocate your gains and losses from the *hedged item or items.
@230-245  Determining tax treatment of gains and losses
	(1)	A requirement of this section is that you must:
	(a)	determine the risk that is the sole or the dominant risk that the *hedging financial arrangement hedges; and
	(b)	determine the item or items (if any) in the table in subsection @230-215(4) that are to apply to that risk; and
	(c)	determine the basis on which it would be appropriate to apply that item or those items to that risk.
	(2)	It is also a requirement of this section that the determinations under paragraphs (1)(a) and (b) be objective and reasonable.
@230-250  Effectiveness of the hedge
		The requirement of this section is that:
	(a)	hedging the risk must be expected to be highly effective in reducing your exposure to changes in the fair value of the *hedged item or items or cash flows attributable to your hedged risk; and
	(b)	the fair value of the hedged item or items or cash flows relating to them and the fair value of the *hedging financial arrangement must be able to be reliably measured; and
	(c)	you must assess the hedging of the risk by the hedging financial arrangement on an ongoing basis and your assessment must be that it is highly effective in reducing your exposure to changes in the fair value of the hedged item or items or cash flows attributable to the hedged risk throughout the period that it has been in operation.
@230-255  Where requirements not met
Commissioner may determine that requirement met
	(1)	If a *hedging financial arrangement that you have would not meet the requirements of sections @230-235 to @230-250, it nevertheless meets the requirements if the Commissioner considers this appropriate having regard to:
	(a)	the respects in which it would not do so; and
	(b)	the extent to which it would not do so; and
	(c)	the reasons why it would not do so; and
	(d)	whether any of the following applies to the arrangement:
	(i)	subsection @230-225(3) or (4) (partial hedge);
	(ii)	subsection @230-225(5) (proportionate hedge);
	(iii)	subsection @230-225(7) (hedge for multiple risks);
	(iv)	subsection @230-225(8) (multiple hedges for single risk); and
	(e)	if the Commissioner is considering whether to impose conditions under subsection (2)—the likelihood that you will comply with those conditions; and
	(f)	the objects of this Subdivision.
Commissioner may impose additional record keeping requirements
	(2)	The Commissioner may make a determination under subsection (1) conditional on your keeping records in addition to those required by section @230-235.
	(3)	A determination under subsection (1) ceases to have effect if you breach a condition imposed under subsection (2).
	(4)	Subsection (3) ceases to apply to you if the Commissioner determines that that subsection ceases to apply to you. The determination takes effect from the date specified in the determination.
	(5)	In deciding whether to make the determination under subsection (4), the Commissioner must have regard to:
	(a)	your record keeping practices; and
	(b)	your compliance history; and
	(c)	any changes that have been made to:
	(i)	your accounting systems and controls; and
	(ii)	your internal governance processes;
		to ensure that breaches of the kind referred to in subsection (3) do not happen again; and
	(d)	any other relevant matter.
Commissioner may determine matter under section @230-240 or @230-245
	(6)	If:
	(a)	the Commissioner makes a determination under subsection (1) in relation to a *hedging financial arrangement; and
	(b)	you fail to determine a matter in relation to the arrangement under section @230-240 or @230-245;
the Commissioner may determine that matter and the Commissioner’s determination has effect as if you had made the determination and recorded it under that section.
@230-260  You may be excluded from this Division for deliberate failures to comply with requirements
When section applies
	(1)	This section applies if:
	(a)	you start to have a *hedging financial arrangement to which your *hedging financial arrangement election applies; and
	(b)	you do not meet a requirement of section @230-235, @230-240 or @230-245 in relation to the arrangement; and
	(c)	you deliberately fail to meet that requirement in order to have this Subdivision not apply to the arrangement.
Hedging financial arrangement election ceases to apply
	(2)	The *hedging financial arrangement election does not apply to a *hedging financial arrangement you start to have after you fail to meet the requirement referred to in paragraph (1)(b).
Commissioner may determine that hedging financial arrangement is to reapply
	(3)	Subsection (2) ceases to apply to you if the Commissioner determines that that subsection ceases to apply to you. The determination takes effect from the date specified in the determination.
	(4)	The Commissioner may make the determination under subsection (3) only if satisfied that you are unlikely to deliberately fail again to meet the requirements of sections @230-235, @230-240 and @230-245 in order to have this Subdivision not apply to a *hedging financial arrangement.
	(5)	In deciding whether to make the determination under subsection (3), the Commissioner must have regard to:
	(a)	your record keeping practices; and
	(b)	your compliance history; and
	(c)	any changes that have been made to:
	(i)	your accounting systems and controls; and
	(ii)	your internal governance processes;
		to ensure that failures of the kind referred to in paragraph (1)(c) do not happen again; and
	(d)	any other relevant matter.
Commissioner may still exercise powers under section @230-255
	(6)	This section does not prevent the Commissioner from exercising the Commissioner’s powers under section @230-255 in relation to the *hedging financial arrangement referred to in paragraph (1)(a).
Subdivision 230-F—Reliance on financial reports
Table of sections
@230-265	Objects of this Subdivision
@230-270	Election to rely on financial reports
@230-275	Effect of election to rely on financial reports
@230-280	When election ceases to apply
@230-285	Balancing adjustment if election ceases to apply
@230-265  Objects of this Subdivision
		The objects of this Subdivision are:
	(a)	to reduce administration and compliance costs by allowing you to align the tax treatment of your gains and losses from a *financial arrangement with the accounting treatment that applies to the arrangement; and
	(b)	to put integrity measures in place for the application of this Subdivision; and
	(c)	to achieve those objects without your obtaining inappropriate tax benefits.
@230-270  Election to rely on financial reports
Election
	(1)	You may make an election to rely on financial reports if:
	(a)	you are:
	(i)	not an individual; and
	(ii)	not an entity (other than an individual) that satisfies subsection @230-310(2) for the income year in which you start to have the *financial arrangement; and
	(b)	you prepare financial reports in accordance with:
	(i)	the *accounting standards; or
	(ii)	if those standards do not apply to the preparation of the financial report—comparable accounting standards made under a *foreign law that apply to the preparation of the financial report under a foreign law; and
	(c)	the financial reports:
	(i)	are required by a law of the Commonwealth, or of a State or Territory, to be audited in accordance with the *auditing standards; or
	(ii)	if those standards do not apply to the auditing of those reports—are required by a foreign law to be audited in accordance with comparable auditing standards made under a foreign law that apply to the auditing of those reports; and
	(d)	your auditor has not qualified the auditor’s report on your financial reports for the current financial year or any of the last 4 financial years in a respect that is relevant to the treatment of a financial arrangement; and
	(e)	the amount of the overall gains or losses you make from financial arrangements (as determined using the method used in your financial reports) is, or will be, the same as the amount of those overall gains or losses (as determined by applying the provisions of this Division other than this Subdivision); and
	(f)	the differences between the following methods would reasonably be expected not to be substantial:
	(i)	the method used in your financial reports to work out the amounts of the gain or loss you make from a financial arrangement for each income year;
	(ii)	the method applied by this Division (other than this Subdivision) to work out the amounts of those gains or losses; and
	(g)	the election is reasonable and appropriate having regard to the matters set out in subsection (2).
Note:	Subparagraphs (b)(ii) and (c)(ii)—Section @230-340 allows regulations to be made specifying particular foreign accounting and auditing standards as ones that are to be treated as comparable with Australian accounting and auditing standards for the purposes of this Division.
	(2)	The matters to which regard is to be had for the purposes of paragraph (1)(g) are the following:
	(a)	the comparison between:
	(i)	your costs in complying with this Division (other than this Subdivision); and
	(ii)	your costs in relying on your financial reports;
	(b)	your costs in preparing your financial reports and having them audited;
	(c)	the comparison between:
	(i)	the tax outcome achieved in relation to the gains and losses you would have from *financial arrangements if those gains and losses were worked out under this Division (other than this Subdivision); and
	(ii)	the tax outcome achieved in relation to those gains and losses if you make the election to rely on your financial reports;
	(d)	the nature of your business activities (including the nature and extent of your financial arrangements);
	(e)	whether you are required to prepare your financial reports in accordance with the standards referred to in paragraph (1)(b), and to have those reports audited, as a condition of your securities being quoted on a securities exchange;
	(f)	the standard of your accounting systems and controls and your internal governance processes;
	(g)	the level of your compliance with the standards referred to in paragraph (1)(b).
Financial arrangements election applies to
	(3)	The election under subsection (1) applies in relation to *financial arrangements that:
	(a)	are financial arrangements to which this Division applies; and
	(b)	are recognised in the financial reports referred to in paragraph (1)(b); and
	(c)	you start to have in the income year in which you make the election or in a later income year.
Election irrevocable
	(4)	An election under subsection (1) is irrevocable.
@230-275  Effect of election to rely on financial reports
		If an election under section @230-270 applies to a *financial arrangement, the following are to be determined in accordance with the provision made in your financial reports (to the extent to which those reports comply with the standards referred to in paragraph @230-270(1)(b)):
	(a)	whether you have, and the amount of, a gain or loss from the arrangement; and
	(b)	when those gains and losses are to be regarded as arising.
Note:	Subsection @230-30(5) provides that this Division does not apply to a gain or loss from a financial arrangement to the extent to which Subdivision 230-E (hedging financial arrangements method) applies to the arrangement.
@230-280  When election ceases to apply
		An election under subsection @230-270(1) ceases to apply to a *financial arrangement from the start of an income year during which:
	(a)	you cease to satisfy a requirement of subsection @230-270(1); or
	(b)	the arrangement ceases to satisfy a requirement of paragraph @230-270(3)(b).
The election cannot subsequently apply to that arrangement (even if those requirements are satisfied once more in relation to the arrangement).
Note:	You will be able to make a new election under subsection @230-270(1) if those requirements are satisfied once more but the new election will only apply to financial arrangements you start to have after the start of the income year in which the new election is made.
@230-285  Balancing adjustment if election ceases to apply
	(1)	You must make a balancing adjustment under this section if an election under subsection @230-270(1) ceases to apply to a *financial arrangement.
	(2)	The balancing adjustment is the balancing adjustment you would make under Subdivision 230-G if:
	(a)	you disposed of the *financial arrangement for its fair value when the election ceases to apply; and
	(b)	you immediately reacquired it for that value.
Subdivision 230-G—Balancing adjustment on ceasing to have a financial arrangement
Table of sections
@230-290	When balancing adjustment made
@230-295	Exceptions
@230-300	Balancing adjustment
@230-290  When balancing adjustment made
When balancing adjustment made
	(1)	A balancing adjustment is made under this Subdivision if:
	(a)	you transfer to another person all of your rights and/or obligations under a *financial arrangement; or
	(b)	all of your rights and/or obligations under a financial arrangement otherwise *cease; or
	(c)	you transfer to another person:
	(i)	a proportionate share of all of your rights and/or obligations under a financial arrangement; or
	(ii)	a right or obligation that you have under a financial arrangement to a specifically identified *financial benefit; or
	(iii)	a proportionate share of a right or obligation that you have under a financial arrangement to a specifically identified financial benefit.
	(2)	Subsection (1) does not apply to a right or obligation under a *financial arrangement unless that right or obligation is one of the rights or obligations that constitute the financial arrangement.
Note:	See subsections @230-40(1) and @230-45(1) for the rights and/or obligations that constitute a financial arrangement.
Modifications for arrangements that are assets
	(3)	The following modifications are made if the *financial arrangement is an asset of yours at the time the event referred to in subsection (1) occurs:
	(a)	paragraphs (1)(a) and (c) do not apply unless the effect of the transfer is to transfer to the other person substantially all the risks and rewards of ownership of the interest transferred;
	(b)	for the purposes of applying this Subdivision to the arrangement, you are treated as transferring a right under the arrangement to another person if:
	(i)	you retain the right but assume a new obligation; and
	(ii)	your assumption of the new obligation has the same effect, in substance, as transferring the right to another person; and
	(iii)	the new obligation arises only to the extent to which the right to *financial benefits under the financial arrangement is satisfied; and
	(iv)	you cannot sell or pledge the right (other than as security in relation to the new obligation); and
	(v)	you must, under the new obligation, provide financial benefits you receive in relation to the right to the person to whom you owe the new obligation without delay.
Historic rate rollover of derivative financial arrangement
	(4)	For the purposes of paragraph (1)(b), all of your rights and/or obligations under a *financial arrangement that is a *derivative financial arrangement are taken to *cease if there is an historic rate rollover of the arrangement.
@230-295  Exceptions
Financial arrangements to which hedging financial arrangements elections apply
	(1)	Balancing adjustments are not made under this Subdivision in relation to a *financial arrangement in relation to which a *hedging financial arrangement election applies.
Bad debts, margining and conversion into, or exchange for, ordinary shares
	(2)	A balancing adjustment is not made under this Subdivision in relation to the following events:
	(a)	a *financial arrangement being written off as a bad debt;
	(b)	a financial arrangement that is a *derivative financial arrangement being settled or closed out for margining purposes;
	(c)	the ceasing of obligations or rights under a financial arrangement that is a *traditional security if:
	(i)	the ceasing occurs because the traditional security is converted into, or exchanged for, ordinary shares in, or transferred to, a company that is the issuer of the traditional security or a connected entity; and
	(ii)	the traditional security was issued on the basis that it will or may convert into, or be exchanged for, ordinary shares in, or transferred to, the issuer of the traditional security or the connected entity.
Note:	Paragraph (a)—For the treatment of bad debts, see paragraph @230-140(2)(c).
Subsidiary member leaving consolidated group
	(3)	A balancing adjustment is not made under this Subdivision in relation to a subsidiary member of a *consolidated group that has a *financial arrangement ceasing to be a member of the consolidated group.
@230-300  Balancing adjustment
Complete cessation or transfer
	(1)	Use the following method statement to make the balancing adjustment if paragraph @230-290(1)(a) or (b) applies:
Method statement for balancing adjustment
Step 1.	Add up the following:
	(a)	the total of all the *financial benefits you have received under the *financial arrangement;
	(b)	the amount or value of the consideration (if any) you receive in relation to the transfer or cessation referred to in subsection @230-290(1);
	(c)	the total of the amounts that have been allowed to you as deductions, because of circumstances that have occurred before the transfer or cessation, for losses from the arrangement;
	(d)	the total of the other amounts that would have been allowed to you as deductions, because of circumstances that have occurred before the transfer or cessation, for losses from the arrangement if all your losses from the arrangement were allowable as deductions.
Step 2.	Add up the following:
	(a)	the total of all the *financial benefits you have provided under the *financial arrangement;
	(b)	the amount or value of the consideration (if any) you provide in relation to the transfer or cessation referred to in subsection @230-290(1);
	(c)	the total of the amounts that have been included in your assessable income, because of circumstances that have occurred before the transfer or cessation, as gains from the arrangement;
	(d)	the total of the other amounts that would have been included in your assessable income, because of circumstances that have occurred before the transfer or cessation, as gains from the arrangement if all your gains from the arrangement were assessable.
Step 3.	Compare the amount obtained under step 1 (the step 1 amount) with the amount obtained under step 2 (the step 2 amount). If the step 1 amount exceeds the step 2 amount, an amount equal to the excess is taken, as a balancing adjustment, to be a gain you make from the *financial arrangement for the purposes of this Division. If the step 2 amount exceeds the step 1 amount, an amount equal to the excess is taken, as a balancing adjustment, to be a loss that you make from the arrangement. If the step 1 amount and the step 2 amount are equal, no balancing adjustment is made.
Proportionate transfer of all rights and/or obligations under financial arrangement
	(2)	If subparagraph @230-290(1)(c)(i) applies, you make the balancing adjustment by applying the method statement in subsection (1) but reduce:
	(a)	the amounts referred to in paragraphs (a) and (c) in step 1; and
	(b)	the amounts referred to in paragraphs (a) and (c) in step 2;
by applying the proportion referred to in subparagraph @230-290(1)(c)(i) to them.
Transfer of specifically identified right or obligation under financial arrangement
	(3)	If subparagraph @230-290(1)(c)(ii) applies, you make the balancing adjustment by applying the method statement in subsection (1) as if the references to:
	(a)	the amounts referred to in paragraphs (a) and (c) in step 1; and
	(b)	the amounts referred to in paragraphs (a) and (c) in step 2;
were references to those amounts to the extent to which they are reasonably attributable to the right or obligation referred to in subparagraph @230-290(1)(c)(ii).
Proportionate transfer of specifically identified right or obligation under financial arrangement
	(4)	If subparagraph @230-290(1)(c)(iii) applies, you make the balancing adjustment by applying the method statement:
	(a)	as if the references to:
	(i)	the amounts referred to in paragraphs (a) and (c) in step 1; and
	(ii)	the amounts referred to in paragraphs (a) and (c) in step 2;
		were references to those amounts to the extent to which they are reasonably attributable to the right or obligation referred to in subparagraph @230-290(1)(c)(iii); and
	(b)	by reducing those amounts by applying the proportion referred to in subparagraph @230-290(1)(c)(iii) to them.
Attribution must reflect appropriate and commercially accepted valuation principles
	(5)	Any attribution made under subsection (3) or paragraph (4)(a) must reflect appropriate and commercially accepted valuation principles that properly take into account:
	(a)	the nature of the rights and obligations under the *financial arrangement; and
	(b)	the risks associated with each *financial benefit, right and obligation under the arrangement; and
	(c)	the time value of money.
Income year for which gain or loss is made
	(6)	The gain or loss you are taken to make under subsection (1), (2), (3) or (4) is a gain or loss for the income year in which the event referred to in subsection @230-290(1) occurs.
Subdivision 230-H—Exceptions
Table of sections
@230-305	Short-term arrangements where non-money amount involved
@230-310	Certain taxpayers where no significant deferral
@230-315	Various rights and/or obligations
@230-320	Ceasing to have financial arrangement in certain circumstances
@230-325	Forgiveness of commercial debts
@230-330	Clarifying exceptions
@230-305  Short-term arrangements where non-money amount involved
	(1)	This Division does not apply in relation to your gains and losses from a *financial arrangement if:
	(a)	the arrangement is a financial arrangement under section @230-40 (the primary test for what is a financial arrangement); and
	(b)	either:
	(i)	you acquired goods (other than goods that are money or a *money equivalent) or services (other than services that are a money equivalent) from another person and the *financial benefits you are to provide under the arrangement are consideration for those goods or services; or
	(ii)	you provided goods (other than goods that are money or a money equivalent) or services (other than services that are a money equivalent) to another person and the financial benefits you are to receive under the arrangement are consideration for those goods or services; and
	(c)	the period between the following is not more than 12 months:
	(i)	the time when you are to provide or receive the consideration (or a substantial proportion of it);
	(ii)	the time when you acquired or provided the goods or services (or a substantial proportion of them); and
	(d)	the arrangement is not a *derivative financial arrangement for any income year; and
	(e)	a *fair value election does not apply to the arrangement.
	(2)	Subsection (1) does not apply to an *arrangement that, in accordance with *accounting standards, or statements of accounting concepts made by the Australian Accounting Standards Board, is classified as a finance lease.
@230-310  Certain taxpayers where no significant deferral
	(1)	This Division does not apply to your gains or losses from a *financial arrangement for any income year if:
	(a)	you are:
	(i)	an individual; or
	(ii)	an entity (other than an individual) that satisfies subsection (2) for the income year in which you start to have the arrangement; and
	(b)	either:
	(i)	the arrangement is to end not more than 12 months after you start to have it; or
	(ii)	the arrangement is not a qualifying security (within the meaning of Division 16E of Part III of the Income Tax Assessment Act 1936).
	(2)	An entity satisfies this subsection for an income year if:
	(a)	the entity’s turnover for the income year (worked out at the end of the income year) is less than $20 million if the income year is the one in which the entity comes into existence; or
	(b)	the entity’s turnover for the immediately preceding income year (worked out at the end of that immediately preceding income year) is less than $20 million if the income year is an income year after the one in which the entity comes into existence.
Note:	For the purposes of applying this subsection to a consolidated group, the single entity rule in section 701-1 applies to make the relevant turnover that of the consolidated group and not that of any of the subsidiary members of the consolidated group.
	(3)	Subsection (1) does not apply to your gains or losses from a *financial arrangement for an income year if:
	(a)	you have made an election under subsection (4) in that income year or an earlier income year; and
	(b)	you start to have the arrangement after the beginning of the income year in which you make the election.
	(4)	An election under this subsection is an election to have this Division apply to all of the *financial arrangements that you start to have in the income year in which the election is made or a subsequent income year.
	(5)	An election under subsection (4) is irrevocable.
@230-315  Various rights and/or obligations
Rights and obligations subject to an exception
	(1)	This Division does not apply to your gains and losses from a *financial arrangement for any income year to the extent that your rights and/or obligations under the arrangement are the subject of an exception under any of the following subsections.
Note:	Further exceptions are also provided for in section @230-330.
Leasing or property arrangement
	(2)	A right or obligation arising under:
	(a)	an *arrangement to which Division 42A (Leases of luxury cars) of Schedule 2E to the Income Tax Assessment Act 1936 applies; or
	(b)	an arrangement to which Division 240 of this Act (Arrangements treated as a sale and loan) applies; or
	(c)	an arrangement that, 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 gives a right to control the use of the asset; or
	(d)	an arrangement that is a licence to use:
	(i)	real property; or
	(ii)	goods or a personal chattel (other than money or a *money equivalent);
is the subject of an exception.
	(3)	Paragraph (2)(c) does not apply to an *arrangement that, in accordance with *accounting standards, or statements of accounting concepts made by the Australian Accounting Standards Board, is classified as a finance lease.
Interest in partnership or trust
	(4)	A right carried by an interest in a partnership or a trust, or an obligation that corresponds to such a right, is the subject of an exception if:
	(a)	there is only one class of interest in the *partnership or trust; or
	(b)	the interest is an *equity interest in the partnership or trust;
unless a *fair value election applies to the *financial arrangement.
Certain insurance policies
	(5)	A right or obligation under a *life insurance policy is the subject of an exception unless the policy provides for an annuity that is not dependent on the termination or continuation of a person’s life.
	(6)	A right or obligation under a *general insurance policy is the subject of an exception unless the policy is a *derivative financial arrangement.
Certain guarantees and indemnities
	(7)	A right or obligation under a guarantee or indemnity is the subject of an exception unless:
	(a)	the *financial arrangement is the subject of a *fair value election; or
	(b)	the financial arrangement is a *derivative financial arrangement.
Personal arrangements and personal injury
	(8)	The following rights and obligations are the subject of an exception:
	(a)	a right to receive, or an obligation to provide, consideration for providing personal services;
	(b)	a right, or obligation, arising from the administration of a deceased person’s estate;
	(c)	a right to receive, or an obligation to provide, a gift under a deed;
	(d)	a right to receive, or an obligation to provide, a *financial benefit by way of maintenance:
	(i)	to an individual who is or has been the *spouse of the person liable to provide the benefit; or
	(ii)	to or for the benefit of an individual who is or has been a child of the person liable to provide the benefit; or
	(iii)	to or for the benefit of an individual who is or has been a child of an individual who is or has been a spouse of the person liable to provide the benefit;
	(e)	a right to receive, or an obligation to provide, a financial benefit in relation to personal injury to an individual;
	(f)	a right to receive, or an obligation to provide, a financial benefit in relation to an injury to an individual’s reputation.
	(9)	Without limiting paragraph (8)(e), that paragraph applies:
	(a)	even if the person to whom the *financial benefit is to be provided is not the individual who was injured; and
	(b)	even if the personal injury to the individual takes the form of:
	(i)	a wrong to the individual; or
	(ii)	illness of the individual.
Note:	The person referred to in paragraph (a) may, for example, be a relative of the individual who was injured.
Superannuation and pension income
	(10)	A right to receive, or an obligation to provide, *financial benefits is the subject of an exception if the right or obligation arises from a person’s membership of a superannuation or pension scheme, including:
	(a)	a right of a dependent of a member to receive financial benefits or an obligation to provide financial benefits to a dependent of a member; and
	(b)	a right or obligation arising from an interest in:
	(i)	a *complying or *non-complying superannuation fund; or
	(ii)	a *PST; or
	(iii)	an *approved deposit fund.
Interest in CFC
	(11)	A right or obligation that arises under an *attributable taxpayer’s *associate-inclusive control interest in a *CFC is the subject of an exception.
Interest in a FIF
	(12)	A right or obligation that arises under an interest in a *FIF is the subject of an exception.
Proceeds from certain business sales
	(13)	A right to receive, or an obligation to provide, *financial benefits arising from the sale of a business is the subject of an exception if the amounts, or the values, of those benefits are contingent only on the economic performance of the business after the sale.
Regulations may provide for exceptions
	(14)	A right or obligation of a kind specified in the regulations for the purposes of this subsection is the subject of an exception.
@230-320  Ceasing to have financial arrangement in certain circumstances
	(1)	This section applies if:
	(a)	you cease to have a *financial arrangement; and
	(b)	you have a loss from ceasing to have the arrangement; and
	(c)	if the arrangement is a marketable security (within the meaning of section 70B of the Income Tax Assessment Act 1936):
	(i)	you did not acquire the arrangement in the ordinary course of trading on a securities market (within the meaning of that section); and
	(ii)	at the time you acquired the arrangement, it was not open to you to acquire an identical financial arrangement in the ordinary course of trading on a securities market; and
	(d)	if the arrangement is a marketable security—you did not dispose of the arrangement in the course of trading on a securities market; and
	(e)	it would be concluded that you ceased to have the arrangement wholly or partly because there was an apprehension or belief that the other party or other parties to the arrangement were, or would be likely to be, unable or unwilling to discharge all their liabilities to pay amounts under the arrangement.
	(2)	The amount of the loss is reduced by so much of that amount as is a loss of capital or a loss of a capital nature.
Note:	The loss is however a capital loss.
	(3)	In applying paragraph (1)(d) have regard to:
	(a)	the financial position of the other party or parties to the *financial arrangement; and
	(b)	the perceptions of the financial position of the other party or parties to the arrangement; and
	(c)	other relevant matters.
@230-325  Forgiveness of commercial debts
		If a gain that you make from a *financial arrangement arises from the forgiveness of a debt (as defined in Subdivision 245-B of Schedule 2C to the Income Tax Assessment Act 1936), the gain is reduced by:
	(a)	if section 245-90 (about agreements to forgo capital losses or revenue reductions) of that Schedule does not apply—the debt’s net forgiven amount as defined in paragraph 245-85(2)(a) of that Schedule; or
	(b)	if that section does apply—the debt’s provisional net forgiven amount as defined in paragraph 245-85(2)(b) of that Schedule.
Note:	Section 51AAA (about a net capital gains limit) of the Income Tax Assessment Act 1936 also has the effect of preventing you from deducting losses.
@230-330  Clarifying exceptions
Exceptions
	(1)	To avoid doubt, this Division does not apply to your gains and losses from a *financial arrangement for any income year to the extent that your rights and/or obligations are the subject of an exception under any of the following subsections.
	(2)	This section is not intended to limit, expand or otherwise affect the operation of sections @230-35 to @230-55 (which tell you what is covered by the concept of financial arrangement) in relation to rights and/or obligations other than those dealt with in this section.
Retirement village arrangements
	(3)	A right or obligation arising under a *retirement village residence contract or a *retirement village services contract is the subject of an exception.
	(4)	For the purposes of subsection (3):
	(a)	a retirement village residence contract is a contract that gives rise to a right to occupy *residential premises in a *retirement village; and
	(b)	a retirement village services contract is a contract under which a resident of a retirement village is provided with general or personal services in the retirement village.
Subdivision 230-I—Other provisions
Table of sections
@230-335	Effect of change of residence
@230-340	Comparable foreign accounting and auditing standards
@230-345	Applying Division on an arm’s length basis
@230-335  Effect of change of residence
Becoming an Australian resident
	(1)	If:
	(a)	you become an Australian resident at a particular time; and
	(b)	immediately before that time:
	(i)	you have a *financial arrangement; and
	(ii)	your gains and losses from the arrangement are not assessable or deductible under this Division;
you are taken for the purposes of this Division to start to have the arrangement when you become an Australian resident and to have acquired your interest in the arrangement at that time for its market value at that time.
Ceasing to be an Australian resident
	(2)	If:
	(a)	you cease to be an Australian resident at a particular time; and
	(b)	immediately before that time:
	(i)	you have a *financial arrangement; and
	(ii)	your gains and losses from the arrangement are assessable or deductible under this Division;
you are taken for the purposes of this Division to cease to have the arrangement when you cease to be an Australian resident and to have disposed of your interest in the arrangement at that time for its market value at that time.
@230-340  Comparable foreign accounting and auditing standards
		The regulations may:
	(a)	specify that particular standards that apply under a *foreign law are to be taken for the purposes of this Division to be comparable to the *accounting standards; and
	(b)	specify that particular standards that apply under a foreign law are to be taken for the purposes of this Division to be comparable to the *auditing standards.
@230-345  Applying Division on an arm’s length basis
	(1)	This section applies if:
	(a)	you and another entity do not deal with each other at arm’s length in relation to any of the rights and/or obligations comprising a *financial arrangement that you have; and
	(b)	as a result, this Division has a different operation in relation to the arrangement than it would have had if you and the other entity had been dealing with each other at arm’s length in relation to the rights and/or obligations.
	(2)	This Division has the operation that it would have had in relation to the *financial arrangement if you and the other entity had been dealing with each other at arm’s length in relation to the rights and/or obligations.
	(3)	This section does not apply to a *financial arrangement if Division 13 of Part III of the Income Tax Assessment Act 1936 applies to the arrangement.
@230-347  Financial arrangement received or provided as consideration
	(1)	If:
	(a)	this Division applies in relation to your gains and losses from a *financial arrangement; and
	(b)	you start to have the financial arrangement as consideration (or as part of the consideration) for:
	(i)	something (the thing provided) that you provided, or are to provide, to someone else; or
	(ii)	something (the thing acquired) that someone else has provided, or is to provide, to you;
the amount of the benefit (or that part of the benefit) that you obtained for the thing provided, or gave for the thing acquired, is taken, for the purposes of applying this Act to you, to be the *market value of the financial arrangement at the time when the you started to have the financial arrangement.
Note 1:	This amount may be relevant, for example, for the purposes of applying the provisions of this Act dealing with capital gains, capital allowances or trading stock to the thing provided.
[Note 2:	The market value is to be used instead of the nominal value of the financial benefits to be provided under the financial arrangement.]
	(2)	If:
	(a)	this Division applies in relation to your gains and losses from a *financial arrangement; and
	(b)	you cease to have the financial arrangement as consideration (or as part of the consideration) for:
	(i)	something (the thing acquired) that someone else provides, or is to provide, to you; or
	(ii)	something (the thing provided) that you provided, or are to provide, to someone else;
the amount of the benefit (or that part of the benefit) that you provided for the thing acquired, or obtained for the thing provided, is taken, for the purposes of applying this Act to you, to be the *market value of the financial arrangement at the time when you cease to have the financial arrangement.
Note 1:	This amount may be relevant, for example, for the purposes of applying the provisions of this Act dealing with capital gains, capital allowances or trading stock to the thing acquired.
[Note 2:	The market value is to be used instead of the nominal value of the financial benefits to be provided under the financial arrangement.]
	(3)	Without limiting subsections (1) and (2), the thing provided, or the thing acquired, need not be a tangible thing and may take the form of services, conferring a right, incurring an obligation or extinguishing or varying a right or obligation.
Subdivision 230-J—Additional operation of Division
Table of sections
@230-350	Additional operation of Division
@230-350  Additional operation of Division
Foreign currency
	(1)	This Division also applies to foreign currency as if the currency were a right that comprised a *financial arrangement.
Non-equity shares
	(2)	This Division also applies to a *non-equity share in a company as if the share were a right that comprised a *financial arrangement.
Commodities held by traders
	(3)	This Division also applies to a commodity that you hold if:
	(a)	you are a person who trades or deals in that commodity; and
	(b)	you hold that commodity for the purposes of dealing in the commodity;
as if the commodity were a right that comprised a *financial arrangement.
2  Subsection 995-1(1)
Insert:
auditing standard has the same meaning as in the Corporations Act 2001.
3  Subsection 995-1(1)
Insert:
cease in relation to an obligation or right under a *financial arrangement has a meaning affected by section @230-75.
4  Subsection 995-1(1)
Insert:
derivative financial arrangement has the meaning given by subsection @230-230(1).
5  Subsection 995-1(1)
Insert:
Division 230 financial arrangement: a *financial arrangement is a Division 230 financial arrangement if Division 230 applies in relation to your gains and losses from the financial arrangement.
6  Subsection 995-1(1)
Insert:
fair value election has the meaning given by subsection @230-150(1).
7  Subsection 995-1(1)
Insert:
financial arrangement has the meaning given by sections @230-35 to @230-55.
8  Subsection 995-1(1)
Insert:
foreign currency hedge has the meaning given by subsection @230-230(2).
9  Subsection 995-1(1)
Insert:
foreign exchange retranslation election has the meaning given by subsections @230-180(1) and (5).
10  Subsection 995-1(1)
Insert:
hedged item has the meaning given by subsection @230-225(10).
11  Subsection 995-1(1)
Insert:
hedging financial arrangement has the meaning given by subsections @230-225(1) to (9).
12  Subsection 995-1(1)
Insert:
hedging financial arrangement election has the meaning given by section @230-220.
13  Subsection 995-1(1)
Insert:
monetary nature in relation to a *financial benefit has the meaning given by subsections @230-40(7) and (8).
14  Subsection 995-1(1)
Insert:
money equivalent means:
	(a)	a right to receive money or something that is a *money equivalent under this definition; or
	(b)	something whose value is, or is limited by, a specified amount of money or an amount of money that is worked out in a specified way; or
	(c)	something that can be settled in:
	(i)	money; or
	(ii)	something that is a *money equivalent under this definition.
Note:	An example of paragraph (b) is a right to receive $100 worth of oil in 12 months time.
15  Subsection 995-1(1) (paragraph (b) of the definition of qualifying forex account)
Repeal the paragraph.
16  Subsection 995-1(1)
Insert:
residential premises has the same meaning as in the A New Tax System (Goods and Services Tax) Act 1999.
17  Subsection 995-1(1)
Insert:
retirement village has the same meaning as in the A New Tax System (Goods and Services Tax) Act 1999.
18  Subsection 995-1(1)
Insert:
retirement village residence contract has the meaning given by paragraph @230-330(4)(a).
19  Subsection 995-1(1)
Insert:
retirement village services contract has the meaning given by paragraph @230-330(4)(b).
20  Subsection 995-1(1) (after paragraph (a) of the definition of special accrual amount)
Insert:
	(aa)	Subdivision 230-B of this Act; or

Part 2—Consequential amendments
Income Tax Assessment Act 1936
21  At the end of subsection 26BC(3) [script lending arrangements]
Add:
	; and (f)	the agreement is not a Division 230 financial arrangement (within the meaning of the Income Tax Assessment Act 1997).
22  Subsection 51AAA(2) (at the end of the table)
Add:

14	Division 230	Financial arrangements	

23  After section 82KZL [12 month prepayment rules]
Insert:
82KZLA  Subdivision does not apply to Division 230 financial arrangements
		To avoid doubt, this Subdivision does not apply to:
	(a)	a Division 230 financial arrangement (within the meaning of the Income Tax Assessment Act 1997); or
	[(b)	a financial benefit (within the meaning of that Act) that is provided or received in relation to such an arrangement.]
Note:	See section @230-20 of the Income Tax Assessment Act 1997.
24  Before paragraph 96C(5A)(a) [Non-resident trusts consequential]
Insert:
	(aa)	Division 230 of the Income Tax Assessment Act 1997; and
25  At the end of subsection 102CA(2) [consideration from transfer of property]
Add:
	; or (c)	the right is, or is part of, a Division 230 financial arrangement (within the meaning of the Income Tax Assessment Act 1997).
26  Subsection 121D(8) [OBU consequential]
Omit “contract”, substitute “hedging financial arrangement (within the meaning of the Income Tax Assessment Act 1997)”.
27  At the end of subsection 121EB(1)
Add:
Note:	See also section @230-27 of the Income Tax Assessment Act 1936 (which deals with financial arrangements).
28  At the end of section 121EK
Add:
Section subject to Division 230 of the Income Tax Assessment Act 1997
	(4)	To avoid doubt, this section has effect subject to Division 230 of the Income Tax Assessment Act 1997.
Note:	See section @230-20 of the Income Tax Assessment Act 1997.
29  At the end of section 160ZZZA
Add:
	(4)	To avoid doubt, this section has effect subject to Division 230 of the Income Tax Assessment Act 1997.
Note:	See section @230-20 of the Income Tax Assessment Act 1997.
30  At the end of subsection 160ZZZF(1)
Add:
Note:	See also section @230-28 of the Income Tax Assessment Act 1997 (which deals with financial arrangements).
31  After paragraph 304(2)(a)
Insert:
	(aa)	section @230-15 (about financial arrangements) of the Income Tax Assessment Act 1997;
32  After paragraph 389(b) [CFC consequential]
Insert:
	(ba)	Division 230 of the Income Tax Assessment Act 1997;
33  At the end of section 557A [FIF consequential]
Add:
	; and (c)	Division 230 of the Income Tax Assessment Act 1997.
Income Tax Assessment Act 1997
34  Subsection 6-5(1) (note)
After “Note”, insert “1”.
35  At the end of subsection 6-5(1)
Add:
Note 2:	Section @230-20 has the effect that subsection (1) does not apply to:
(a)	a Division 230 financial arrangement; or
[(b)	a financial benefit that is provided or received in relation to such an arrangement.]
36  Subsection 8-1(1) (note)
After “Note”, insert “1”.
37  At the end of subsection 8-1(1)
Add:
Note 2:	Section @230-20 has the effect that subsection (1) does not apply to:
(a)	a Division 230 financial arrangement; or
[(b)	a financial benefit that is provided or received in relation to such an arrangement.]
38  After subsection 25-85(4)
Insert:
	(4A)	Subsections (2) and (3) do not apply to a *return on a *debt interest that is a *Division 230 financial arrangement.
39  After subsection 45-120(2) [PAYG consequential]
Insert:
Net gains under Division 230 included in instalment income
	(2A)	Your instalment income for a period also includes the difference between:
	(a)	a gain (or gains) you make from a *financial arrangement to the extent to which it is (or they are):
	(i)	assessable under Division 230; and
	(ii)	reasonably attributable to that period; and
	(b)	a loss (or losses) you make from a *financial arrangement to the extent to which it is (or they are):
	(i)	allowable to you as a deduction under Division 230; and
	(ii)	reasonably attributable to that period.
This is so only if the gain (or gains) referred to in paragraph (a) exceeds the loss (or losses) referred to in paragraph (b).
40  Section 70-10
Repeal the section, substitute:
70-10  Meaning of trading stock
Trading stock includes:
	(a)	anything produced, manufactured or acquired that is held for purposes of manufacture, sale or exchange in the ordinary course of a *business; and 
	(b)	*live stock;
but does not include a *Division 230 financial arrangement.
Note 1:	Shares in a PDF are not trading stock. See section 124ZO of the Income Tax Assessment Act 1936.
Note 2:	If a company becomes a PDF, its shares are taken not to have been trading stock before it became a PDF. See section 124ZQ of the Income Tax Assessment Act 1936.
41  After section 118-25
Insert:
118-27  Division 230 financial arrangements
		A *capital gain or *capital loss you make from a *CGT asset is disregarded if, at the time of the *CGT event, the asset is, or is part of, a *Division 230 financial arrangement.
42  Section 130-100
Omit “a *traditional security”, substitute “an interest”.
43  Paragraph 130-100(a)
Omit “the traditional security” (wherever occurring), substitute “the interest”.
44  Section 320-45
Omit “If”, substitute “(1) If”.
45  At the end of section 320-45
Add:
	(2)	Subsection (1) has effect despite anything in Division 230.
46  After subsection 705-25(4)
Insert:
Financial arrangements covered by elections under Subdivision 230-C
	(4A)	The *tax cost setting amount is instead equal to the joining entity’s *terminating value for the *retained cost base asset if the asset is:
	(a)	a *financial arrangement that is covered by paragraph (5)(d); or
	(b)	a financial arrangement to which Subdivision 230-B applies immediately before the joining time.
47  After paragraph 705-25(5)(c)
Insert:
	; or (d)	a *financial arrangement that is held by the joining entity, and to which an election under Subdivision 230-C or 230-F applies, immediately before the joining time.
48  After subsection 705-30(3)
Insert:
Division 230 financial arrangements
	(3A)	If an asset of the joining entity is a *Division 230 financial arrangement, the joining entity’s terminating value for the asset is equal to the amount of consideration that the joining entity would need to receive, if it were to dispose of the asset just before the joining time, without an amount being assessable income of, or deductible to, the joining entity under Division 230.
49  Subsection 715-660(1) (after table item 3)
Insert:

3A	section @230-150, @230-180, @230-220 or @230-270	Choice about treatment of gains and losses from *Division 230 financial arrangement	

50  Subsection 715-665(1) (after table item 1)
Insert:

1A	section @230-150, @230-180, @230-220 or @230-270	Choice about treatment of gains and losses from *Division 230 financial arrangement	

51  Section 775-170
Omit “This”, substitute “(1) This”.
Commencement: immediately after the New Business Tax System (Taxation of Financial Arrangements) Act (No. 1) 2003 commenced.
52  At the end of section 775-170
Add:
	(2)	This Division does not apply to a *forex realisation gain or a *forex realisation loss made by:
	(a)	a *securitisation vehicle; or
	(b)	an entity that satisfies the requirements of subsection 820-39(3).
Commencement: immediately after the New Business Tax System (Taxation of Financial Arrangements) Act (No. 1) 2003 commenced.
53  Section 775-170
Repeal the section.
54  At the end of section 775-195
Add:
	(9)	The following are not entitled to make a choice under this section:
	(a)	a *securitisation vehicle;
	(b)	an entity that satisfies the requirements of subsection 820-39(3).
Commencement: immediately after the New Business Tax System (Taxation of Financial Arrangements) Act (No. 1) 2003 commenced.
55  Subsections 775-195(8) and (9)
Repeal the subsections.

56  After subsection 820-40(1)
Insert:
	(1A)	Subsection (1) does not apply to a cost incurred by the entity in relation to a *debt interest that is a *Division 230 financial arrangement.
Note:	Subsections (4) and (5) tell you what a debt deduction is in relation to a Division 230 financial arrangement.
57  After subsection 820-40(3)
Add:
	(4)	If a *debt interest issued by an entity is a *Division 230 financial arrangement, a loss from the financial arrangement is a debt deduction of the entity for an income year to the extent to which the loss is allowable as a deduction under Division 230 in relation to the income year.
	(5)	The amount of a *debt deduction that is a debt deduction because of subsection (4):
	(a)	is taken to be increased by the amount of any loss on a *hedging financial arrangement that hedges a risk in relation to the *Division 230 financial arrangement; and
	(b)	is taken to be decreased by the amount of any gain on a hedging financial arrangement that hedges a risk in relation to the Division 230 financial arrangement.
58  Paragraph 820-885(1)(c)
Repeal the paragraph, substitute:
	(c)	each of the interests gives rise to:
	(i)	a cost, at any time, that is covered by paragraph 820-40(1)(a); or
	(ii)	a loss, at any time, that is covered by subsection 820-40(4).
59  Subparagraph 820-890(1)(b)(ii)
After “820-40(1)(a)”, insert “or a loss, at any time, that is covered by subsection 820-40(4)”.
60  Paragraph 820-910(3)(c)
Repeal the paragraph, substitute:
	(c)	each of the interests gives rise to amounts:
	(i)	that are *debt deductions, for an income year, of the relevant associate entity that issued the interest; and
	(ii)	to the extent that these amounts are not amounts that are mentioned in paragraph 820-40(2)(c) and are ordinarily payable to an entity other than the relevant entity—that are assessable income of the relevant entity for an income year;
61  Subparagraph 820-915(3)(b)(iii)
After “820-40(1)(a)”, insert “or a loss, at any time, that is covered by subsection 820-40(4)”.
62  Subparagraph 820-915(3)(c)(ii)
After “paragraph 820-40(1)(a)”, insert “or a loss covered by subsection 820-40(4)”.
63  Subparagraph 820-915(3)(c)(ii)
After “the cost”, insert “or loss”.
64  Paragraph 820-920(5)(c)
After “820-40(1)(a)”, insert “or a loss, at any time, that is covered by subsection 820-40(4)”.
65  Paragraph 820-920(6)(b)
After “paragraph 820-40(1)(a)”, insert “or a loss that is covered by subsection 820-40(4)”.
66  Paragraph 820-920(6)(b)
After “the cost”, insert “or loss”.
67  Paragraph 820-946(2)(b)
After “820-40(1)(a)”, insert “or a loss, at any time, that is covered by subsection 820-40(4)”.
68  At the end of section 960-55
Add:
	(4)	Despite subsection (1), section 960-50 does not apply for the purposes of working out the assessable income, deductions or tax offsets of:
	(a)	a *securitisation vehicle; or
	(b)	an entity that satisfies the requirements of subsection 820-39(3).
Commencement: immediately after the New Business Tax System (Taxation of Financial Arrangements) Act (No. 1) 2003 commenced.
69  Subsections 960-55(3) and (4)
Repeal the subsections.
70  At the end of section 960-60
Add:
	(6)	The following are not entitled to make a choice under this section:
	(a)	a *securitisation vehicle;
	(b)	an entity that satisfies the requirements of subsection 820-39(3).
Commencement: immediately after the New Business Tax System (Taxation of Financial Arrangements) Act (No. 1) 2003 commenced.
71  Subsections 960-60(5) and (6)
Repeal the subsections.
72  After paragraph 974-15(6)(c)
Insert:
	and (d)	the debt interest is not a *Division 230 financial arrangement;
73  Subsection 974(6) (note)
After “under section 820-40”, insert “if subsection 820-40(1) applies but are debt deductions under section 820-40 if subsection 820-40(4) applies”.
74  Subsection 995-1(1) (subparagraph (b)(ii) of the definition of ADI equity capital)
After “820-40(1)(a)”, insert “or a loss, at any time, that is covered by subsection 820-40(4)”.
New Business Tax System (Taxation of Financial Arrangements) Act (No. 1) 2003
75  Paragraph 77(1)(b) of Schedule 2
Repeal the paragraph, substitute:
	(b)	for the purposes of working out the assessable income or allowable deductions of:
	(i)	an ADI or a non-ADI financial institution (within the meaning of the Income Tax Assessment Act 1997); or
	(ii)	a securitisation vehicle (within the meaning of that Act); or
	(iii)	an entity that satisfies the requirements of subsection 820-39(3) of that Act;
Commencement: immediately after the New Business Tax System (Taxation of Financial Arrangements) Act (No. 1) 2003 commenced.
76  Paragraph 77(1)(b) of Schedule 2
Repeal the paragraph.
Taxation Administration Act 1953
77  Subsection 45-5(3)
After “(2A)”, insert “or the net capital gains specified in subsection 45-120(2AA)”.
78  After subsection 45-120(2A) in Schedule 1
Insert:
Amounts assessable under Division 230 of the Income Tax Assessment Act 1997
	(2B)	Your instalment income for a period includes any amount that is included in your assessable income under Division 230 of the Income Tax Assessment Act 1997 to the extent that the amount:
	(a)	is reasonably attributable to that period; and
	(b)	is assessable income of the income year that is or includes that period.
79  After subsection 45-300(2A) in Schedule 1
Insert:
Amounts assessable under Division 230 of the Income Tax Assessment Act 1997
	(2AA)	To avoid doubt, paragraph (1)(a) does not apply to a *net capital gain that is included in your assessable income under Division 230 of the Income Tax Assessment Act 1997.

Part 3—Application and transitional provisions
80  Definitions
In this Part:
financial arrangement includes anything to which, under Subdivision 230-J of the Income Tax Assessment Act 1997, Division 230 of that Act applies as if it were a financial arrangement.
financial arrangement amendments means the amendments made by Parts 1 and 2 of this Schedule.
first applicable income year means the first income year for which the financial arrangement amendments apply to you under item 21.
lodgement date means the due date for you to lodge an income tax return.
81  Application of financial arrangement amendments (income years)
(1)	Subject to subitem (2), the financial arrangement amendments apply to you for income years commencing on or after 1 July 2008.
(2)	The financial arrangement amendments apply to you for income years commencing on or after 1 July 2007 if you elect to have this subitem apply to you.
Note:	For a consolidated group, it is the head entity that would make the election.
(3)	An election under subitem (2) must be made on or before the first lodgement date that occurs on or after 1 July 2007.
82  Application of financial arrangement amendments (financial arrangements)
Future financial arrangements
(1)	The financial arrangement amendments apply to financial arrangements that you start to have in the first applicable income year and all subsequent income years.
Existing financial arrangements
(2)	The financial arrangement amendments apply to all financial arrangements that:
	(a)	you started to have before the start of the first applicable income year; and
	(b)	you have at the start of that income year;
only if you elect to have this subitem apply to you.
(3)	The financial arrangement amendments do not apply under subitem (2) to a financial arrangement that arose from a disposal of property (including a disposal of a capital asset, a revenue asset, a depreciating asset or trading stock).
(4)	An election under subitem (2) must:
	(a)	be made on or before the first lodgement date that occurs on or after the start of the first applicable income year; and
	(b)	be notified to the Commissioner at the time when you lodge the income tax return due for lodgement on that day.
(5)	An election that you make under Subdivision 230-C, 230-D, 230-E or 230-F of the Income Tax Assessment Act 1997 extends to financial arrangements referred to in subitem (2) only if that election is made on or before the first lodgement date that occurs after the start of the first applicable income year.
(6)	To avoid doubt, the election referred to in subitem (5) applies to the financial arrangements referred to in subitem (2) even though you started to have the arrangements before the election is made.
Note:	Normally these elections can only apply to financial arrangements that you start to have after the election is made.
(7)	If you make an election under subitem (2), balancing adjustments must be made under subitem (8).
(8)	Use the following method statement to make the balancing adjustments:
Balancing adjustment method statement
Step 1.	Work out the total of all the amounts that relate to the financial arrangements and that would have been included in your assessable income if Division 230 of the Income Tax Assessment Act 1997 had applied to gains and losses from the arrangements from the time when you started to have them: the result is the notional assessable amount.
Step 2.	Work out the total of all the amounts that relate to the financial arrangements and that would have been allowable to you as deductions if that Division had applied to gains and losses from the arrangements from the time when you started to have them: the result is the notional deductible amount.
Step 3.	Work out the total of all the amounts that relate to the financial arrangements and have been included in your assessable income from the time when you started to have them: the result is the actual assessed amount.
Step 4.	Work out the total of all the amounts that relate to the financial arrangements and that have been allowable as deductions for you from the time when you started to have them: the result is the actual deducted amount.
Step 5.	Add the notional assessable amount to the actual deducted amount: the result is the step 5 amount.
Step 6.	Add the actual assessed amount to the notional deductible amount: the result is the step 6 amount.
Step 7.	Compare the step 5 amount with the step 6 amount. If the step 5 amount exceeds the step 6 amount, the excess is included in your assessable income as a balancing adjustment. If the step 6 amount exceeds the step 5 amount, the excess is allowable as a deduction as a balancing adjustment. If the step 5 amount and the step 6 amount are equal there is no balancing adjustment.
(9)	A balancing adjustment under subitem (8) is to be spread evenly over the first applicable income year and the next 3 income years.
(10)	In applying steps 1 and 2 in the method statement in subitem (8) to financial arrangements, assume that any election that extends to the arrangements under subitem (4) had applied to those financial reports from the time when you started to have them.
(11)	In applying section 121EH of the Income Tax Assessment Act 1936, disregard any balancing adjustment under subitem (8).