Income Tax Assessment Act 1936
Act No. 27 of 1936 as amended
This compilation was prepared on 1 January 2008
taking into account amendments up to Act No. 182 of 2007
Volume 3 includes: Table of Contents
Sections 124K – 202G
The text of any of those amendments not in force
on that date is appended in the Notes section
The operation of amendments that have been incorporated may be
affected by application provisions that are set out in the Notes section
Part III—Liability to taxation

Income Tax Assessment Act 1936 iii
Contents
Part III—Liability to taxation i
Division 10B—Industrial property 1
124K Interpretation …………………………………………………………………………. 1
124KAA Division subject to Division 245 of Schedule 2C ………………………… 4
124KA Application of Division where deduction allowable under
former section 124ZAF or section 124ZAFA ……………………………… 4

124L Application ……………………………………………………………………………. 6
124M Annual deductions ………………………………………………………………….. 7
124N Deductions on the disposal or lapse of a unit of industrial
property ………………………………………………………………………………… 8

124P Amount to be included in assessable income on disposal of a
unit of industrial property ………………………………………………………… 9

124PA Roll-over relief …………………………………………………………………….. 10
124Q Disposal of part of a unit of industrial property …………………………. 12
124R Cost of a unit of industrial property …………………………………………. 12
124S Residual value ……………………………………………………………………… 15
124T Consideration receivable on disposal………………………………………. 16
124UA Effective life of certain units of industrial property ……………………. 17
124V Interest by licence in patent etc. ……………………………………………… 18
124W Disposal of unit of industrial property on change of
partnership etc. …………………………………………………………………….. 19

124WA Disposal of unit of industrial property where deduction
allowable under former section 124ZAF or
section 124ZAFA …………………………………………………………………. 20

124Y Damages for infringement ……………………………………………………… 25
124Z Benefit from overseas rights …………………………………………………… 25
Division 10BA—Australian films 26
Subdivision A—Preliminary 26
124ZAA Interpretation ……………………………………………………………………….. 26
124ZAB Provisional certificates ………………………………………………………….. 29
124ZAC Final certificates …………………………………………………………………… 31
124ZAD Determination of content of film …………………………………………….. 32
124ZADAADelegation by Minister ……………………………………………………… 33
124ZADABReview of decisions of Minister …………………………………………. 33
124ZADADeclarations……………………………………………………………………….. 34
124ZADBNotification regarding non-completion of film ………………………… 38
124ZAE Election that Division not apply ……………………………………………… 38
124ZAEATransfer by way of security…………………………………………………… 39

iv Income Tax Assessment Act 1936
Subdivision B—Deductions for capital expenditure 39
124ZAFAASubdivision subject to Division 245 of Schedule 2C………………. 39
124ZAFADeductions for capital expenditure under post 12 January
1983 contracts………………………………………………………………………. 39

124ZAG Expenditure of contributions ………………………………………………….. 44
124ZAGASatisfaction of Commissioner as to the future application
of certain provisions ……………………………………………………………… 45

124ZAH Allocation of contributions expended ………………………………………. 46
124ZAJ Non-arm’s length transactions ………………………………………………… 47
124ZAK Amounts expended in acquiring assets …………………………………….. 48
124ZAL Deduction reduced if future copyright assigned ………………………… 48
124ZAM No deduction unless expenditure at risk …………………………………… 49
Subdivision C—Miscellaneous 51
124ZAO Limitation on deductibility of revenue expenses ……………………….. 51
124ZAP Special provisions relating to partnerships ……………………………….. 52
Division 10E—PDFs (pooled development funds) 54
Subdivision A—Shares in PDFs 54
124ZM Treatment distributions to shareholders in PDF ………………………… 54
124ZN Exemption of income from sale of shares in a PDF……………………. 57
124ZO Shares in a PDF are not trading stock ………………………………………. 57
124ZQ Effect of company becoming a PDF ………………………………………… 57
124ZR Effect of company ceasing to be a PDF ……………………………………. 58
Subdivision B—The taxable income of PDFs 58
124ZS Definitions …………………………………………………………………………… 58
124ZTA Taxable income in first year as PDF if PDF component is nil ……… 59
124ZT SME assessable income …………………………………………………………. 59
124ZU SME income component ……………………………………………………….. 60
124ZV Unregulated investment component ………………………………………… 60
Subdivision C—Adjustments of the tax treatment of capital gains
and capital losses of PDFs
61
124ZW Definitions …………………………………………………………………………… 61
124ZX Companies to which this Subdivision applies……………………………. 62
124ZY Classes of assessable income………………………………………………….. 62
124ZZ Treatment of capital gains ……………………………………………………… 63
124ZZA Allocation of gain amounts and loss amounts to classes of
assessable income …………………………………………………………………. 63

124ZZB Assessable income etc. in relation to capital gains …………………….. 64
124ZZD No net capital loss ………………………………………………………………… 64
Division 11—Interest paid by companies on bearer debentures 65
126 Interest paid by a company on bearer debentures ………………………. 65
127 Credit for tax paid by company ………………………………………………. 65
128 Assessments of tax ……………………………………………………………….. 66

Income Tax Assessment Act 1936 v Division 11A—Dividends, interest and royalties paid to
non-residents and to certain other persons
67
Subdivision A—General 67
128AAA Application of Division to non-share dividends ………………………… 67
128A Interpretation ……………………………………………………………………….. 67
128AA Deemed interest in respect of transfers of certain securities ………… 72
128AB Certificates relating to issue price of certain securities……………….. 72
128AC Deemed interest in respect of hire-purchase and certain other
agreements…………………………………………………………………………… 74

128AD Indemnification etc. agreements in relation to bills of
exchange and promissory notes ………………………………………………. 77

128AE Interpretation provisions relating to offshore banking units ………… 78
128AF Payments through interposed entities ………………………………………. 83
128B Liability to withholding tax ……………………………………………………. 84
128C Payment of withholding tax……………………………………………………. 94
128D Certain income not assessable ………………………………………………… 95
128F Division does not apply to interest on certain publicly
offered company debentures or debt interests……………………………. 96

128FA Division does not apply to interest on certain publicly
offered unit trust debentures or debt interests ………………………….. 105

128GB Division not to apply to interest payments on offshore
borrowings by offshore banking units ……………………………………. 110

128NA Special tax payable in respect of certain securities and
agreements…………………………………………………………………………. 110

128NB Special tax payable in respect of certain dealings by current
and former offshore banking units …………………………………………. 111

128NBA Credits in respect of amounts assessed under Division 16E of
Part III ………………………………………………………………………………. 113

128P Objections………………………………………………………………………….. 114
128Q Power of Commissioner to obtain information ………………………… 114
128R Informal arrangements…………………………………………………………. 115
Division 11B—Equity investments in small-medium enterprises 116
128TG Summary of this Division …………………………………………………….. 116
128TH When Division applies…………………………………………………………. 116
128TI Consequences of Division applying………………………………………. 117
128TJ Acquiring a threshold interest in an SME ……………………………….. 118
128TK SME or small-medium enterprise………………………………………….. 118
128TL Subsidiary and direct ownership group…………………………………… 119
Division 11C—Payments in respect of mining operations on
Aboriginal land
120
128U Interpretation ……………………………………………………………………… 120
128V Liability to mining withholding tax ……………………………………….. 123
128W Payment of mining withholding tax……………………………………….. 123

vi Income Tax Assessment Act 1936
128X Power of Commissioner to obtain information ………………………… 124
Division 12—Oversea ships 125
129 Taxable income of ship-owner or charterer …………………………….. 125
130 Master or agent to make return ……………………………………………… 125
131 Determination by Commissioner …………………………………………… 125
132 Assessment of tax ……………………………………………………………….. 125
133 Master liable to pay …………………………………………………………….. 125
134 Notice of assessment …………………………………………………………… 126
135 Clearance of ship ………………………………………………………………… 126
135A Freights payable under certain agreements ……………………………… 126
Division 13—International agreements and determination of
source of certain income
127
136AA Interpretation ……………………………………………………………………… 127
136AB Operation of Division ………………………………………………………….. 129
136AC International agreements………………………………………………………. 129
136AD Arm’s length consideration deemed to be received or given ……… 130
136AE Determination of source of income etc. ………………………………….. 132
136AF Consequential adjustments to assessable income and
allowable deductions…………………………………………………………… 138

Division 13A—Employee share schemes 141
Subdivision A—Key principle and overview of Division 141
139 The key principle ………………………………………………………………… 141
139A Overview of Division ………………………………………………………….. 141
Subdivision B—Inclusion of discount in assessable income 142
139B Discount to be included in assessable income …………………………. 142
139BA Reduction of amounts included—elections …………………………….. 143
Subdivision C—Key concepts: employee share scheme, discount,
cessation time, qualifying shares and rights and
exemption conditions
143
139C Employee share schemes ……………………………………………………… 143
139CA Cessation time—shares………………………………………………………… 144
139CB Cessation time—rights ………………………………………………………… 145
139CC Calculation of discount ………………………………………………………… 146
139CD Meaning of qualifying shares and qualifying rights…………………. 147
139CDA Additional requirement for shares or rights acquired while
engaged in foreign service ……………………………………………………. 148

139CE Exemption conditions …………………………………………………………..148
Subdivision D—Special provisions 149
139D Discount assessable to associate if share acquired by
taxpayer in respect of associate’s employment ………………………… 149

139DA Acquisition of legal interest in shares or rights—certain
discounts not assessable……………………………………………………….. 150

Income Tax Assessment Act 1936 vii
139DB No deduction until share or right acquired ……………………………… 151
139DC Deduction for provider of certain qualifying shares or rights …….. 151
139DD No benefit where rights lost………………………………………………….. 152
139DE Amount not assessable under other provisions………………………… 153
139DF Anti-avoidance—certain shares and rights not qualifying
shares and qualifying rights ………………………………………………….. 153

139DG Amendment of assessments to account for reductions of
amounts included in assessable income ………………………………….. 153

Subdivision DA—Takeovers and restructures 154
139DP Object of this Subdivision ……………………………………………………. 154
139DQ The effect of 100% takeovers and restructures on employee
share schemes …………………………………………………………………….. 154

139DR Conditions for the continuation of shares or rights …………………… 155
139DS Apportionment rules ……………………………………………………………. 156
Subdivision DB—Stapled securities 157
139DSA Object of this Subdivision ……………………………………………………. 157
139DSB Application of Division to stapled securities …………………………… 157
139DSC Discount not to be included in assessable income unless
stapled security or right is qualifying …………………………………….. 158

139DSD Division does not also apply to share part of stapled security ……. 158
139DSE Modifications relating to employment……………………………………. 158
139DSF Modification relating to legal or beneficial interest ………………….. 159
139DSG Modification relating to voting rights…………………………………….. 159
139DSH Cessation time when stapling arrangement ceases……………………. 160
139DSI Deduction to be apportioned…………………………………………………. 160
Subdivision E—Elections 161
139E Taxpayer may make election ………………………………………………… 161
Subdivision F—Special provisions about the market value of a
share or right
162
139F Meaning of market value of a share or right ……………………………. 162
139FA Listed shares or rights—market value ……………………………………. 162
139FAA Listed shares—market value where public offer ……………………… 163
139FB Unlisted shares—market value ……………………………………………… 164
139FC Unlisted rights—market value ………………………………………………. 164
139FD Conditions and restrictions to be disregarded ………………………….. 165
139FE Value of right nil or can not be determined …………………………….. 165
139FF Value of legal and beneficial interests ……………………………………. 165
139FG Meaning of qualified person…………………………………………………. 166
139FI Provision of information about market value ………………………….. 166
139FJ Outline of remainder of Subdivision……………………………………… 166
139FK Step 1—calculate the calculation percentage…………………………… 166
139FL Step 2—how to use calculation percentage …………………………….. 167
139FM Table 1 and instructions……………………………………………………….. 167

viii Income Tax Assessment Act 1936
139FN Table 2 and instructions……………………………………………………….. 169
Subdivision G—Definitions 170
139G Meaning of acquiring or providing a share or right………………….. 170
139GA Meaning of employee and employer………………………………………. 171
139GB Meaning of permanent employee…………………………………………… 171
139GBA Meaning of foreign service…………………………………………………… 172
139GC Meaning of holding company……………………………………………….. 172
139GCA Meaning of subsidiary…………………………………………………………. 172
139GCB Meaning of 100% takeover…………………………………………………… 172
139GCC Meaning of restructure………………………………………………………… 173
139GCD Meaning of stapled security and stapled entity………………………… 173
139GD Meaning of approved stock exchange……………………………………. 173
139GE Meaning of associate …………………………………………………………… 173
139GF Meaning of conducting a scheme on a non-discriminatory
basis………………………………………………………………………………….. 174

139GG Meaning of provision of financial assistance………………………….. 175
139GH Index of definitions……………………………………………………………… 175
Division 15—Insurance with non-residents 177
141 Interpretation ……………………………………………………………………… 177
142 Income derived by non-resident insurer …………………………………. 177
143 Taxable income of non-resident insurer …………………………………. 178
144 Liability of agents of insurer………………………………………………… 178
145 Deduction of premiums ……………………………………………………….. 178
146 Exporter to furnish information …………………………………………….. 178
147 Rate of tax in special circumstances ………………………………………. 179
148 Reinsurance with non-residents …………………………………………….. 179
Division 16—Averaging of incomes 182
149 Average income………………………………………………………………….. 182
149A Capital gains, abnormal income and certain death benefits to
be disregarded…………………………………………………………………….. 182

150 First average year ……………………………………………………………….. 183
151 First application of Division in relation to a taxpayer……………….. 183
152 Taxpayer not in receipt of assessable income ………………………….. 183
153 Taxpayer with no taxable income ………………………………………….. 183
154 Excess of allowable deductions …………………………………………….. 184
155 Permanent reduction of income …………………………………………….. 184
156 Rebate of tax for, or complementary tax payable by, certain
primary producers……………………………………………………………….. 184

157 Application of Division to primary producers …………………………. 191
158 Application of Division ……………………………………………………….. 192
158A Election that Division not apply ……………………………………………. 192

Income Tax Assessment Act 1936 ix Division 16D—Certain arrangements relating to the use of
property
193
159GE Interpretation ……………………………………………………………………… 193
159GEA Division applies to certain State/Territory bodies…………………….. 200
159GF Residual amounts………………………………………………………………… 200
159GG Qualifying arrangements ……………………………………………………… 204
159GH Application of Division in relation to property………………………… 207
159GJ Effect of application of Division on certain deductions etc. ………. 208
159GK Effect of application of Division on assessability of
arrangement payments …………………………………………………………. 217

159GL Special provision relating to Division 10C or 10D property ……… 220
159GM Special provision where cost of plant etc. is also eligible
capital expenditure………………………………………………………………. 221

159GN Effect of use of property under qualifying arrangement for
producing assessable income ………………………………………………… 222

159GO Special provisions relating to partnerships ……………………………… 225
Division 16E—Accruals assessability etc. in respect of certain
security payments
229
159GP Interpretation ……………………………………………………………………… 229
159GQ Tax treatment of holder of qualifying security ………………………… 234
159GQA Accrual period ……………………………………………………………………. 234
159GQB Accrual amount………………………………………………………………….. 235
159GQC Implicit interest rate for fixed return security ………………………….. 237
159GQD Implicit interest rate for variable return security………………………. 237
159GR Consequences of actual payments …………………………………………. 240
159GS Balancing adjustments on transfer of qualifying security ………….. 240
159GT Tax treatment of issuer of a qualifying security ………………………. 242
159GU Effect of Division on certain transfer profits and losses ……………. 243
159GV Consequence of variation of terms of security…………………………. 244
159GW Effect of Division in relation to non-residents …………………………. 246
159GX Effect of Division where certain payments not assessable ………… 247
159GY Effect of Division where qualifying security is trading stock…….. 247
159GZ Stripped securities ………………………………………………………………. 247
Division 16J—Effect of cancellation of subsidiary’s shares in
holding company
250
159GZZZCInterpretation—general …………………………………………………….. 250
159GZZZDMeaning of eligible entity, eligible interest and eligible
proportion………………………………………………………………………….. 251

159GZZZEShare cancellations to which this Division applies ……………….. 251
159GZZZFEffect on subsidiary of share cancellations to which
this Division applies ……………………………………………………………. 251

159GZZZGPre-cancellation disposals of eligible interests …………………….. 252
159GZZZHPost-cancellation disposals of eligible interests etc. ……………… 253

x Income Tax Assessment Act 1936
159GZZZIAdditional application of sections 159GZZZG and
159GZZZH to associates ……………………………………………………… 254

Division 16K—Effect of buy-backs of shares 256
Subdivision AA—Application of Division to non-share equity
interests
256
159GZZZIAApplication of Division to non-share dividends ………………….. 256
Subdivision A—Interpretation 256
159GZZZJInterpretation……………………………………………………………………. 256
159GZZZKExplanation of terms………………………………………………………… 256
159GZZZLSpecial buy-backs not made in ordinary course of trading
on a stock exchange…………………………………………………………….. 257

159GZZZMPurchase price in respect of buy-back ………………………………… 257
Subdivision B—Company buying-back shares 258
159GZZZNBuy-back and cancellation disregarded for certain
purposes…………………………………………………………………………….. 258

Subdivision C—Off-market purchases 258
159GZZZPPart of off-market purchase price is a dividend …………………….. 258
159GZZZQConsideration in respect of off-market purchase ………………….. 259
Subdivision D—On-market purchases 262
159GZZZRNo part of on-market purchase price is a dividend ……………….. 262
159GZZZSConsideration in respect of on-market purchase …………………… 262
Division 16L—Tax-exempt infrastructure borrowings 263
159GZZZZDInterpretation ………………………………………………………………… 263
159GZZZZEInfrastructure borrowings to be non-assessable and
non-deductible ……………………………………………………………………. 264

159GZZZZFTax exemption to be disregarded for certain purposes…………. 266
159GZZZZGRebate election ……………………………………………………………… 266
159GZZZZHTax payable where infrastructure borrowing
certificate cancelled …………………………………………………………….. 269

Division 17—Rebates 271
Subdivision A—Concessional rebates 271
159H Application ………………………………………………………………………… 271
159HA Indexation of rebate amounts in sections 159J, 159K and
159L …………………………………………………………………………………. 271

159J Rebates for dependants ………………………………………………………… 273
159K Sole parent rebate ……………………………………………………………….. 283
159L Housekeeper ………………………………………………………………………. 284
159M Double concessional rebates…………………………………………………. 287
159N Rebate for certain low-income taxpayers ……………………………….. 288
159P Rebate for medical expenses ………………………………………………… 288

Income Tax Assessment Act 1936 xi
Subdivision AB—Lump sum payments in arrears 291
159ZR Interpretation ……………………………………………………………………… 291
159ZRA Eligibility for rebate ……………………………………………………………. 294
159ZRB Calculation of rebate……………………………………………………………. 294
159ZRC Notional tax amount for recent accrual years ………………………….. 294
159ZRD Notional tax amount for distant accrual years …………………………. 295
Subdivision B—Miscellaneous 296
160AAAATax rebate for low income aged persons ………………………………. 296
160AAABTax rebate for low income aged persons—trustees
assessed under section 98 …………………………………………………….. 297

160AAA Rebate in respect of certain pensions, benefits etc……………………. 299
160AAB Rebate in respect of amounts assessable under section 26AH ……. 300
160AD Maximum amount of rebates ………………………………………………… 303
160ADA Most tax offsets under the 1997 Assessment Act are treated
as rebates …………………………………………………………………………… 303

Part IIIB—Australian branches of foreign banks
304
Division 1—Preliminary 304
160ZZVAObject……………………………………………………………………………….304
160ZZVBApplication……………………………………………………………………….. 304
160ZZV Definitions…………………………………………………………………………. 305
160ZZW Certain provisions to apply as if Australian branch of foreign
bank were a separate legal entity …………………………………………… 306

Division 2—Provisions relating to income tax 308
160ZZX Income of branch to have Australian source……………………………. 308
160ZZZ Notional borrowing by branch from bank ………………………………. 308
160ZZZANotional payment of interest by branch to bank ……………………… 308
160ZZZCOffshore banking units ……………………………………………………….. 310
160ZZZENotional derivative transactions between branch and bank ………. 310
160ZZZFNotional foreign exchange transactions between branch and
bank ………………………………………………………………………………….. 310

160ZZZGLosses ………………………………………………………………………………. 311
160ZZZHNet capital losses ……………………………………………………………….. 311
160ZZZI Certain transactions to be disregarded ……………………………………. 311
Division 3—Provisions relating to withholding tax 312
160ZZZJ Withholding tax on interest paid by branch to bank …………………. 312
Division 4—Extension of Part to Australian branches of foreign
financial entities
313
160ZZZKTreatment like Australian branches of foreign banks ………………. 313

xii Income Tax Assessment Act 1936
Part IV—Returns and assessments 314
161 Annual returns ……………………………………………………………………. 314
161A Form and content of returns………………………………………………….. 314
161AA Contents of returns of full self-assessment taxpayers ……………….. 315
161G Tax agent to give taxpayer copy of notice of assessment ………….. 315
162 Further returns and information …………………………………………….. 315
163 Special returns ……………………………………………………………………. 316
163A Late lodgement penalty—relevant entities, instalment
taxpayers and full self-assessment taxpayers…………………………… 316

163AA General interest charge on unpaid penalty ………………………………. 318
163B Late lodgment of returns by persons other than relevant
entities, instalment taxpayers and full self-assessment
taxpayers……………………………………………………………………………. 318

164 Returns deemed to be duly made …………………………………………… 321
166 Assessment ………………………………………………………………………… 321
166A Deemed assessment …………………………………………………………….. 321
167 Default assessment ……………………………………………………………… 323
168 Special assessment………………………………………………………………. 323
169 Assessments on all persons liable to tax …………………………………. 323
169A Reliance by Commissioner on returns and statements………………. 324
170 Amendment of assessments ………………………………………………….. 325
170C Power of Commissioner to reduce amount of tax payable in
certain cases……………………………………………………………………….. 337

171 Where no notice of assessment served……………………………………. 337
171A Limited period to make assessments for nil liability returns
for the 2003-04 year of income or earlier ……………………………….. 338

172 Refunds of amounts overpaid ……………………………………………….. 340
173 Amended assessment to be an assessment………………………………. 341
174 Notice of assessment …………………………………………………………… 341
175 Validity of assessment …………………………………………………………. 341
175A Objections against assessments …………………………………………….. 341
176 Judicial notice of signature …………………………………………………… 342
177 Evidence ……………………………………………………………………………. 342
Part IVA—Schemes to reduce income tax
344
177A Interpretation ……………………………………………………………………… 344
177B Operation of Part ………………………………………………………………… 345
177C Tax benefits ……………………………………………………………………….. 345
177CA Withholding tax avoidance …………………………………………………… 350
177D Schemes to which Part applies ……………………………………………… 350
177E Stripping of company profits ………………………………………………… 351
177EA Creation of franking debit or cancellation of franking credits ……. 353
177EB Cancellation of franking credits—consolidated groups …………….. 360
177F Cancellation of tax benefits etc……………………………………………… 363

Income Tax Assessment Act 1936 xiii
177G Amendment of assessments ………………………………………………….. 367
Part VA—Tax file numbers
368
Division 1—Preliminary 368
202 Objects of this Part ……………………………………………………………… 368
202A Interpretation ……………………………………………………………………… 370
202AA Definition of eligible PAYG payment…………………………………….. 373
Division 2—Issuing of tax file numbers 375
202B Application for tax file number…………………………………………….. 375
202BA Issuing of tax file numbers …………………………………………………… 375
202BB Current tax file number………………………………………………………… 376
202BC Deemed refusal by Commissioner …………………………………………. 376
202BD Interim notices……………………………………………………………………. 376
202BE Cancellation of tax file numbers……………………………………………. 377
202BF Alteration of tax file numbers ……………………………………………….. 377
Division 3—Quotation of tax file numbers by recipients of
eligible PAYG payments
378
202C TFN declarations by recipients of eligible PAYG payments ……… 378
202CA Operation of TFN declaration……………………………………………….. 378
202CB Quotation of tax file number in TFN declaration …………………….. 379
202CC Making a replacement TFN declaration in place of an
ineffective declaration …………………………………………………………. 381

202CD Sending of TFN declaration to Commissioner ………………………… 381
202CE Effect of incorrect quotation of tax file number ………………………. 382
202CF Payer must notify Commissioner if no TFN declaration by
recipient …………………………………………………………………………….. 383

Division 4—Quotation of tax file numbers in connection with
certain investments
385
202D Explanation of terms: investment, investor, investment body ……. 385
202DA Phasing-in period for Division………………………………………………. 388
202DB Quotation of tax file numbers in connection with investments …… 388
202DC Method of quoting tax file number ………………………………………… 389
202DD Investor excused from quoting tax file number in certain
circumstances …………………………………………………………………….. 389

202DDB Quotation of tax file number in connection with indirectly
held investment…………………………………………………………………… 389

202DE Securities dealer to inform the investment body of tax file
number………………………………………………………………………………. 392

202DF Effect of incorrect quotation of tax file number ………………………. 392
202DG Investments held jointly……………………………………………………….. 393
202DH Tax file number quoted for superannuation or surcharge
purposes taken to be quoted for purposes of the taxation of
eligible termination payments……………………………………………….. 394

xiv Income Tax Assessment Act 1936
202DHA Tax file number quoted for Division 3 purposes taken to
have been quoted for superannuation purposes……………………….. 394

202DI Tax file number quoted for RSA purposes taken to be quoted
for purposes of the taxation of superannuation benefits ……………. 395

202DJ Tax file number quoted for purposes of taxation of
superannuation benefits taken to be quoted for surcharge
purposes…………………………………………………………………………….. 395

Division 4A—Quotation of tax file numbers in connection with
farm management deposits
397
202DK Interpretation ……………………………………………………………………… 397
202DL Quotation of tax file number ………………………………………………… 397
202DM Effect of incorrect quotation of tax file number ………………………. 397
Division 5—Exemptions 399
202EA Persons receiving certain pensions etc.—employment ……………… 399
202EB Persons receiving certain pensions etc.—investments ………………. 400
202EC Entities not required to lodge income tax returns …………………….. 401
202EE Non-residents……………………………………………………………………… 403
202EF Territory residents etc. …………………………………………………………. 403
202EG Manner of completing declarations ……………………………………….. 404
202EH Declarations under this Division to be retained in certain
circumstances …………………………………………………………………….. 404

Division 6—Review of decisions 406
202F Review of decisions……………………………………………………………..406
202FA Statements to accompany notification of decisions …………………. 407
Division 7—Manner of providing information 408
202G Transmission of information in accordance with
specifications ……………………………………………………………………… 408

Liability to taxation Part III
Industrial property Division 10B

Section 124K

Income Tax Assessment Act 1936 1
Division 10B—Industrial property
124K Interpretation
(1) In this Division, unless the contrary intention appears:
Australian film means a film that is certified in writing by the
Minister to be a film that:
(a) has been, or is to be, made wholly or substantially in
Australia or in an external Territory and has, or will have, a
significant Australian content; or
(b) has been, or is to be, made in pursuance of an agreement or
arrangement entered into between the Government of
Australia or an authority of the Government of Australia and
the Government of another country or an authority of the
Government of another country.
film has the meaning given by subsection 995-1(1) of the Income
Tax Assessment Act 1997.
Minister means the Minister administering the Film Licensed
Investment Company Act 2005.
Senior Executive Service office has the meaning given by
subsection 995-1(1) of the Income Tax Assessment Act 1997.
the owner, in relation to a unit of industrial property, means the
person who possesses the rights in respect of that unit of industrial
property.
unit of industrial property means:
(a) rights possessed by a person under a law of Australia as:
(ii) the owner of a copyright; or
(iv) a licensee under such a copyright;
and includes equitable rights in respect of such a patent,
copyright or design or in respect of a licence under such a
patent, copyright or design; or
(b) rights possessed by a person under a law of a foreign country
that are equivalent to the rights referred to in paragraph (a).

Part III Liability to taxation
Division 10B Industrial property

Section 124K

2 Income Tax Assessment Act 1936 (1A) In considering for the purposes of the definition of Australian film
in subsection (1) whether a film has or will have a significant
Australian content, the Minister shall have regard to:
(a) the subject-matter of the film;
(b) the place or places where the film was, or is to be, made;
(c) the nationalities and places of residence of:
(i) the persons who took part, or are to take part, in the
making of the film (including authors, composers,
actors, scriptwriters, editors, producers, directors and
technicians);
(ii) the persons who are, or will be, the beneficial owners of
the shares or stock in the capital of any company
concerned in the making of the film; and
(iii) the persons who are, or will be, the beneficial owners of
the copyright in the film;
(d) the source from which moneys used, or to be used, in the
making of the film were, or will be, derived; and
(e) any other matters that he considers to be relevant.
(1B) The Minister may, by writing, delegate to the Secretary to the
Minister’s Department, or to a person holding or performing the
duties of a Senior Executive Service office in the Minister’s
Department, all or any of the Minister’s powers under this section.
(1C) Applications may be made to the Tribunal for review of a decision:
(a) to refuse to give a certificate of the kind referred to in the
definition of Australian film in subsection (1); or
(b) to revoke such a certificate.
(1D) Where the Minister makes a decision of the kind referred to in
subsection (1C) and gives to a person whose interests are affected
by the decision notice in writing of the decision, that notice shall:
(a) in all cases—include a statement to the effect that, subject to
the Administrative Appeals Tribunal Act 1975, application
may be made to the Administrative Appeals Tribunal, by or
on behalf of any person whose interests are affected by the
decision, for review of the decision; and
(b) except where subsection 28(4) of that Act applies—include a
statement to the effect that a request may be made under
section 28 of that Act by or on behalf of such a person for a
statement setting out the findings on material questions of

Liability to taxation Part III
Industrial property Division 10B

Section 124K

Income Tax Assessment Act 1936 3 fact, referring to the evidence or other material on which
those findings were based and giving the reasons for the
decision.
(1E) A failure to comply with the requirements of subsection (1D) in
relation to a decision does not affect the validity of the decision.
(2) Subject to subsection (2A), a reference in this Division to
expenditure of a capital nature does not include a reference to:
(a) expenditure in respect of which a deduction has been allowed
or is allowable under a provision of this Act, other than a
provision of this Division, or which has been or is taken into
account in ascertaining the amount of an allowable deduction
under such a provision; or
(b) the expenditure of moneys by a taxpayer, under a contract
entered into on or after 1 October 1980, in producing, or by
way of contribution to the cost of producing, a film where:
(i) the expenditure of the moneys was expenditure of a
capital nature;
(ii) at the time when the moneys were expended, the
taxpayer was a resident;
(iii) at the time when the moneys were expended, a
certificate under section 124ZAB or 124ZAC was in
force in relation to the film;
(iv) the Commissioner is satisfied, in relation to the
expenditure of those moneys by the taxpayer, as
mentioned in former paragraph 124ZAF(1)(c) or
paragraph 124ZAFA(1)(c); and
(v) the taxpayer has not made an election under
section 124ZAE in relation to that film; or
(c) expenditure on software (within the meaning of the Income
Tax Assessment Act 1997).
(2A) Where a taxpayer has expended moneys as mentioned in
paragraph (2)(b) and, by reason of the operation of
section 124ZAM, the taxpayer is deemed, for the purposes of
Division 10BA, not to have expended those moneys or not to have
expended part of those moneys, paragraph (2)(b) does not apply in
respect of the expenditure of those moneys or of that part of those
moneys, as the case may be.

Part III Liability to taxation
Division 10B Industrial property

Section 124KAA

4 Income Tax Assessment Act 1936 (3) Where a unit of industrial property is transmitted to a person by
operation of law, this Division has effect as if that unit had been
disposed of to that person by the last preceding owner of the unit at
the time of the transmission.
(4) In this Division, a reference to the transmission of a unit of
industrial property by operation of law includes, without limiting
the generality of that expression, a reference to the transmission of
a unit of industrial property to a person:
(a) as trustee of the estate of the deceased owner of the unit;
(b) as a beneficiary under the will or a codicil of the deceased
owner of the unit or under an order of a court that varied or
modified the provisions or such a will or codicil; or
(c) as a beneficiary on the intestacy of the deceased owner of the
unit or as a beneficiary under an order of a court that varied
or modified the application, in relation to the estate of the
deceased owner of the unit, of the provisions of the law
relating to the distribution of the estates of persons who die
intestate.
(5) For the purpose of this Division, disregard an acquisition or
disposal of property by way of the transfer of the property for the
provision or redemption of a security. Consequently this Division
applies as if the person who was the owner of the property before
the transfer continues to be the owner after the transfer.
124KAA Division subject to Division 245 of Schedule 2C
This Division has effect subject to Division 245 of Schedule 2C.
124KA Application of Division where deduction allowable under
former section 124ZAF or section 124ZAFA
(1) Where:
(a) a partnership has expended capital moneys in producing, or
by way of contribution to the cost of producing, a film;
(b) by virtue of the expenditure of those moneys by the
partnership, a deduction has been allowed, or is allowable,
under former section 124ZAF or section 124ZAFA to a
taxpayer being a partner in the partnership;
the following provisions have effect:

Liability to taxation Part III
Industrial property Division 10B

Section 124KA

Income Tax Assessment Act 1936 5 (c) for the purposes of this Division other than this section, the
partnership shall not be taken to have incurred any
expenditure of a capital nature directly in relation to
producing the film; and
(d) where an amount (in this paragraph referred to as the
relevant amount) of moneys expended by the partnership
under a contract (in this subsection referred to as the relevant
contract):
(i) is taken, for the purposes of subsection 124ZAP(2), to
have been expended by the partnership in producing, or
by way of contribution to the cost of producing, the
film; or
(ii) would be taken, for the purposes of that subsection, to
have been expended by the partnership in producing, or
by way of contribution to the cost of producing, the film
if that subsection and Subdivision B of Division 10BA
extended to the expenditure of moneys under contracts
entered into before 1 October 1980;
a taxpayer, being a partner in the partnership, shall, subject to
subsection 124K(2), be taken for the purposes of this
Division to have expended capital moneys in producing the
film of an amount equal to:
(iii) so much of the relevant amount as the partners have
agreed is to be borne by the taxpayer; or
(iv) if the partners have not agreed as to the part of the
relevant amount that is to be borne by the taxpayer—so
much of the relevant amount as bears to the relevant
amount the same proportion as the individual interest of
the taxpayer in the net income of the partnership of the
year of income in which the relevant amount was
expended by the partnership bears to that net income or,
as the case requires, the individual interest of the
taxpayer in the partnership loss for that year of income
bears to that partnership loss;
and the amount deemed to be expended by the taxpayer shall
be deemed to have been expended under a contract entered
into at the time when the relevant contract was entered into
by the partnership.

Part III Liability to taxation
Division 10B Industrial property

Section 124L

6 Income Tax Assessment Act 1936 (2) In this section, a reference to the expenditure of capital moneys is a
reference to the expenditure of moneys that is expenditure of a
capital nature.
124L Application
(1A) For the purposes of assessments for the 1998-99 year of income
and later years of income, this Division applies to the owner of a
unit of industrial property only if:
(a) the unit relates to a copyright in an Australian film; and
(b) a claim is not made for a tax offset in respect of the film
under Division 376 of the Income Tax Assessment Act 1997
(whether in that year of income or another year of income);
and
(c) an application for a certificate of the kind referred to in the
definition of Australian film in subsection 124K(1) in
respect of the film is made before the day on which the Tax
Laws Amendment (2007 Measures No. 5) Act 2007 receives
the Royal Assent; and
(d) the owner claims a deduction in respect of the film under this
Division in relation to the 2008-09 year of income or an
earlier year of income.
Note 1: For other kinds of intellectual property, see Division 40 of the Income
Tax Assessment Act 1997.
Note 2: Paragraph (d) means that, if a taxpayer claims a deduction in respect
of a film under this Division in relation to the 2008-09 year of income,
the taxpayer can claim a deduction in respect of the film in relation to
the 2009-10 year of income as well.
(1) This Division applies to the owner of a unit of industrial property
who:
(a) became the owner of the unit by reason of being the first
owner of the copyright to which the unit relates and, before
the unit came into existence, incurred expenditure of a capital
nature directly in relation to producing the work or other
subject-matter in which the copyright subsists; or
(b) incurred expenditure of a capital nature on the purchase of
the unit of industrial property; or
(c) acquired the unit of industrial property by virtue of the
disposal (other than a disposal by way of transmission by
operation of law), in whole or in part and otherwise than for
valuable consideration, of a unit of industrial property by the

Liability to taxation Part III
Industrial property Division 10B

Section 124M

Income Tax Assessment Act 1936 7 owner of that last-mentioned unit in a case where a deduction
under this Division in respect of that unit has been allowed or
is allowable in an assessment in respect of income of that
last-mentioned owner or would have been so allowable if that
unit, or the invention, work or other subject-matter or design
to which that unit relates, had been used by that owner for the
purpose of producing assessable income; or
(d) acquired the unit of industrial property by virtue of the
transmission, in whole or in part, of a unit of industrial
property by operation of law, in a case where a deduction
under this Division in respect of that unit has been allowed or
is allowable in an assessment in respect of income of the last
preceding owner of that unit or would have been so allowable
if that unit, or the invention, work or other subject-matter or
design to which that unit relates, had been used by that last
preceding owner for the purpose of producing assessable
income;
and, in the year of income or a previous year of income, has used
the unit of industrial property of which he is the owner, or the
invention, work or other subject-matter or design to which that unit
relates, for the purpose of producing assessable income.
124M Annual deductions
(1) Where, at any time during the year of income, a taxpayer is the
owner of a unit of industrial property to whom this Division
applies, an amount equal to the residual value of the unit in relation
to the taxpayer as at the end of the year of income divided by a
number equal to the number of whole years in the effective life of
the unit in relation to the taxpayer as at the commencement of the
year of income shall, subject to this Act, be an allowable deduction
in respect of the unit.
(2) Where the deduction allowable under subsection (1) would, but for
this subsection, be less than $100, the deduction allowable shall be
$100, or the amount of the residual value referred to in
subsection (1), whichever is the less.
(3) Where:
(a) at any time during the year of income a taxpayer was the
owner of a unit of industrial property to whom this Division
applies;

Part III Liability to taxation
Division 10B Industrial property

Section 124N

8 Income Tax Assessment Act 1936 (b) the effective life of the unit in relation to the taxpayer expired
before the commencement of the year of income; and
(c) there was a residual value of the unit in relation to the
taxpayer as at the end of the year of income;
an amount equal to that residual value shall, subject to this Act, be
an allowable deduction in respect of the unit in the assessment of
the taxpayer in respect of income of that year of income.
(4) Subject to subsection (5), where, during a year of income, the
owner of a unit of industrial property ceases to be the owner of the
unit, a deduction under this section in respect of the unit is not
allowable in his assessment in respect of income of that year of
income.
(5) Subsection (4) extends to the case where the owner of the unit of
industrial property ceases to be the owner by reason that the
property ceases to exist but does not apply:
(a) where the owner ceases to be the owner of the unit of
industrial property by virtue of the transmission of the unit by
operation of law; or
(b) where the unit of industrial property was purchased or
otherwise acquired by the owner for a specified period and he
ceases to be the owner by reason that the specified period
terminates.
(6) A reference in subsection (1) or (3) to the residual value of a unit
of industrial property as at the end of a year of income in relation
to a taxpayer who was the owner of the unit at any time during that
year of income shall, in a case where the taxpayer ceased to be the
owner of the unit by virtue of the transmission of the unit by
operation of law, be read as a reference to the residual value of the
unit in relation to the taxpayer immediately before the time of the
transmission of the unit.
124N Deductions on the disposal or lapse of a unit of industrial
property
(1) Where, at any time during the year of income, a taxpayer who is
the owner of a unit of industrial property to whom this Division
applies disposes of the unit in whole and the amount of the
consideration receivable in respect of the disposal is less than the
residual value of the unit in relation to him at that time, the amount

Liability to taxation Part III
Industrial property Division 10B

Section 124P

Income Tax Assessment Act 1936 9 of the residual value, less the amount of the consideration, shall be
an allowable deduction.
(2) Where:
(a) a unit of industrial property owned by a taxpayer who is an
owner to whom this Division applies ceases to exist at any
time during the year of income by reason of the copyright to
which the unit relates ceasing to be in force; or
(b) a unit of industrial property owned by a taxpayer who is an
owner to whom this Division applies and became the owner
by reason of the grant, by licence, to him of an interest in a
copyright ceases to exist at any time during the year of
income by reason of a surrender of the licence in a case
where there was no consideration receivable by the taxpayer
in respect of the surrender;
and there is a residual value of the unit in relation to the taxpayer
as at that time, that residual value shall be an allowable deduction.
124P Amount to be included in assessable income on disposal of a
unit of industrial property
(1) Where, at any time during the year of income, a taxpayer who is
the owner of a unit of industrial property to whom this Division
applies disposes of that unit in whole or in part (whether or not the
effective life of that unit in relation to the taxpayer had expired at
that time):
(a) if there is a residual value of that unit in relation to the
taxpayer at that time and the amount of the consideration
receivable in respect of the disposal exceeds that residual
value—the amount of the excess; or
(b) if there is no residual value of that unit in relation to the
taxpayer at that time—the amount of the consideration
receivable in respect of the disposal;
shall be included in the assessable income of the taxpayer of the
year of income.
(3) The amount which, under subsection (1), is required to be included
in the assessable income of a taxpayer of a year of income in
respect of a unit of industrial property shall not exceed the sum of
the deductions which have been allowed or are allowable in respect
of the unit under this Division in assessments of income of the
taxpayer, less the sum of the amounts, if any, which have, under

Part III Liability to taxation
Division 10B Industrial property

Section 124PA

10 Income Tax Assessment Act 1936 this section, been included in the assessable income of the taxpayer
of a previous year, or previous years, of income in respect of that
unit.
124PA Roll-over relief
(1A) This section does not apply in respect of a disposal in respect of
which Subdivision 170-D of the Income Tax Assessment Act 1997
applies.
Roll-over relief where CGT roll-over relief allowed
(1) This section applies to the disposal of a unit of industrial property
by a taxpayer (in this section called the transferor) to another
taxpayer (in this section called the transferee) if:
(b) subject to subsection (6), deductions have been allowed or
are allowable under this Division to the transferor in respect
of the unit; and
(c) no part of the cost of the unit to the transferor is attributable
to expenditure covered by subsection 124K(2A) or
124KA(1); and
(d) the disposal involves a CGT event; and
(e) the conditions in an item in the table are satisfied.

CGT roll-overs that qualify transferor for relief
Item Type of CGT roll-over Conditions
1 Disposal of asset to
wholly-owned company There is a roll-over under Subdivision 122-A
of the Income Tax Assessment Act 1997 for
the CGT event.
2 Disposal of asset by
partnership to
wholly-owned company The transferor is a partnership, the unit is
partnership property, and there is a roll-over
under Subdivision 122-B of the Income Tax
Assessment Act 1997 for the disposal by the
partners of the CGT assets consisting of their
interests in the unit.
3 Marriage breakdown There is a roll-over under Subdivision 126-A
of the Income Tax Assessment Act 1997 for
the CGT event.
4 Disposal of asset to
another member of the
same wholly-owned group There is a roll-over under Subdivision 126-B
of the Income Tax Assessment Act 1997 for
the CGT event.

Liability to taxation Part III
Industrial property Division 10B

Section 124PA

Income Tax Assessment Act 1936 11 Roll-over relief where joint election made under section 124W
(2) This section also applies if a joint election for roll-over relief is
made under subsection 124W(3) by both the transferor and the
transferee referred to in that subsection in relation to the disposal
of a unit of industrial property.
No balancing charges or deductions
(3) Sections 124N and 124P (which deal with balancing charges and
deductions) do not apply to the disposal of the unit by the
transferor.
Transferee to inherit certain characteristics from transferor
(4) This Division applies as if:
(a) the cost of the unit of industrial property in relation to the
transferee were equal to the residual value of the unit in
relation to the transferor immediately before the disposal; and
(b) the effective life of the unit of industrial property determined
in relation to the transferor immediately before the disposal
under section 124UA were the effective life of the unit of
industrial property in relation to the transferee; and
(c) if the transferor had not made an election under
section 124UA in relation to the unit of industrial property—
the transferee were not entitled to make an election under that
section in relation to the unit.
Disposal by transferee where no roll-over relief—inheritance of
deductions
(5) If:
(a) the transferee disposes of the unit of industrial property; and
(b) this section does not apply to the disposal;
then, for the purposes of the application of subsection 124P(3) in
relation to the disposal:
(c) the total of:
(i) the deductions allowed or allowable to the transferor
under this Division in relation to the unit; and
(ii) if there have been 2 or more prior successive
applications of this section—the deductions allowed or

Part III Liability to taxation
Division 10B Industrial property

Section 124Q

12 Income Tax Assessment Act 1936 allowable to the prior successive transferors under this
Division in relation to the unit;
are taken to have been deductions allowed or allowable to the
transferee under this Division in relation to the unit; and
(d) the total of:
(i) the amounts included in the transferor’s assessable
income under section 124P in relation to the unit; and
(ii) if there have been 2 or more prior successive
applications of this section—the amounts included in
the prior successive transferors’ assessable incomes
under that section in relation to the unit;
are taken to have been included in the transferee’s assessable
income under that section in relation to the unit.
Second or subsequent application of section—paragraph (1)(b)
does not apply
(6) If, apart from this subsection, this section has applied to the
disposal of the unit to the transferee, then, in working out whether
this section applies to a subsequent disposal of the unit by:
(a) the transferee; or
(b) one or more subsequent successive transferees;
this section has effect as if paragraph (1)(b) (which deals with
deductions) had not been enacted.
124Q Disposal of part of a unit of industrial property
Subject to this Division, where the owner of a unit of industrial
property disposes of that unit in part, that part of the unit of which
he remains the owner shall, for the purposes of this Division, be
deemed to be the same unit of industrial property as the unit of
industrial property which he disposed of in part.
124R Cost of a unit of industrial property
(1) For the purposes of this Division, the cost of a unit of industrial
property to the owner of the unit shall, subject to subsection
124S(2), be taken to be:
(a) in the case of an owner referred to in paragraph 124L(1)(a):
(i) if subsection (2) of this section is applicable—the cost
ascertained in accordance with that subsection; or

Liability to taxation Part III
Industrial property Division 10B

Section 124R

Income Tax Assessment Act 1936 13 (ii) if subsection (2) of this section is not applicable—the
expenditure referred to in paragraph 124L(1)(a);
(b) in the case of an owner referred to in paragraph 124L(1)(b):
(i) if subsection (3) or (5) of this section is applicable—the
cost ascertained in accordance with that subsection; or
(ii) if neither of those subsections is applicable—the
expenditure referred to in paragraph 124L(1)(b);
(c) in the case of an owner referred to in paragraph 124L(1)(c):
(i) if the owner acquired a unit of industrial property of
another person in whole—the residual value of the unit
in relation to the last preceding owner of the unit
immediately before the time of the disposal of the unit;
or
(ii) in any other case—such part of that residual value as the
Commissioner determines; or
(d) in the case of an owner referred to in paragraph 124L(1)(d):
(i) if the owner acquired a unit of industrial property of
another person in whole—an amount ascertained by
deducting from the residual value of the unit in relation
to the last preceding owner of the unit immediately
before the time of the transmission of the unit any
deductions allowed or allowable under this Division in
respect of the unit in an assessment in respect of income
of that last preceding owner of the year of income
during which the transmission took place; or
(ii) in any other case—such part of that amount as the
Commissioner determines.
(2) Where, in the case of an owner referred to in paragraph 124L(1)(a),
the Commissioner is satisfied, having regard to any connection
between the owner and any person who supplied goods to, or
provided services for, the owner in relation to the unit of industrial
property concerned or to any other relevant circumstances, that:
(a) the owner and that person were not dealing with each other at
arm’s length in relation to the supply of those goods or the
provision of those services; and
(b) the expenditure of a capital nature incurred by the owner in
relation to producing the work or other subject-matter in
which the copyright subsists exceeds the expenditure of a
capital nature that would have been incurred by the owner if

Part III Liability to taxation
Division 10B Industrial property

Section 124R

14 Income Tax Assessment Act 1936 the owner and that person had dealt with each other at arm’s
length;
the cost of the unit to the owner for the purposes of this Division
shall be taken to be the amount of the expenditure of a capital
nature that, in the opinion of the Commissioner, would have been
incurred by the owner if the owner and that person had dealt with
each other at arm’s length.
(3) Where, in the case of an owner referred to in paragraph
124L(1)(b):
(a) the Commissioner is satisfied, having regard to any
connection between the owner and the person from whom the
unit of industrial property concerned was purchased or to any
other relevant circumstances, that the owner and that person
were not dealing with each other at arm’s length in relation to
the purchase; and
(b) the expenditure of a capital nature incurred by the owner on
the purchase of the unit of industrial property:
(i) exceeds the amount that was the cost of the unit to the
last preceding owner of the unit; or
(ii) does not exceed the amount that was the cost of the unit
to the last preceding owner of the unit but exceeds the
value of the unit at the time of the purchase;
the cost of the unit to the owner for the purposes of this Division
shall be taken to be the cost of the unit to the last preceding owner
of the unit or the value of the unit at the time of the purchase,
whichever is the less.
(4) References in subsection (3) to the cost of a unit of industrial
property to the last preceding owner of the unit or to the value of a
unit of industrial property at the time of the purchase of the unit
shall, if the purchase was a purchase of a part of a unit of industrial
property of another person, be construed as references to such part
of that cost or of that value, as the case may be, as the
Commissioner determines.
(5) Where, in the case of an owner referred to in paragraph
124L(1)(b), the unit of industrial property was purchased by the
owner of the unit with other property and no separate price was
allocated to the unit, the amount of the expenditure of a capital
nature incurred by the owner on the purchase of the unit for the
purposes of this Division shall be taken to be so much of the

Liability to taxation Part III
Industrial property Division 10B

Section 124S

Income Tax Assessment Act 1936 15 purchase price of the unit and the other property as the
Commissioner determines.
124S Residual value
(1) Subject to this section, the residual value of a unit of industrial
property at any time in relation to the owner of the unit shall, for
the purposes of this Division, be ascertained by deducting from the
cost of the unit to the owner the sum of:
(a) any deductions allowed or allowable under this Division in
respect of the unit in assessments in respect of income of the
owner of a year or years of income which ended prior to that
time; and
(b) the consideration receivable by the owner in respect of any
disposal by him of the unit in part prior to that time.
(1A) The reference in paragraph (1)(a) to any deductions allowed or
allowable under this Division in respect of a unit of industrial
property shall, in the case of a deduction that has been or is to be
reduced by reason of section 124Z, be read as a reference to the
deduction that, but for that section, would have been allowed or
would be allowable.
(2) Where the owner of a unit of industrial property has incurred
expenditure of a capital nature in obtaining the surrender to him of
a licence previously granted by him in respect of the copyright to
which the unit relates, then, in ascertaining the residual value of the
unit in relation to the owner of the unit at any time after the
surrender, the cost of the unit to the owner of the unit shall be
deemed to be increased by:
(a) in a case to which paragraph (b) does not apply—an amount
equal to the expenditure so incurred in obtaining the
surrender; or
(b) if:
(i) the Commissioner is satisfied, having regard to any
connection between the owner and the person who
surrendered the licence or to any other relevant
circumstances, that the owner and that person were not
dealing with each other at arm’s length in relation to the
surrender; and

Part III Liability to taxation
Division 10B Industrial property

Section 124T

16 Income Tax Assessment Act 1936 (ii) the consideration for the surrender:
(A) was greater than the value of the licence at the
time of the surrender; or
(B) was not greater than that value but was greater
than the expenditure of a capital nature that was
incurred by the person who surrendered the
licence in obtaining the grant of the licence;
an amount equal to that value or that expenditure, whichever
is the less.
124T Consideration receivable on disposal
(1) Subject to this section, for the purposes of this Division, the
consideration receivable by the owner of a unit of industrial
property in respect of the disposal of the unit in whole or in part
shall be taken to be:
(a) where the unit is sold in whole or in part (whether with or
without other property) for a specified price—the sale price
of the unit or part of the unit, less the expenses of the sale of
the unit or part of the unit or such part of the expenses of the
sale of the unit or part of the unit together with the other
property as the Commissioner determines;
(b) where the unit is sold in whole or in part together with other
property and a specified price is not allocated to the unit or
the part of the unit—such part of the sale price of the unit or
part of the unit together with the other property as the
Commissioner determines, less such part of the expenses of
the sale of the unit or part of the unit together with the other
property as the Commissioner determines; or
(c) where the unit is transmitted by operation of law:
(i) if the unit is transmitted in whole—an amount equal to
the residual value of the unit in relation to that owner of
the unit immediately before the time of the transmission
of the unit; or
(ii) if the unit is transmitted in part—such part of that
residual value as is determined by the Commissioner.
(2) Where the owner of a unit of industrial property to whom this
Division applies disposes of the unit in whole or in part to another
person and:

Liability to taxation Part III
Industrial property Division 10B

Section 124UA

Income Tax Assessment Act 1936 17 (a) the Commissioner is satisfied, having regard to any
connection between the owner and that other person or to any
other relevant circumstances, that the owner and that other
person were not dealing with each other at arm’s length in
relation to the disposal; and
(b) there was no amount receivable by the owner in respect of
the disposal or the amount receivable by the owner in respect
of the disposal was less than the value of the unit or the part
of the unit at the time of the disposal;
the consideration receivable by the owner in respect of the disposal
for the purposes of this Division shall be taken to be the amount
that was the value of the unit or the part of the unit at the time of
the disposal.
(3) Where:
(a) the owner of a unit of industrial property to whom this
Division applies disposes of the unit in whole or in part; and
(b) the whole or a part of the amount receivable by the owner in
respect of the disposal has been included or is to be included
in the assessable income of the owner of any year of income
under any provision of this Act other than a provision of this
Division;
then, for the purposes of this Division, the consideration receivable
by the owner in respect of the disposal shall be reduced by so much
of that amount as has been so included or is to be so included.
124UA Effective life of certain units of industrial property
(1) Subject to this section, for the purposes of this Division, the
effective life of a unit of industrial property that relates to a
copyright subsisting in an Australian film shall, in relation to the
owner of the unit, be deemed to have commenced at the
commencement of the year of income during which the owner of
the unit first used that unit, or the subject-matter to which that unit
relates, for the purpose of producing assessable income and shall
end:
(a) where the unit was purchased or otherwise acquired by him
for a specified period—at the end of the year of income next
succeeding the year of income during which the unit was first
so used or at the end of the year of income during which the
specified period will terminate, whichever will first occur; or

Part III Liability to taxation
Division 10B Industrial property

Section 124V

18 Income Tax Assessment Act 1936 (b) in any other case—at the end of the year of income next
succeeding the year of income during which the unit was first
so used.
(2) The owner of a unit of industrial property that relates to a copyright
subsisting in an Australian film may elect that this Division does
not apply in relation to that unit.
(3) An election under subsection (2) must be made on or before the
last day for the furnishing of the owner’s return of income of the
year of income during which the owner first used that unit, or the
subject-matter to which the unit relates, for the purpose of
producing assessable income, or within such further time as the
Commissioner allows.
(4) This section does not apply in relation to a unit of industrial
property that relates to a copyright subsisting in an Australian film
if the unit, or the subject-matter to which the unit relates, was used
for the purpose of producing income before 22 November 1977.
124V Interest by licence in patent etc.
(1) For the purposes of this Division, the owner of a unit of industrial
property who, by licence, grants to another person an interest in the
copyright to which the unit relates shall, subject to subsection (2),
be deemed to have disposed of the unit in part.
(2) For the purposes of this Division, where a person who became the
owner of a unit of industrial property by reason of the grant to him,
by licence, of an interest in a copyright surrenders that licence:
(a) that person shall not be deemed to have disposed of the unit
unless the surrender was made in consideration of the
payment to him of an amount; and
(b) the person to whom the licence was surrendered shall not, by
reason only of the surrender, be deemed to have acquired a
unit of industrial property.
(3) Where a unit of industrial property arises out of the grant, by
licence, of an interest in a copyright, an extension of the term of
that licence shall, for the purposes of this Division, be deemed to
be the grant of a new licence.

Liability to taxation Part III
Industrial property Division 10B

Section 124W

Income Tax Assessment Act 1936 19
124W Disposal of unit of industrial property on change of
partnership etc.
(1) Where, for any reason, including:
(a) the formation or dissolution of a partnership; or
(b) a variation in the constitution of a partnership or in the
interests of the partners;
a change has occurred in the ownership of, or in the interests of
persons in, a unit of industrial property and the person, or one or
more of the persons, who owned the unit before the change has or
have an interest in the unit after the change, then, subject to
subsection 124S(2) but notwithstanding any other provision of this
Division, the succeeding provisions of this section have effect.
(2) The provisions of this Division apply as if the person or persons
who owned the unit before the change (in this section called the
transferor) had, on the day on which the change occurred,
disposed of the unit in whole to the person, or all the persons, by
whom the unit is owned after the change (in this section called the
transferee).
(3) Unless a joint election for roll-over relief has been made by both
the transferor and the transferee, this Division applies as if the
consideration for the disposal were equal to the market value of the
unit immediately before the change.
(4) If a joint election for roll-over relief has been made by both the
transferor and the transferee, section 124PA applies to the disposal.
(5) A joint election for roll-over relief has no effect unless it:
(a) is in writing; and
(b) is made:
(i) within 6 months after the later of the following:
(A) the end of the year of income of the transferee
in which the disposal occurred;
(B) the commencement of this subsection; or
(ii) within such further period as the Commissioner allows;
and
(c) contains such information about the transferor’s holding of
the unit as will enable the transferee to work out how
section 124PA will apply to the transferee’s holding of the
unit.

Part III Liability to taxation
Division 10B Industrial property

Section 124WA

20 Income Tax Assessment Act 1936 (6) If a person dies before the end of the period allowed for making a
joint election for roll-over relief, the trustee of the deceased
person’s estate may be a party to the election on the deceased
person’s behalf.
124WA Disposal of unit of industrial property where deduction
allowable under former section 124ZAF or
section 124ZAFA
(1) Where:
(a) for any reason, including:
(i) the formation or dissolution of a partnership; or
(ii) a variation in the constitution of a partnership or in the
interests of the partners;
a change has occurred in the ownership of, or in the interests
of persons in, a unit of industrial property being a copyright,
or an interest in a copyright, subsisting in a film;
(b) the person, or one or more of the persons, who owned the
unit before the change has or have an interest in the unit after
the change;
(c) a deduction has been allowed or is allowable under former
section 124ZAF or section 124ZAFA to the person or to any
of the persons who owned the unit before the change in
respect of moneys expended in producing, or by way of
contribution to the cost of producing, the film, being
expenditure that relates to the unit; and
(d) a person to whom a deduction has been allowed or is
allowable as mentioned in paragraph (c) has an interest in the
unit after the change;
section 124W does not apply to that change but subsections (2), (3)
and (7) of this section have effect.
(2) Where a person (in this subsection referred to as the relevant
person) who had an interest in the unit before the change:
(a) did not have an interest in the unit after the change; or
(b) had a lesser interest in the unit after the change;
the following provisions have effect:
(c) if the relevant person did not have an interest in the unit after
the change, the relevant person shall be deemed, for the
purposes of this Division, to have disposed of the whole of

Liability to taxation Part III
Industrial property Division 10B

Section 124WA

Income Tax Assessment Act 1936 21 his interest in the unit at the time when the change occurred
for an amount of consideration equal to:
(i) if the change occurred in pursuance of an agreement and
the agreement specified, as the value of the unit for the
purposes of the agreement, an amount greater than the
value of the unit at the time when the change
occurred—so much of the amount specified in the
agreement as bears to that amount the same proportion
as the value, at the time when the change occurred, of
the interest disposed of bears to the value of the unit at
the time when the change occurred; and
(ii) in any other case—the value, at the time when the
change occurred, of the interest disposed of;
(d) if the relevant person had a lesser interest in the unit after the
change, the relevant person shall be deemed, for the purposes
of this Division, to have disposed of part of his interest in the
unit at the time when the change occurred for an amount of
consideration equal to:
(i) if the change occurred in pursuance of an agreement and
the agreement specified, as the value of the unit for the
purposes of the agreement, an amount greater than the
value of the unit at the time when the change
occurred—so much of the amount specified in the
agreement as bears to that amount the same proportion
as the value, at the time when the change occurred, of
the part of the interest disposed of bears to the value of
the unit at the time when the change occurred; and
(ii) in any other case—the value, at the time when the
change occurred, of the part of the interest disposed of.
(3) Where a person (in this subsection referred to as the relevant
person):
(a) did not have an interest in the unit before the change but had
an interest in the unit after the change; or
(b) had an interest in the unit before the change and had an
additional interest in the unit after the change;
the following provisions have effect:
(c) if the relevant person did not have an interest in the unit
before the change, the relevant person shall be deemed, for
the purposes of this Division, to have incurred expenditure of

Part III Liability to taxation
Division 10B Industrial property

Section 124WA

22 Income Tax Assessment Act 1936 a capital nature, on the purchase of the interest that the
relevant person had after the change, of an amount equal to:
(i) if the change occurred in pursuance of an agreement and
the agreement specified, as the value of the unit for the
purposes of the agreement, an amount less than the
value of the unit at the time when the change occurred:
(A) so much of the amount specified in the
agreement as bears to that amount the same
proportion as the value, at the time when the
change occurred, of the interest that the relevant
person had after the change bears to the value
of the unit at the time when the change
occurred; or
(B) so much of the cost of the unit as bears to that
cost the same proportion as the value, at the
time when the change occurred, of the interest
that the relevant person had after the change
bears to the value of the unit at the time when
the change occurred;
whichever is the less; and
(ii) in any other case:
(A) the value, at the time when the change
occurred, of the interest that the relevant person
had after the change; or
(B) so much of the cost of the unit as bears to that
cost the same proportion as the value, at the
time when the change occurred, of the interest
that the relevant person had after the change
bears to the value of the unit at the time when
the change occurred;
whichever is the less;
(d) if the relevant person had an interest in the unit before the
change and had an additional interest in the unit after the
change, the relevant person shall be deemed, for the purposes
of this Division, to have incurred expenditure of a capital
nature on the purchase of that additional interest of an
amount equal to:
(i) if the change occurred in pursuance of an agreement and
the agreement specified, as the value of the unit for the

Liability to taxation Part III
Industrial property Division 10B

Section 124WA

Income Tax Assessment Act 1936 23 purposes of the agreement, an amount less than the
value of the unit at the time when the change occurred:
(A) so much of the amount specified in the
agreement as bears to that amount the same
proportion as the value of the additional
interest, at the time when the change occurred,
bears to the value of the unit at the time when
the change occurred; or
(B) so much of the cost of the unit as bears to that
cost the same proportion as the value of the
additional interest, at the time when the change
occurred, bears to the value of the unit at the
time when the change occurred;
whichever is the less; and
(ii) in any other case:
(A) the value of the additional interest at the time
when the change occurred; or
(B) so much of the cost of the unit as bears to that
cost the same proportion as the value of the
additional interest, at the time when the change
occurred, bears to the value of the unit at the
time when the change occurred;
whichever is the less.
(4) Where:
(a) for any reason, including:
(i) the formation or dissolution of a partnership; or
(ii) a variation in the constitution of a partnership or in the
interests of the partners;
a change has occurred in the ownership of, or in the interests
of persons in, a unit of industrial property being a copyright,
or an interest in a copyright, subsisting in a film;
(b) the person, or one or more of the persons, who owned the
unit before the change has or have an interest in the unit after
the change;
(c) a deduction has been allowed or is allowable under
section 124ZAF or 124ZAFA to the person or to any of the
persons who owned the unit before the change in respect of
moneys expended in producing, or by way of contribution to

Part III Liability to taxation
Division 10B Industrial property

Section 124WA

24 Income Tax Assessment Act 1936 the cost of producing, the film, being expenditure that relates
to the unit; and
(d) no person to whom a deduction has been allowed or is
allowable as mentioned in paragraph (c) has an interest in the
unit after the change;
section 124W does not apply to that change but the succeeding
provisions of this section have effect.
(5) Any person who had an interest in the unit before the change shall,
for the purposes of this Division, be deemed to have disposed of
his interest in the unit in whole for an amount of consideration
equal to:
(a) if the change occurred in pursuance of an agreement and the
agreement specified, as the value of the unit for the purposes
of the agreement, an amount greater than the value of the unit
at the time when the change occurred—so much of the
amount specified in the agreement as bears to that amount the
same proportion as the value, at the time when the change
occurred, of the interest deemed to have been disposed of
bears to the value of the unit at the time when the change
occurred; and
(b) in any other case—the value, at the time when the change
occurred, of the interest disposed of.
(6) For the purposes of the application of this Division to the person or
persons who owned the unit after the change, that person or those
persons shall be deemed to have incurred expenditure of a capital
nature on the purchase of the unit of an amount equal to:
(a) if the change occurred in pursuance of an agreement and the
agreement specified, as the value of the unit for the purposes
of the agreement, an amount less than the value of the unit at
the time when the change occurred—the amount specified in
the agreement or the cost of the unit, whichever is the less;
and
(b) in any other case—the value of the unit at the time when the
change occurred or the cost of the unit, whichever is the less.
(7) For the purposes of the application of subsection (3) or (6) in
respect of a change in the ownership of, or in the interests of
persons in, a unit of industrial property being a copyright, or an
interest in a copyright, subsisting in a film, a reference to the cost
of the unit is a reference to the cost (if any) of the unit, ascertained

Liability to taxation Part III
Industrial property Division 10B

Section 124Y

Income Tax Assessment Act 1936 25 in accordance with section 124R, to the person or persons who
owned the unit before the change increased by so much of the
expenditure incurred in relation to the film in respect of which a
deduction or deductions has or have been allowed or is or are
allowable under former section 124ZAF or section 124ZAFA to
the person or any of the persons who owned the unit before the
change as is attributable to so much of the unit as, immediately
before the change occurred, was owned by the person or persons to
whom that deduction or those deductions has or have been allowed
or is or are allowable.
124Y Damages for infringement
Where, in pursuance of a judgment of a court or otherwise, an
amount is paid to a person who is or has been the owner of a unit
of industrial property in respect of an infringement, or an alleged
infringement, of the copyright to which the unit relates, that person
shall, for the purposes of this Division, be deemed to have disposed
of the unit in part, at the time of payment, in consideration of the
payment of that amount.
124Z Benefit from overseas rights
Where the owner of a unit of industrial property has obtained or is
obtaining a benefit from a right exercisable in a place outside
Australia, being a right which relates to the invention, work or
other subject-matter or design to which the unit of industrial
property relates, the Commissioner may determine that any
deduction allowable under this Division in respect of the unit of
industrial property shall be reduced by such amount as the
Commissioner, having regard to that benefit, thinks fit, and the
deduction shall be reduced accordingly.

Part III Liability to taxation
Division 10BA Australian films

Section 124ZAA

26 Income Tax Assessment Act 1936

Division 10BA—Australian films
Subdivision A—Preliminary
124ZAA Interpretation
(1) In this Division, unless the contrary intention appears:
Australian film means a film that:
(a) has been made wholly or substantially in Australia or in an
external Territory and has a significant Australian content; or
(b) has been made in pursuance of an agreement or arrangement
entered into between the Government of Australia or an
authority of the Government of Australia and the
Government of another country or an authority of the
Government of another country.
copyright, in relation to a film, means copyright subsisting in the
film by virtue of Part IV of the Copyright Act 1968 and includes
copyright subsisting in, or in relation to, the film or in any work
comprised in the film, under the law of a country other than
Australia.
feature film has the meaning given by subsection 995-1(1) of the
Income Tax Assessment Act 1997.
film has the meaning given by subsection 995-1(1) of the Income
Tax Assessment Act 1997.
film account, in relation to a film, means an account that has been
opened in relation to the film in the Film Trust Fund.
Film Trust Fund means the Australian Film Industry Trust Fund
in the Trust Fund referred to in section 60 of the Audit Act 1901.
final certificate means a certificate issued under section 124ZAC.
future copyright means copyright to come into existence at a
future time or upon the happening of a future event.
Minister means the Minister for the Arts, Sport, the Environment,
Tourism and Territories.

Liability to taxation Part III
Australian films Division 10BA

Section 124ZAA

Income Tax Assessment Act 1936 27 provisional certificate means a certificate issued under
section 124ZAB.
public event includes:
(a) a sporting activity;
(b) a theatrical performance;
(c) an artistic performance; or
(d) any other activity, performance or event;
to which the public is normally admitted (whether free of charge or
on payment of a charge).
qualifying Australian film means a film that is:
(a) an eligible film; and
(b) an Australian film.
relevant 24 month period, in relation to a film, means the period of
24 months after the end of the financial year in which capital
moneys were first expended in producing, or by way of
contribution to the cost of producing, the film.
television broadcasting includes transmission by means of cables.
(2) A reference in this Division to a film shall, unless the contrary
intention appears, be read as including a reference to a proposed
film.
(3) In this Division, a reference to the expenditure of capital moneys is
a reference to the expenditure of moneys that is expenditure of a
capital nature.
(4) Subject to subsection (5), a reference in this Division to an eligible
film is a reference to a film produced wholly or principally for
exhibition to the public in cinemas or by way of television
broadcasting, being a feature film or a film of a like nature
produced for exhibition by way of television broadcasting, a
documentary or a mini-series of television drama.
(5) Without extending by implication the generality of subsection (4),
a reference in this Division to an eligible film does not include a
reference to a film that is, or is to a substantial extent:
(a) a film for exhibition as an advertising program or a
commercial;

Part III Liability to taxation
Division 10BA Australian films

Section 124ZAA

28 Income Tax Assessment Act 1936 (b) a film for exhibition as a discussion program, a quiz program,
a panel program, a variety program or a program of a like
nature;
(c) a film of a public event;
(d) a film forming part of a drama program series that is, or is
intended to be, of a continuing nature; or
(e) a training film.
(6) A reference in this Division to moneys expended in producing a
film is a reference to moneys expended to the extent to which those
moneys are expended directly in producing a film.
(7) For the purposes of this Division, moneys withdrawn from a film
account opened in relation to a film shall be taken to be dealt with
in the prescribed manner if, and only if, the moneys are expended:
(a) in producing the film;
(b) in payment to the Commissioner in respect of amounts paid
into the film account under former paragraph 221ZN(1)(e);
or
(c) in payment by way of refund to a person of an amount
deducted under former paragraph 221ZN(1)(a), being an
amount to which former subsection 221ZN(4) applied.
(8) In the application of paragraph (7)(a) for the purposes of this
Division, other than sections 124ZAG and 124ZAH, in
determining whether moneys are expended in producing a film,
sections 124ZAJ and 124ZAK shall be disregarded.
(9) In determining for the purposes of the definition of relevant 24
month period in subsection (1) and for the purposes of
section 124ZADA and subparagraph 124ZAFA(1)(d)(iv) the
meaning of references to the expenditure of capital moneys in
producing, or by way of contribution to the cost of producing, a
film, sections 124ZAJ, 124ZAK, 124ZAL and 124ZAM shall be
disregarded.
(10) For the purposes of this Division:
(a) where a person pays moneys to another person and that other
person pays the moneys into a film account:
(i) the first-mentioned person shall be deemed to have paid
the moneys into that film account at the time when the
moneys were paid to the other person; and

Liability to taxation Part III
Australian films Division 10BA

Section 124ZAB

Income Tax Assessment Act 1936 29 (ii) the other person shall be deemed not to have paid the
moneys into the film account; and
(b) where a person withdraws moneys from a film account and
pays the moneys to another person:
(i) the other person shall be deemed to have withdrawn the
moneys from the film account at the time when the
moneys were paid to that other person; and
(ii) the first-mentioned person shall be deemed not to have
withdrawn the moneys from the film account.
(11) Where the Minister is satisfied that:
(a) a proposed film, when completed, will have a significant
non-Australian content; or
(b) a film has a significant non-Australian content;
the Minister may treat the proposed film or film as not being a
qualifying Australian film for the purposes of this Division.
124ZAB Provisional certificates
(1) A person (in this section referred to as the applicant) may apply to
the Minister for a certificate stating that a proposed film will, when
completed, be a qualifying Australian film for the purposes of this
Division.
(2) An application under subsection (1):
(a) shall be in writing;
(b) shall be signed by or on behalf of the applicant; and
(c) shall be accompanied by such information as the Minister
requires.
(2A) An application under subsection (1) must be made before the day
on which the Tax Laws Amendment (2007 Measures No. 5) Act
2007 receives the Royal Assent.
(3) Where an application is made to the Minister under subsection (1)
and the Minister is satisfied that:
(a) the proposed film, when completed, will be a qualifying
Australian film; and
(b) having regard to the role of the applicant in the proposed
production of the film, the applicant is an appropriate person

Part III Liability to taxation
Division 10BA Australian films

Section 124ZAB

30 Income Tax Assessment Act 1936 to whom to issue a certificate under this section in respect of
the proposed film;
the Minister shall issue to the applicant a certificate under this
section in respect of the proposed film.
(3A) Where the Minister makes a decision refusing an application under
subsection (1), the Minister shall, as soon as practicable, give
notice in writing of the refusal to the applicant.
(4) A person to whom a certificate in respect of a proposed film has
been issued under subsection (3) shall furnish to the Minister,
within a period specified by the Minister, such information in
relation to the proposed film as the Minister requests.
(5) Where a person to whom a certificate in respect of a proposed film
has been issued under subsection (3) fails to comply with
subsection (4) in respect of the proposed film, the Minister may, by
writing under his hand, revoke the certificate and thereupon the
certificate shall, for the purposes of this Act, be deemed never to
have been in force.
(6) Where:
(a) the Minister has issued a certificate under this section stating
that a proposed film will, when completed, be a qualifying
Australian film for the purposes of this Division; and
(b) at any time after the issue of the certificate, the Minister
becomes satisfied that:
(i) the proposed film, when completed, will not be a
qualifying Australian film for the purposes of this
Division; or
(ii) if the proposed film has been completed—the
completed film is not a qualifying Australian film for
the purposes of this Division;
the Minister shall, by writing under his hand, revoke the certificate
and thereupon the certificate shall, for the purposes of this Act, be
deemed never to have been in force.
(6A) The Minister may, by signed writing, revoke a certificate in respect
of a proposed film that has been issued under subsection (3) if:
(a) the person who applied for the certificate applies to the
Minister for the revocation in the approved form; and

Liability to taxation Part III
Australian films Division 10BA

Section 124ZAC

Income Tax Assessment Act 1936 31 (b) the person provides a statutory declaration stating that:
(i) no taxpayer has claimed a deduction under this Division
in respect of the film; and
(ii) a final certificate in respect of the film has not been
issued under this Division; and
(iii) a taxpayer intends to claim a tax offset under
Division 376 of the Income Tax Assessment Act 1997 in
respect of the film; and
(iv) financial assistance has not been provided by the Film
Finance Corporation Australia Limited (incorporated
under the Companies Act 1981 on 12 July 1988) in
respect of the film.
A certificate that is revoked under this subsection is, for the
purposes of this Act, taken never to have been in force.
Note: Revocation of a certificate under this subsection allows a person to
claim a tax offset under Division 376 of the Income Tax Assessment
Act 1997 in respect of the film.
(7) Where the Minister, under subsection (5), (6) or (6A), revokes a
certificate, the Minister shall, as soon as practicable, give notice in
writing of the revocation to the person to whom the certificate was
issued.
(8) The revocation of a certificate issued under this section in respect
of a proposed film does not prevent the issue of a further certificate
under this section in respect of that proposed film.
(9) Subject to subsections (5), (6), (6A) and (10), a certificate issued
under this section shall be deemed to have been in force at all times
before the time when it was issued.
(10) If an application for a final certificate in respect of a film is not
made in accordance with section 124ZAC before the expiration of
6 months after the time when the film is completed, any certificate
issued under this section in respect of the film shall be deemed
never to have been in force.
124ZAC Final certificates
(1) A person (in this section referred to as the applicant) may apply to
the Minister for a certificate stating that a film that has been
completed is a qualifying Australian film for the purposes of this
Division.

Part III Liability to taxation
Division 10BA Australian films

Section 124ZAD

32 Income Tax Assessment Act 1936 (1A) The applicant cannot apply for a certificate in respect of a film
under subsection (1) unless a certificate has been issued to the
applicant in respect of the film under section 124ZAB.
(2) An application under subsection (1):
(a) shall be in writing;
(b) shall be signed by or on behalf of the applicant; and
(c) shall be accompanied by such information as the Minister
requires.
(3) Where an application is made to the Minister under subsection (1)
and the Minister is satisfied that:
(a) the film is a qualifying Australian film; and
(b) having regard to the role of the applicant in the production of
the film, the applicant is an appropriate person to whom to
grant a certificate under this section in respect of the film;
and
(c) a claim has not been made for a tax offset in respect of the
film under Division 376 of the Income Tax Assessment Act
1997;
the Minister shall issue to the applicant a certificate under this
section in respect of the film.
(4) A certificate issued under this section shall be deemed to have been
in force at all times before the time when it was issued.
(5) Where the Minister makes a decision refusing an application under
subsection (1), the Minister shall, as soon as practicable, give
notice in writing of the decision to the applicant.
124ZAD Determination of content of film
In determining for the purposes of this Division whether a film has,
or a proposed film, when completed, will have, a significant
Australian content or a significant non-Australian content, the
Minister shall have regard to:
(a) the subject matter of the film or proposed film;
(b) the place or places where the film was, or the proposed film
will be, made;
(c) the nationalities and places of residence of:

Liability to taxation Part III
Australian films Division 10BA

Section 124ZADAA

Income Tax Assessment Act 1936 33 (i) the persons who took part, or who will take part, in the
making of the film or proposed film (including authors,
composers, actors, scriptwriters, editors, producers,
directors and technicians);
(ii) the persons who are, or who will be, the beneficial
owners of shares in any company concerned in the
making of the film or proposed film; and
(iii) the persons who are, or who will be, the beneficial
owners of the copyright in the film or proposed film;
(d) the source from which moneys that were used in the making
of the film were, or that are to be used in the making of the
proposed film will be, derived;
(e) the details of the production expenditure incurred in respect
of the film or of the budgeted production expenditure to be
incurred in respect of the proposed film; and
(f) any other matters that the Minister considers to be relevant.
124ZADAA Delegation by Minister
(1) The Minister may, by writing, delegate to the Secretary to the
Minister’s Department, or to an SES employee or acting SES
employee in the Minister’s Department, all or any of the Minister’s
powers under this Division.
124ZADAB Review of decisions of Minister
(1) Applications may be made to the Tribunal for review of a decision
of the Minister under this Division (other than a decision to
delegate a power under section 124ZADAA).
(2) Where the Minister makes a decision of the kind referred to in
subsection (1) and gives to a person whose interests are affected by
the decision notice in writing of the decision, that notice shall:
(a) in all cases—include a statement to the effect that, subject to
the Administrative Appeals Tribunal Act 1975, application
may be made to the Administrative Appeals Tribunal, by or
on behalf of any person whose interests are affected by the
decision, for review of the decision; and
(b) except where subsection 28(4) of that Act applies—include a
statement to the effect that a request may be made under
section 28 of that Act by or on behalf of such a person for a

Part III Liability to taxation
Division 10BA Australian films

Section 124ZADA

34 Income Tax Assessment Act 1936 statement setting out the findings on material questions of
fact, referring to the evidence or other material on which
those findings were based and giving the reasons for the
decision.
(3) A failure to comply with the requirements of subsection (2) in
relation to a decision does not affect the validity of the decision.
124ZADA Declarations
(1) Where:
(a) during a financial year (in this subsection referred to as the
relevant financial year) capital moneys are expended, under
a contract entered into on or after 13 January 1983, by way of
contribution to the cost of producing a film; and
(b) capital moneys have not been expended during any preceding
financial year by way of contribution to the cost of producing
the film;
a person may, after 30 June 1983 and before the expiration of 1
month after the end of the relevant financial year, or within such
further time as the Commissioner allows, lodge with the
Commissioner a declaration:
(c) that a contract for the production of the film has been entered
into under which a person has, or persons have, agreed to
expend an amount that is specified in the contract as the
estimated cost of producing the film;
(d) specifying the items of expenditure that comprise the amount
referred to in paragraph (c);
(e) stating either of the following:
(i) that a film account (in this section called the relevant
film account) has been opened in relation to the film;
(ii) that no film account has been opened in relation to the
film;
(f) specifying the following details:
(i) the total amount of moneys received, being capital
moneys expended by persons by way of contribution to
the cost of producing the film, during the period (in this
subsection referred to as the relevant period)
commencing at the beginning of the relevant financial
year and ending at the time the declaration is made;

Liability to taxation Part III
Australian films Division 10BA

Section 124ZADA

Income Tax Assessment Act 1936 35 (ii) if subparagraph (e)(i) applies:
(A) the total amount of the moneys referred to in
subparagraph (i) of this paragraph that were,
upon receipt, paid into the relevant film
account; and
(B) the total amount of the moneys referred to in
subparagraph (i) of this paragraph that were
not, upon receipt, paid into the relevant film
account; and
(C) the total amount withdrawn from the relevant
film account during the relevant period; and
(D) the total amount of the moneys referred to in
sub-subparagraph (C) that were, upon being
withdrawn from the relevant film account,
expended in producing the film; and
(E) the total amount of the moneys referred to in
sub-subparagraph (B) that were expended in
producing the film; and
(iii) if subparagraph (e)(ii) applies—the total amount of the
moneys referred to in subparagraph (i) of this paragraph
that were expended in producing the film; and
(h) if subparagraph (e)(i) applies—that all moneys withdrawn
from the relevant film account after the time the declaration
is made will, upon withdrawal, be dealt with in the prescribed
manner or paid to persons as refunds of capital moneys
expended by way of contribution to the cost of producing the
film.
(2) Where a person lodges a declaration in respect of a film under
subsection (1) or (5) and furnishes to the Commissioner such
information in relation to the film as the Commissioner requires,
the Commissioner shall decide whether the person making the
declaration is, having regard to the role of the person in the
production of the film, a person whom the Commissioner considers
to be an appropriate person to make the declaration in respect of
the film, and shall notify the person in writing of his decision.
(3) Where:
(a) at any time after a person has lodged a declaration under
subsection (1) or (5) in respect of a film, any change occurs
in the role of the person in the production of the film; and

Part III Liability to taxation
Division 10BA Australian films

Section 124ZADA

36 Income Tax Assessment Act 1936 (b) before the time when the change occurs:
(i) the person has not been notified of a decision of the
Commissioner under subsection (2) in relation to the
declaration; or
(ii) the person has been notified under subsection (2) of a
decision of the Commissioner that the person is an
appropriate person to make the declaration and has not
been notified under subsection (4) of a decision of the
Commissioner in relation to the declaration;
the person shall, within 21 days after the change occurs, notify the
Commissioner in writing of the change.
Penalty: 2 penalty units.
(3A) An offence under subsection (3) is an offence of strict liability.
Note: For strict liability, see section 6.1 of the Criminal Code.
(4) Where, at any time (in this subsection referred to as the relevant
time) after the Commissioner has notified a person under
subsection (2) of his decision that the person is an appropriate
person to make a declaration under subsection (1) or (5) in respect
of a film, the Commissioner, having regard to the role of the person
in the production of the film, decides that, if the person were to
make a declaration at the relevant time as to the matter specified in
paragraph (1)(h), the person would not be an appropriate person to
make such a declaration, the Commissioner shall notify the person
in writing of his decision.
(5) Where:
(aa) a film account has been opened in relation to a film;
(a) a declaration in relation to the film is lodged under
subsection (1) or under this subsection by a person who has
been notified by the Commissioner under subsection (2) that
the Commissioner considers the person to be an appropriate
person to make the declaration; and
(b) the person dies or the Commissioner notifies the person
under subsection (4) of a decision of the Commissioner under
that subsection;
a person may lodge with the Commissioner, before the expiration
of 1 month after the death or the notification under subsection (4),
as the case may be, or within such further time as the
Commissioner allows, a declaration that all moneys withdrawn

Liability to taxation Part III
Australian films Division 10BA

Section 124ZADA

Income Tax Assessment Act 1936 37 from the film account after the time the declaration is made will,
upon withdrawal, be dealt with in the prescribed manner or paid to
persons as refunds of capital moneys expended by way of
contribution to the cost of producing the film.
(8) For the purposes of this Division, but subject to subsection (9), a
declaration made by a person under subsection (1) shall be taken to
be in force at all times after it is lodged with the Commissioner.
(9) Where:
(aa) a film account has been opened in relation to a film;
(a) a declaration in relation to the film is lodged under
subsection (1) or (5) by a person who has been notified by
the Commissioner under subsection (2) that the
Commissioner considers the person to be an appropriate
person to make the declaration;
(b) the person dies or the Commissioner notifies the person
under subsection (4) of a decision of the Commissioner under
that subsection; and
(c) a further declaration is not lodged under subsection (5) in
relation to the film by a person who is notified by the
Commissioner under subsection (2) that the person is
considered by the Commissioner to be an appropriate person
to lodge the declaration;
the following provisions have effect:
(d) where the declaration referred to in paragraph (a) was lodged
under subsection (1)—the declaration shall be taken, for the
purposes of this Division, not to be, and never to have been,
in force;
(e) where the declaration referred to in paragraph (a) was lodged
under subsection (5)—any declaration lodged under
subsection (1) in respect of the film that would, but for this
subsection, be in force shall be taken, for the purposes of this
Division, not to be, and never to have been, in force.
(10) A person who is notified of a decision of the Commissioner under
subsection (2) or (4) and who is dissatisfied with the decision may
object against it in the manner set out in Part IVC of the Taxation
Administration Act 1953.

Part III Liability to taxation
Division 10BA Australian films

Section 124ZADB

38 Income Tax Assessment Act 1936
124ZADB Notification regarding non-completion of film
(1) Where:
(a) a person has lodged a declaration under subsection
124ZADA(1) or (5) in respect of a film;
(b) the Commissioner has notified the person under subsection
124ZADA(2) that the Commissioner considers the person to
be an appropriate person to make the declaration and the
Commissioner has not notified the person of a decision under
subsection 124ZADA(4) in relation to the declaration; and
(c) either of the following conditions is satisfied:
(i) at the time when the person was notified as mentioned
in paragraph (b), the person was satisfied that the film
would not be, or was unlikely to be, completed before
the expiration of the relevant 24 month period; or
(ii) after the person was notified as mentioned in
paragraph (b), the person becomes satisfied that the film
will not be, or is unlikely to be, completed before the
expiration of the relevant 24 month period;
the person shall, within 14 days after:
(d) in a case to which subparagraph (c)(i) applies—the day on
which the person was notified as mentioned in paragraph (b);
or
(e) in a case to which subparagraph (c)(ii) applies—the day on
which the person becomes satisfied as mentioned in that
subparagraph;
notify the Commissioner in writing that the person was so satisfied
or became so satisfied, as the case may be.
Penalty: 2 penalty units.
(2) An offence under subsection (1) is an offence of strict liability.
Note: For strict liability, see section 6.1 of the Criminal Code.
124ZAE Election that Division not apply
(1) A taxpayer may elect that this Division shall not apply in relation
to the taxpayer in relation to a film and, where such an election is
made, this Division does not apply in relation to the taxpayer in
relation to that film.

Liability to taxation Part III
Australian films Division 10BA

Section 124ZAEA

Income Tax Assessment Act 1936 39 (2) An election under subsection (1) in relation to a film must be made
on or before the date of lodgment of the return of income of the
taxpayer of the first year of income in respect of which a deduction
would, but for this section, and the provisions of Subdivision B
other than section 124ZAFA, be allowable to the taxpayer in
relation to the film.
124ZAEA Transfer by way of security
For the purpose of this Division, disregard an acquisition or
disposal of property by way of the transfer of the property for the
provision or redemption of a security. Consequently this Division
applies as if the person who was the owner of the property before
the transfer continues to be the owner after the transfer.
Subdivision B—Deductions for capital expenditure
124ZAFAA Subdivision subject to Division 245 of Schedule 2C
This Subdivision has effect subject to Division 245 of
Schedule 2C.
124ZAFA Deductions for capital expenditure under post 12 January
1983 contracts
(1) Subject to this Subdivision, where:
(a) a taxpayer has, under a contract entered into on or after
13 January 1983, expended capital moneys in producing, or
by way of contribution to the cost of producing, a film;
(b) at the time when the moneys were expended:
(i) the taxpayer was a resident; and
(ii) a provisional certificate or a final certificate was in
force in relation to the film;
(c) the Commissioner is satisfied that, at the time when the
moneys were expended:
(i) the taxpayer expected to become the first owner, or one
of the first owners, of the copyright in the film when
that copyright came into existence; and
(ii) the taxpayer intended to use that copyright, or the
taxpayer’s interest in that copyright, as the case may be,
for the purpose of producing assessable income from the

Part III Liability to taxation
Division 10BA Australian films

Section 124ZAFA

40 Income Tax Assessment Act 1936 exhibition of the film to the public in cinemas or by way
of television broadcasting or from granting rights to
exhibit the film to the public in cinemas or by way of
television broadcasting; and
(d) in a case where the moneys were expended by the taxpayer
by way of contribution to the cost of producing the film:
(iii) there is in force a declaration lodged in respect of the
film in accordance with subsection 124ZADA(1) by a
person who has been notified by the Commissioner
under subsection 124ZADA(2) that the person is
considered by the Commissioner to be an appropriate
person to lodge the declaration in respect of the film;
and
(iv) before the end of the financial year in which capital
moneys were first expended (whether by the taxpayer or
by another person) in producing, or by way of
contribution to the cost of producing, the film:
(A) a production contract was entered into (whether
or not by the taxpayer) under which an amount
of capital moneys specified in the production
contract as the estimated cost of producing the
film was to be expended in producing, or by
way of contribution to the cost of producing,
the film; or
(B) a production contract, and an underwriting
contract or underwriting contracts, were entered
into (whether or not by the taxpayer) under
which an amount of capital moneys specified in
the production contract as the estimated cost of
producing the film was to be expended in
producing, or by way of contribution to the cost
of producing, the film;
an amount equal to:
(e) where:
(i) the moneys were expended under a contract entered into
on or before 23 August 1983; and
(ii) the moneys were expended by the taxpayer by way of
contribution to the cost of producing the film; and
(iii) the moneys were contributed before 1 July 1983; and
(iv) the moneys were:

Liability to taxation Part III
Australian films Division 10BA

Section 124ZAFA

Income Tax Assessment Act 1936 41 (A) expended before 1 July 1983 in producing the
film; or
(B) on or before 1 July 1983, paid into a film
account opened in relation to the film;
150%; or
(f) where:
(i) the moneys were expended under a contract entered into
on or before 23 August 1983; and
(ii) the moneys were expended by the taxpayer by way of
contribution to the cost of producing the film; and
(iii) the moneys were contributed after 30 June 1983; and
(iv) the moneys were, upon contribution, deposited in a film
account opened in relation to the film;
150%; or
(g) where:
(i) the moneys were expended under a contract entered into
on or before 23 August 1983; and
(ii) the moneys were expended by the taxpayer in producing
the film;
150%; or
(h) where:
(i) the moneys were expended under a contract entered into
after 23 August 1983 and on or before 19 September
1985; and
(ii) the moneys were expended by the taxpayer by way of
contribution to the cost of producing the film; and
(iii) the moneys were, upon contribution, deposited in a film
account opened in relation to the film;
133%; or
(j) where:
(i) the moneys were expended under a contract entered into
after 23 August 1983 and on or before 19 September
1985; and
(ii) the moneys were expended by the taxpayer in producing
the film;
133%; or

Part III Liability to taxation
Division 10BA Australian films

Section 124ZAFA

42 Income Tax Assessment Act 1936 (k) where:
(i) the moneys were expended under a contract entered into
after 19 September 1985 and before 25 May 1988; and
(ii) the moneys were expended by the taxpayer by way of
contribution to the cost of producing the film; and
(iii) the moneys were, upon contribution, deposited in a film
account opened in relation to the film;
120%; or
(m) where:
(i) the moneys were expended under a contract entered into
after 19 September 1985 and before 25 May 1988; and
(ii) the moneys were expended by the taxpayer in producing
the film;
120%; or
(n) where the moneys were expended under a contract entered
into on or after 25 May 1988—100%;
of the amount of the moneys expended shall be allowed as a
deduction in the assessment of the taxpayer in respect of income of
the year of income in which the moneys were expended by the
taxpayer.
(1A) A deduction under subsection (1) is not allowable in relation to the
2009-10 year of income or a later year of income.
(2) Subject to subsection (3), where a deduction has been allowed, or
would, but for this subsection, be allowable, from the assessable
income of a taxpayer of a year of income under subsection (1) in
relation to capital moneys expended by the taxpayer in producing,
or by way of contribution to the cost of producing, a film and the
following conditions are not satisfied:
(a) before the expiration of the relevant 24 month period:
(i) the taxpayer has used the copyright in the film or the
taxpayer’s interest in the copyright, as the case may be,
for the purpose of producing assessable income from the
exhibition of the film to the public in cinemas or by way
of television broadcasting or from granting rights to
exhibit the film to the public in cinemas or by way of
television broadcasting; or
(ii) the taxpayer has derived assessable income under an
agreement entered into before the copyright in the film

Liability to taxation Part III
Australian films Division 10BA

Section 124ZAFA

Income Tax Assessment Act 1936 43 came into existence under which the taxpayer agreed,
upon the copyright coming into existence, to grant
rights to another person to exhibit the film to the public
in cinemas or by way of television broadcasting; and
(b) the taxpayer has, by reason of the moneys being expended,
become the first owner, or one of the first owners, of the
copyright in the film before the expiration of the relevant 24
month period;
the deduction shall, for the purposes of this Act, be deemed not to
have been, or not to be, allowable, as the case may be.
(3) Subsection (2) does not apply in relation to a deduction that has
been allowed, or is allowable, from the assessable income of a
taxpayer of a year of income in relation to capital moneys
expended by the taxpayer in producing, or by way of contribution
to the cost of producing, a film where:
(a) the taxpayer dies before the expiration of the relevant 24
month period; and
(b) the Commissioner is satisfied that subsection (2) would not
have applied in relation to the deduction if the taxpayer had
not died.
(4) Where:
(a) by reason that the Commissioner is satisfied in accordance
with paragraph (3)(b) that subsection (2) would not have
applied in relation to a deduction if a taxpayer had not died,
subsection (2) would not, but for this subsection, apply in
relation to the deduction; and
(b) the Commissioner later becomes satisfied that subsection (2)
would have applied in relation to the deduction if the
taxpayer had not died;
subsection (2) shall, notwithstanding subsection (3), apply in
relation to the deduction.
(5) In this section:
production contract, in relation to a film, means a contract under
which a person has, or persons have, agreed to expend capital
moneys in producing, or by way of contribution to the cost of
producing, the film, but does not include an underwriting contract.

Part III Liability to taxation
Division 10BA Australian films

Section 124ZAG

44 Income Tax Assessment Act 1936 underwriting contract, in relation to a film, means a contract:
(a) under which a person has, or persons have, conditionally
agreed to expend capital moneys by way of contribution to
the cost of producing the film; and
(b) under which no person has agreed to expend capital moneys
by way of contribution to the cost of producing the film
otherwise than conditionally.
(6) For the purposes of this section, a person shall be taken to have
conditionally agreed under a contract to expend capital moneys by
way of contribution to the cost of producing a film if, under the
contract, the person has agreed to expend capital moneys by way of
contribution to the cost of producing the film only in the event that
the aggregate of the capital moneys expended, or agreed to be
expended, in producing, or by way of contribution to the cost of
producing, the film is less than an amount specified in, or
ascertained in accordance with, the contract.
124ZAG Expenditure of contributions
(1) Where:
(a) but for this section and sections 124ZAL and 124ZAM, an
amount (in this subsection referred to as the relevant
amount) would be taken for the purposes of this Division to
have been expended by a taxpayer by way of contribution to
the cost of producing a film; and
(b) the whole of the relevant amount is not expended in
producing the film;
the following provisions have effect:
(c) where no part of the relevant amount was expended in
producing the film—no part of the relevant amount shall be
taken for the purposes of this Division to have been expended
by the taxpayer;
(d) where part only of the relevant amount was not expended in
producing the film—the relevant amount shall be reduced by
that part of the relevant amount that was not expended in
producing the film.
(2) Where:
(a) but for this section and sections 124ZAL and 124ZAM, an
amount (in this subsection referred to as the relevant

Liability to taxation Part III
Australian films Division 10BA

Section 124ZAGA

Income Tax Assessment Act 1936 45 amount) would be taken for the purposes of this Division to
have been expended by a taxpayer by way of contribution to
the cost of producing a film; and
(b) the whole or a part of the relevant amount is included in an
amount that was withdrawn from a film account opened in
relation to the film and was not, upon withdrawal, dealt with
in the prescribed manner;
the following provisions have effect:
(c) where the whole of the relevant amount was included in the
amount withdrawn from the film account—no part of the
relevant amount shall be taken for the purposes of this
Division to have been expended by the taxpayer;
(d) where part only of the relevant amount was included in the
amount withdrawn from the film account—the relevant
amount shall be reduced by that part of the relevant amount
that was so included.
124ZAGA Satisfaction of Commissioner as to the future application
of certain provisions
(1) Where:
(a) the Commissioner is at any time satisfied that:
(i) subsection 124ZAFA(2) will, at a later time, apply to
deem a deduction not to have been, or not to be,
allowable to a taxpayer in relation to capital moneys
expended in producing, or by way of contribution to the
cost of producing, a film; or
(ii) section 124ZAG will, at a later time, apply in respect of
an amount, or part of an amount, that, but for that
section and sections 124ZAL and 124ZAM, would be
taken for the purposes of this Division to have been
expended by a taxpayer by way of contribution to the
cost of producing a film; or
(b) at a time after the Commissioner is satisfied in accordance
with subparagraph (a)(i) or (ii), the Commissioner is satisfied
that subsection 124ZAFA(2) will not apply in relation to the
deduction, or that section 124ZAG will not apply in relation
to the amount or the part of the amount;
the following provisions have effect:

Part III Liability to taxation
Division 10BA Australian films

Section 124ZAH

46 Income Tax Assessment Act 1936 (c) in a case to which paragraph (a) applies—subsection
124ZAFA(2) or section 124ZAG, as the case may be, shall,
for the purposes of this Subdivision, be taken to apply, and
always to have applied, in relation to the deduction or in
relation to the amount or the part of the amount, as the case
may be; and
(d) in a case to which paragraph (b) applies—subsection
124ZAFA(2) or section 124ZAG, as the case may be, shall,
for the purposes of this Subdivision, be taken not to apply,
and never to have applied, in relation to the deduction, or in
relation to the amount of the part of the amount, as the case
may be.
(2) Where, at any time after the making of an assessment in relation to
a taxpayer, being an assessment in the making of which subsection
124ZAFA(2) or section 124ZAG has been applied by reason that
the Commissioner was satisfied in accordance with
subparagraph (1)(a)(i) or (ii) of this section, the taxpayer considers
that the Commissioner ought to be satisfied in accordance with
paragraph (1)(b) of this section that subsection 124ZAFA(2) or
section 124ZAG, as the case may be, will not apply, the taxpayer
may post to, or lodge with, the Commissioner a request in writing
for an amendment of the assessment to give effect to
subsection (1).
(3) The Commissioner shall consider the request and shall serve on the
taxpayer, by post or otherwise, a written notice of his decision on
the request.
(4) If the taxpayer is dissatisfied with the Commissioner’s decision on
the request, the taxpayer may object against the decision in the
manner set out in Part IVC of the Taxation Administration Act
1953.
124ZAH Allocation of contributions expended
(1) Where:
(a) a taxpayer has expended capital moneys by way of
contribution to the cost of producing a film; and
(b) an amount of moneys has been expended in producing the
film out of moneys that include the moneys expended by the
taxpayer;

Liability to taxation Part III
Australian films Division 10BA

Section 124ZAJ

Income Tax Assessment Act 1936 47 then, for the purposes of this Division, so much of the moneys
expended by the taxpayer as the Commissioner determines shall be
taken to be included in the amount referred to in paragraph (b) that
has been expended in producing the film.
(1A) Where:
(a) a taxpayer has expended capital moneys by way of
contribution to the cost of producing a film;
(b) an amount of moneys is withdrawn from a film account
opened in relation to the film, being a film account into
which the moneys expended by the taxpayer have been paid;
and
(c) the amount withdrawn from the film account was not, upon
withdrawal, dealt with in the prescribed manner;
then, for the purposes of this Division, so much (if any) of the
moneys expended by the taxpayer as the Commissioner determines
shall be taken to be included in the amount withdrawn from the
film account.
(2) Sections 124ZAJ and 124ZAK apply, for the purposes of this
section, in determining whether, and the extent to which, moneys
have been expended in producing a film.
124ZAJ Non-arm’s length transactions
(1) Where:
(a) but for this section and sections 124ZAK, 124ZAL and
124ZAM, an amount expended by a person (in this
subsection referred to as the producer) for the supply of
goods or the provision of services would be taken, for the
purposes of this Division, to be an amount expended in
producing a film;
(b) the Commissioner is satisfied, having regard to any
connection between the producer and the person who
supplied those goods or provided those services, or to any
other relevant circumstances, that the producer and that
person were not dealing with each other at arm’s length in
relation to the transaction; and
(c) the Commissioner is satisfied that the amount of moneys
expended on the supply of those goods or the provision of
those services exceeds the amount of moneys that would
have been expended by the producer if the producer and the

Part III Liability to taxation
Division 10BA Australian films

Section 124ZAK

48 Income Tax Assessment Act 1936 person supplying those goods or providing those services had
dealt with each other at arm’s length;
then such part only of the amount of the moneys expended on the
supply of those goods or the provision of those services as, in the
opinion of the Commissioner, is reasonable shall be taken for the
purposes of this Division to have been expended in producing the
film.
(2) A reference in subsection (1) to an amount expended by a person,
in producing a film, for the provision of services includes a
reference to an amount paid by the person to another person as
consideration for the other person producing, or agreeing to
produce, a film or a part of a film.
124ZAK Amounts expended in acquiring assets
Where:
(a) but for this section and sections 124ZAL and 124ZAM, an
amount would be taken for the purposes of this Division to
have been expended in producing a film;
(b) that amount or part of that amount was expended in the
acquisition of assets for use in producing the film; and
(c) those assets are subsequently disposed of or are used
otherwise than in producing the film;
the amount referred to in paragraph (a) shall be reduced by such
amount as the Commissioner considers reasonable.
124ZAL Deduction reduced if future copyright assigned
(1) Where:
(a) but for this section and section 124ZAM, an amount would
be taken for the purposes of this Division to have been
expended by a taxpayer in producing, or by way of
contribution to the cost of producing, a film; and
(b) at the time when that amount was expended, or before or
after that time, the taxpayer partially assigned his future
copyright in the film;
the amount referred to in paragraph (a) shall be reduced by such
amount as the Commissioner considers reasonable.

Liability to taxation Part III
Australian films Division 10BA

Section 124ZAM

Income Tax Assessment Act 1936 49 (2) A reference in subsection (1) to an assignment by a taxpayer of
future copyright in a film includes a reference to the taxpayer
entering into an agreement to transfer copyright in the film to
another person upon the copyright coming into existence or at any
time after the coming into existence of the copyright.
124ZAM No deduction unless expenditure at risk
(1) Where:
(a) but for this section and sections 124ZAG, 124ZAJ, 124ZAK
and 124ZAL, a taxpayer or a partnership would be taken, for
the purposes of this Division, to have expended capital
moneys in producing, or by way of contribution to the cost of
producing, a film; and
(b) but for this section, a taxpayer (in this section referred to as
the relevant taxpayer), being the taxpayer referred to in
paragraph (a) or a partner in the partnership, would be taken
for the purposes of this Division to have expended the whole
or a part of the capital moneys referred to in paragraph (a)
(which whole or part is in this subsection referred to as the
relevant amount) in producing, or by way of contribution to
the cost of producing, the film;
then, for the purposes of this Division, the amount of the capital
moneys that, by virtue of the expenditure of the moneys referred to
in paragraph (a), the relevant taxpayer is to be taken to have
expended in producing, or by way of contribution to the cost of
producing, the film is:
(c) if the Commissioner is satisfied that, at the time when the
moneys referred to in paragraph (a) were expended, the
relevant taxpayer was not at risk in respect of any amount by
virtue of the expenditure of the moneys referred to in
paragraph (a)—nil;
(d) if the Commissioner is satisfied that, at the time when the
moneys referred to in paragraph (a) were expended, the
relevant taxpayer was, by virtue of the expenditure of the
moneys referred to in paragraph (a), at risk in respect of an
amount less than the relevant amount—the amount in respect
of which the taxpayer was at risk; or
(e) if the Commissioner is satisfied that, at the time when the
moneys referred to in paragraph (a) were expended, the
taxpayer was, by virtue of the expenditure of those moneys,

Part III Liability to taxation
Division 10BA Australian films

Section 124ZAM

50 Income Tax Assessment Act 1936 at risk with respect to an amount equal to or greater than the
relevant amount—the relevant amount.
(2) For the purposes of the application of subsection (1) in respect of
the relevant taxpayer in relation to the moneys expended in relation
to the film as mentioned in paragraph (1)(a), the taxpayer shall be
taken to be at risk, by virtue of the expenditure of those moneys, in
respect of an amount equal to the amount of the loss that, in the
opinion of the Commissioner, would be suffered by the taxpayer
by reason of the expenditure of the moneys referred to in
paragraph (1)(a) if the relevant taxpayer were not to derive any
income, other than excepted income, from the film or from the
taxpayer’s interest in the copyright of the film.
(3) For the purposes of subsection (2), income derived by the relevant
taxpayer from the film is excepted income if:
(a) the income is derived under an agreement under which
moneys were to be paid to the taxpayer or another person;
and
(b) the Commissioner is satisfied that the agreement was entered
into for the purpose, or for purposes that included the
purpose, of enabling the moneys referred to in
paragraph (1)(a) to be expended as mentioned in that
paragraph.
(4) In forming an opinion for the purpose of subsection (2) as to the
amount of a loss that would be suffered by the relevant taxpayer,
by virtue of the expenditure of the moneys referred to in
paragraph (1)(a), if the relevant taxpayer were not to derive any
income, other than excepted income, from the film or from the
taxpayer’s interest in copyright in the film, the Commissioner may
have regard to:
(a) any act that occurred, any transaction that was entered into or
any circumstance that existed before, or at the time when, the
moneys referred to in paragraph (1)(a) were expended; and
(b) any act that was likely to occur, any transaction that was
likely to be entered into or any circumstance that was likely
to exist after the time when the moneys referred to in
paragraph (1)(a) were expended by reason of any act,
transaction or circumstance mentioned in paragraph (a);
being an act, transaction or circumstance that had, or was likely to
have, the effect of reducing or eliminating the loss that would be

Liability to taxation Part III
Australian films Division 10BA

Section 124ZAO

Income Tax Assessment Act 1936 51 suffered by the relevant taxpayer, by virtue of the expenditure of
the moneys referred to in paragraph (1)(a), if the relevant taxpayer
were not to derive any income, other than excepted income, from
the film or from the taxpayer’s interest in copyright in the film.
(5) In this section:
(a) a reference to an agreement is a reference to any agreement,
arrangement, understanding or scheme, whether formal or
informal, whether express or implied, and whether or not
enforceable or intended to be enforceable by legal
proceedings; and
(b) a reference to income derived from a film is a reference to:
(i) any amount received or receivable as consideration for
the use of, or the right to use, the film or any copyright
or interest in copyright in the film;
(ii) any amount received or receivable as consideration for
the granting of a licence in respect of future copyright in
the film; and
(iii) any amount received or receivable as consideration in
respect of the disposal of the whole or a part of any
copyright or interest in copyright in the film or in
respect of the assignment of any right to use the
copyright or an interest in the copyright in the film or to
derive income from the use of such a copyright or
interest.
Subdivision C—Miscellaneous
124ZAO Limitation on deductibility of revenue expenses
(1) This section applies, in relation to a taxpayer in relation to a film in
relation to a year of income, to:
(a) any deduction that, but for this section, would be allowable to
the taxpayer in the year of income in respect of expenditure
(not being expenditure in respect of which a deduction is
allowable under section 124ZAFA) to the extent that the
expenditure is incurred by the taxpayer in relation to the film
and in gaining or producing amounts to which section 26AG
applies in relation to the taxpayer in relation to the film in
relation to any year of income; and

Part III Liability to taxation
Division 10BA Australian films

Section 124ZAP

52 Income Tax Assessment Act 1936 (b) any deduction deemed by subsection (3) to be a deduction to
which this section applies in relation to the taxpayer in
relation to the film in relation to the year of income.
(2) Where:
(a) but for this subsection, a deduction or deductions to which
this section applies in relation to a taxpayer in relation to a
film in relation to a year of income would be allowable to the
taxpayer in respect of the year of income; and
(b) the amount of that deduction or of the sum of those
deductions exceeds the amount, or the sum of the amounts,
that would be included in the assessable income of the
taxpayer of the year of income under section 26AG in
relation to the film;
then, notwithstanding any other provision of this Act, the amount
of that deduction shall be reduced by the amount of the excess or,
as the case requires, the amount of each of those deductions shall
be reduced by an amount that bears to the amount of the excess the
same proportion as the amount of the deduction bears to the sum of
the deductions.
(3) Where, by virtue of subsection (2), a deduction is not allowable to
a taxpayer in a year of income in relation to a film or the amount of
a deduction allowable to a taxpayer in a year of income in relation
to a film is reduced, the following provisions have effect:
(a) a deduction equal to the amount of the deduction or the
amount of the reduction, as the case may be, is, subject to
this section, allowable to the taxpayer in respect of the next
succeeding year of income; and
(b) the deduction that, by virtue of paragraph (a), is allowable to
the taxpayer in respect of the next succeeding year of income
shall be deemed to be a deduction to which this section
applies in relation to the taxpayer in relation to the film in
relation to the next succeeding year of income.
124ZAP Special provisions relating to partnerships
(1) This Division does not apply in calculating the net income of a
partnership, or a partnership loss, in accordance with section 90.
(2) For the purposes of the application of Subdivision B in relation to a
taxpayer being a partner in a partnership, where, under a contract

Liability to taxation Part III
Australian films Division 10BA

Section 124ZAP

Income Tax Assessment Act 1936 53 entered into on or after 1 October 1980, the partnership has
expended capital moneys in producing, or by way of contribution
to the cost of producing, a film, the taxpayer shall be deemed to
have expended capital moneys in producing, or by way of
contribution to the cost of producing, that film, of an amount equal
to:
(a) so much of the amount of the moneys expended as the
partners have agreed is to be borne by the taxpayer; or
(b) if the partners have not agreed as to the part of the moneys
expended that is to be borne by the taxpayer—so much of the
amount of the moneys expended as bears to that amount the
same proportion as the individual interest of the taxpayer in
the net income of the partnership of the year of income in
which the moneys were expended bears to that net income or,
as the case requires, the individual interest of the taxpayer in
the partnership loss for that year of income bears to that
partnership loss.
(3) Sections 124ZAG, 124ZAH, 124ZAJ and 124ZAK apply, for the
purposes of subsection (2), in determining whether a partnership
has expended capital moneys in producing, or by way of
contribution to the cost of producing, a film and in determining the
amount of any such moneys.
(4) Where a partnership has incurred expenditure in a year of income
in respect of which a deduction is not allowable to the partnership
in calculating the net income of the partnership for the purposes of
section 90 but would be allowable but for subsections 26AG(9) and
(10), a taxpayer being a partner in the partnership shall be deemed,
for the purposes of this Act, to have incurred, at the time when that
expenditure was incurred by the partnership:
(a) so much of the amount of that expenditure as the partners
have agreed is to be borne by the taxpayer; or
(b) if the partners have not agreed as to the part of the
expenditure that is to be borne by the taxpayer—so much of
that amount of the expenditure as bears to that amount the
same proportion as the individual interest of the taxpayer in
the net income of the partnership of the year of income in
which the expenditure was incurred bears to that net income
or, as the case requires, the individual interest of the taxpayer
in the partnership loss for that year of income bears to that
partnership loss.

Part III Liability to taxation
Division 10E PDFs (pooled development funds)

Section 124ZM

54 Income Tax Assessment Act 1936

Division 10E—PDFs (pooled development funds)
Subdivision A—Shares in PDFs
124ZM Treatment distributions to shareholders in PDF
Unfranked part of distribution exempt from income tax
(1) If a company makes a distribution to a shareholder at a time when
the company is a PDF, the unfranked part of the distribution is
exempt from income tax.
Rest of section deals with franked part
(2) The rest of this section applies to the franked part of the
distribution.
Usual case
(3) Subsection (4) applies if the assessable income of a year of income
of a taxpayer who or that is:
(a) a company or a natural person (other than a company or
natural person in the capacity of a trustee); or
(b) a corporate unit trust in relation to that year of income; or
(c) a public trading trust in relation to that year of income; or
(d) a complying superannuation fund, a non-complying
superannuation fund, a complying approved deposit fund, a
non-complying approved deposit fund or a pooled
superannuation trust in relation to that year of income;
would (apart from subsection (4)) include:
(e) the franked part of the distribution; or
(f) any of the franked part of the distribution that flows
indirectly to the taxpayer.
This subsection does not apply to cases dealt with in
subsections (5) and (6).
(4) Subject to subsection (7), the following is exempt income of the
taxpayer:
(a) if paragraph (3)(e) applies—the franked part;

Liability to taxation Part III
PDFs (pooled development funds) Division 10E

Section 124ZM

Income Tax Assessment Act 1936 55 (b) if paragraph (3)(f) applies—so much of the franked part of
the distribution as flows indirectly to the taxpayer.
Taxpayers who qualify for venture capital franking tax offset
(5) If a taxpayer (other than a life assurance company) is entitled to a
tax offset in relation to the distribution under section 210-170 of
the Income Tax Assessment Act 1997, then:
(a) so much of the franked part of the distribution as equals the
part of the distribution that is franked with a venture capital
credit is exempt income of the taxpayer; and
(b) if the franked part exceeds the amount so exempt—the
excess is, subject to subsection (7), exempt income of the
taxpayer.
(6) If a life assurance company is entitled to a tax offset in relation to
the distribution under section 210-170 of the Income Tax
Assessment Act 1997, then:
(a) so much of the franked part of the distribution as equals the
amount worked out using the following formula is exempt
income of the life assurance company:
Complying superannuation
class of taxable income
Venture capital franked part
Total income ×

where:
complying superannuation class of taxable income is the
life assurance company’s complying superannuation class of
taxable income, within the meaning of subsection 995-1(1) of
the Income Tax Assessment Act 1997, for the year of income
in which the distribution is made.
venture capital franked part is the part of the distribution
that is franked with a venture capital credit.
total income is the life assurance company’s assessable
income for the year of income in which the distribution is
made; and
(b) if the franked part exceeds the amount so exempt—the
excess is, subject to subsection (7), exempt income of the life
assurance company.

Part III Liability to taxation
Division 10E PDFs (pooled development funds)

Section 124ZM

56 Income Tax Assessment Act 1936 No exemption if return prepared on basis that amount assessable
(7) Subsection (4) and paragraphs (5)(b) and (6)(b) do not exempt, and
are taken never to have exempted, an amount if the taxpayer’s
return of income of the year of income is prepared on the basis that
the amount is included in the taxpayer’s assessable income of that
year.
Where partner entitled to deduction for amount flowing indirectly
(8) If:
(a) any of the franked part of the distribution flows indirectly to
a taxpayer who is a partner in a partnership; and
(b) apart from this subsection, the amount that flows indirectly
would be allowable as a deduction from the taxpayer’s
assessable income of a year of income; and
(c) the taxpayer is of a kind mentioned in any of
paragraphs (3)(a) to (d);
the amount that flows indirectly is not allowable as a deduction
from that assessable income.
(9) Subsection (8) does not prevent, and is taken never to have
prevented, an amount from being allowable as a deduction if the
taxpayer’s return of income of the year of income is prepared on
the basis that the amount is so allowable.
Where trustee assessed on amount flowing indirectly
(10) If:
(a) any of the franked part of the distribution flows indirectly to
the trustee of a trust estate; and
(b) apart from this subsection, the trustee would be liable under
section 98, 99 or 99A to be assessed and pay tax on the
amount that flows indirectly;
the trustee is not liable under that section to be assessed and to pay
tax on the amount that flows indirectly.
(11) Subsection (10) does not prevent, and is taken never to have
prevented, the trustee from being liable under that section to be
assessed and to pay tax on an amount if the trustee elects to be so
liable.

Liability to taxation Part III
PDFs (pooled development funds) Division 10E

Section 124ZN

Income Tax Assessment Act 1936 57 (12) An election must be made in the trustee’s return of income of the
trust estate for the year of income concerned.
Interpretation
(13) In this section:
flows indirectly has the meaning given by subsection 995-1(1) of
the Income Tax Assessment Act 1997.
part of a distribution that is franked with a venture capital credit
has the meaning given by subsection 995-1(1) of the Income Tax
Assessment Act 1997.
124ZN Exemption of income from sale of shares in a PDF
Income derived by a taxpayer from selling shares in a company is
exempt from income tax if the company is a PDF at the time of the
sale.
Note: Any capital gain or capital loss from a disposal of shares in a PDF is
disregarded: see section 118-13 of the Income Tax Assessment Act
1997.
124ZO Shares in a PDF are not trading stock
Shares in a PDF are not trading stock for the purposes of this Act.
124ZQ Effect of company becoming a PDF
(1) This section applies to shares in a company that a taxpayer holds
when the company becomes a PDF.
(2) In determining for the purposes of this Act whether an amount is or
was allowable as a deduction to the taxpayer in respect of
acquiring the shares, the shares are taken to have been shares in a
PDF throughout the period beginning immediately before the
taxpayer acquired them and ending when the company became a
PDF.
(3) For the purposes of this Act, the shares are taken to have been
trading stock of the taxpayer at no time during that period.
(4) Section 170 does not prevent an assessment from being amended to
give effect to this section.

Part III Liability to taxation
Division 10E PDFs (pooled development funds)

Section 124ZR

58 Income Tax Assessment Act 1936
124ZR Effect of company ceasing to be a PDF
(1) This section applies to shares in a company that a taxpayer holds
when the company ceases to be a PDF.
(2) For the purposes of this Act (except Parts 3-1 and 3-3 (about CGT)
of the Income Tax Assessment Act 1997), the taxpayer is taken:
(a) to have sold the shares immediately before the company
ceased to be a PDF; and
(b) to have rebought the shares immediately after the company
so ceased;
for a consideration equal to the market value of the shares
immediately after the company so ceased.
(3) Parts 3-1 and 3-3 (about CGT) of the Income Tax Assessment Act
1997 apply as if the taxpayer:
(a) had disposed of the CGT assets constituted by the shares, and
had done so immediately before the company ceased to be a
PDF; and
(b) had re-acquired those assets immediately afterwards;
for an amount equal to the shares’ market value immediately after
the company so ceased.
Subdivision B—The taxable income of PDFs
124ZS Definitions
In this Subdivision:
non-CGT assessable income means an amount included in
assessable income otherwise than under Part 3-1 or 3-3 (about
CGT) of the Income Tax Assessment Act 1997 or Subdivision C of
this Division.
SME investment means an investment other than an unregulated
investment.
Note: SME stands for small and medium enterprises.
unregulated investment has the same meaning as in the Pooled
Development Funds Act 1992.

Liability to taxation Part III
PDFs (pooled development funds) Division 10E

Section 124ZTA

Income Tax Assessment Act 1936 59
124ZTA Taxable income in first year as PDF if PDF component is
nil
(1) This section applies if:
(a) a company becomes a PDF during a year of income and is
still a PDF at the end of the year of income; and
(b) the PDF component for the year of income is a nil amount;
and
(c) the year of income is the 1997-98 year of income or a later
one.
(2) The company’s taxable income of the year of income is the amount
that, if the period (the notional year) beginning at the start of the
year of income and ending immediately before the company
becomes a PDF were a year of income of the company, would be
the company’s taxable income of the notional year.
124ZT SME assessable income
SME assessable income
(1) A company’s SME assessable income of a year of income is the
sum of:
(a) so much of the company’s non-CGT assessable income of
the year of income as was derived:
(i) from, or from the disposal of, an SME investment of the
company; and
(ii) at a time when the company was a PDF; and
(b) any assessable income allocated to the company’s SME
assessable income under section 124ZZB.
Note: Section 124ZZB deals with capital gains etc.
When assessable income derived
(2) For the purposes of paragraph (1)(a), if an amount is derived by a
company during, but not at a particular time during, a year of
income, the amount is taken to have been derived by the company
on the last day of the year of income.

Part III Liability to taxation
Division 10E PDFs (pooled development funds)

Section 124ZU

60 Income Tax Assessment Act 1936
124ZU SME income component
Full-year PDFs
(1) The SME income component of a year of income of a company
that is a PDF throughout the year of income is so much of the
company’s taxable income of the year of income as does not
exceed the amount (if any) remaining after deducting from the
company’s SME assessable income of the year of income any
deductions allowable to the company in relation to the year of
income.
Part-year PDFs
(2) The SME income component of a year of income of a company
that becomes a PDF during the year of income and is still a PDF at
the end of the year of income is so much of the company’s adjusted
taxable income of the year of income as does not exceed the
amount (if any) remaining after deducting from the company’s
SME assessable income of the year of income any deductions
where both of the following conditions are satisfied:
(a) the deductions were allowable to the company in relation to
the year of income;
(b) the deductions were taken into account in working out the
company’s PDF component of the year of income.
For this purpose, adjusted taxable income means so much of the
company’s taxable income of the year of income as does not
exceed its PDF component of the year of income.
124ZV Unregulated investment component
Full-year PDFs
(1) The unregulated investment component of a year of income of a
company that is a PDF throughout the year of income is the
amount (if any) remaining after deducting from the company’s
taxable income of the year of income the company’s SME income
component of the year of income.
Part-year PDFs
(2) The unregulated investment component of a year of income of a
company that becomes a PDF during the year of income and is still

Liability to taxation Part III
PDFs (pooled development funds) Division 10E

Section 124ZW

Income Tax Assessment Act 1936 61 a PDF at the end of the year of income is the amount (if any)
remaining after deducting from the company’s adjusted taxable
income of the year of income the company’s SME income
component of the year of income. For this purpose, adjusted
taxable income means so much of the company’s taxable income
of the year of income as does not exceed its PDF component of the
year of income.
Subdivision C—Adjustments of the tax treatment of capital
gains and capital losses of PDFs
124ZW Definitions
In this Subdivision:
accumulated net capital loss for a year of income (the loss year)
means the amount (if any) by which the total of:
(a) the total of the overall capital losses for all classes of
assessable income for the loss year; and
(b) any accumulated net capital loss for the last year of income
before the loss year;
exceeds:
(c) the total of the overall capital gains for all classes of
assessable income for the loss year (before section 116GB is
applied).
class, in relation to assessable income, means a class specified in
section 124ZY.
company does not include a company in a capacity of trustee.
non-CGT assessable income means an amount included in
assessable income otherwise than under Part 3-1 or 3-3 (about
CGT) of the Income Tax Assessment Act 1997 or this Subdivision.
ordinary capital gain for a CGT event means any capital gain that
would (apart from this Subdivision) arise from the event.
ordinary capital loss for a CGT event means any capital loss that
would (apart from this Subdivision) arise from the event.
overall capital gain for a class of assessable income means:

Part III Liability to taxation
Division 10E PDFs (pooled development funds)

Section 124ZX

62 Income Tax Assessment Act 1936 (a) the amount by which the total ordinary capital gain for that
class exceeds the total ordinary capital loss for that class; or
(b) if an amount has been applied under subsection 124ZZB(2)
to reduce an overall capital gain previously worked out under
this definition—that gain as so reduced.
overall capital loss for a class of assessable income means the
amount by which the total ordinary capital gain for that class is less
than the total ordinary capital loss for that class.
residual overall capital gain means so much of an overall capital
gain as remains after applying subsection 124ZZB(2).
SME assessable income has the meaning given by Subdivision B.
SME investment means an investment other than an unregulated
investment.
total ordinary capital gain for a class means the total of so much
of any ordinary capital gains as has been allocated to that class
under section 124ZZA.
total ordinary capital loss for a class means the total of so much of
any ordinary capital losses as has been allocated to that class under
section 124ZZA.
unregulated investment has the same meaning as in the Pooled
Development Funds Act 1992.
124ZX Companies to which this Subdivision applies
This Subdivision applies to a company in relation to a year of
income if:
(a) the company is a PDF throughout the year of income; or
(b) the company becomes a PDF during the year of income and
is still a PDF at the end of the year of income.
124ZY Classes of assessable income
Classes
(1) The classes of assessable income of the company are as follows:
(a) SME assessable income (see section 124ZT);

Liability to taxation Part III
PDFs (pooled development funds) Division 10E

Section 124ZZ

Income Tax Assessment Act 1936 63 (b) other assessable income (see subsection(2)).
Other assessable income
(2) The company’s other assessable income of the year of income is
the sum of:
(a) so much of the company’s non-CGT assessable income of
the year of income as is not included in the company’s SME
assessable income of the year of income; and
(b) any assessable income allocated to the company’s other
assessable income under section 124ZZB.
124ZZ Treatment of capital gains
Nothing is to be included in the company’s assessable income of
the year of income under section 102-5 of the Income Tax
Assessment Act 1997 (about net capital gains).
124ZZA Allocation of gain amounts and loss amounts to classes of
assessable income
Disposals of SME investments
(1) If:
(a) there is an ordinary capital gain amount, or an ordinary
capital loss amount, in respect of a disposal of an SME
investment of the company; and
(b) the company was a PDF at the time of the disposal;
the ordinary capital gain amount or ordinary capital loss amount, as
the case may be, is taken into account in determining the overall
capital gain or overall capital loss for the class known as SME
assessable income.
Disposals of assets other than SME investments
(2) If:
(a) there is an ordinary capital gain amount, or an ordinary
capital loss amount, in respect of a disposal of an asset of the
company; and
(b) subsection (1) does not apply to the disposal;
the ordinary capital gain amount or the ordinary capital loss
amount, as the case may be, is taken into account in determining

Part III Liability to taxation
Division 10E PDFs (pooled development funds)

Section 124ZZB

64 Income Tax Assessment Act 1936 the overall capital gain or overall capital loss for the class known
as other assessable income.
124ZZB Assessable income etc. in relation to capital gains
(1) The assessable income of each class includes the amount (if any)
that is left over after the overall capital gain for that class has been
reduced in accordance with this section.
(2) If there is an overall capital loss for a particular class of assessable
income, the loss is to be applied in reduction of overall capital
gains for the remaining class.
(3) Any accumulated net capital loss for the immediately preceding
year of income is to be applied in reduction of residual overall
capital gains for the classes of assessable income in the following
order:
(a) SME assessable income;
(b) other assessable income.
124ZZD No net capital loss
The company does not make a net capital loss for the year of
income, despite section 102-10 of the Income Tax Assessment Act
1997.

Liability to taxation Part III
Interest paid by companies on bearer debentures Division 11

Section 126

Income Tax Assessment Act 1936 65

Division 11—Interest paid by companies on bearer
debentures
126 Interest paid by a company on bearer debentures
(1) If:
(a) a company pays or credits an amount of interest in respect of
a debenture payable to bearer; and
(b) the interest is not, to any extent, subject to withholding tax
under Division 11A; and
(c) neither of sections 128F (to the extent it applies to
non-residents who are not engaged in carrying on a business
in Australia at or through a permanent establishment in
Australia) and 128GB applies to the interest; and
(d) the interest is not interest that, because of
section 159GZZZZE (which deals with infrastructure
borrowings), is not included in assessable income; and
(e) the company does not give the Commissioner the name and
address of the holder of the debenture;
the company is liable to pay income tax, as imposed by the Income
Tax (Bearer Debentures) Act 1971, on the amount paid or credited,
or, if the company makes a deduction under subsection (2), the
amount that otherwise would have been paid or credited.
(1A) Subsection (1) does not affect any other liability of the company to
pay income tax.
(2) The company may deduct and retain for its own use from an
amount payable to a person in respect of which the company is
liable to pay tax in accordance with subsection (1) an amount equal
to that tax.
(3) Where the Commissioner is satisfied that that person is not liable
to furnish a return, he shall refund to him the amount of tax paid by
the company in respect of his debentures.
127 Credit for tax paid by company
(1) Where the company pays tax under this Division on any interest,
and that interest is included in the assessment of the person to

Part III Liability to taxation
Division 11 Interest paid by companies on bearer debentures

Section 128

66 Income Tax Assessment Act 1936 whom it was paid or credited, the proportionate amount of tax paid
by the company in respect of the interest shall be deducted from
the total tax payable by that person.
128 Assessments of tax
An assessment of tax payable in accordance with this Division by a
company may be an assessment of the amount of tax so payable
upon interest in respect of a number of debentures, whether held by
the one holder or not.

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128AAA

Income Tax Assessment Act 1936 67

Division 11A—Dividends, interest and royalties paid to
non-residents and to certain other persons
Subdivision A—General
128AAA Application of Division to non-share dividends
(1) This Division:
(a) applies to a non-share equity interest in the same way as it
applies to a share; and
(b) applies to an equity holder in the same way as it applies to a
shareholder; and
(c) applies to a non-share dividend in the same way as it applies
to a dividend.
(2) Subsection (1) does not apply to:
(a) section 128AE; and
(b) section 128F; and
(ba) section 128FA.
128A Interpretation
(1) In this Division, unless the contrary intention appears:
ADI means a body corporate that is an ADI (authorised
deposit-taking institution) for the purposes of the Banking Act
1959.
dividend:
(a) includes part of a dividend; and
(b) (except when used in paragraph (d) of the definition of
interest in subsection (1AB)) does not include a dividend
paid in respect of a non-equity share.
enterprise means a business or other industrial or commercial
undertaking.
entity means:
(a) the Commonwealth, a State or an authority of the
Commonwealth or of a State;

Part III Liability to taxation
Division 11A Dividends, interest and royalties paid to non-residents and to certain
other persons

Section 128A

68 Income Tax Assessment Act 1936 (b) a natural person;
(c) a company;
(d) the partners in a partnership, in their capacity as partners;
(e) the persons carrying on a joint venture, in their capacity as
such persons; or
(f) the trustees of a trust, in their capacity as such trustees.
foreign bank means a non-resident company that carries on a
banking business.
joint venture means an enterprise carried on by 2 or more persons
in common otherwise than as partners.
non-ADI financial institution means a corporation that:
(a) is a registered entity within the meaning of the Financial
Sector (Collection of Data) Act 2001; and
(b) is included in Category D (Money Market Corporation) in a
list kept under section 11 of that Act; and
(c) carries on a general business of providing finance (within the
meaning of that Act) on a commercial basis.
nostro account means an account that:
(a) an ADI or non-ADI financial institution holds with a foreign
bank and maintains for the sole purpose of settling
international transactions; and
(b) operates on the basis that:
(i) amounts deposited in the account are held in the account
for no more than 10 days; and
(ii) amounts advanced by way of an overdraft on the
account are repaid within 10 days.
(1AA) In this Division and in an Act imposing withholding tax:
income includes a royalty and a dividend.
(1AB) For the purposes of this Division:
interest includes an amount, other than an amount referred to in
subsection 26C(1):
(a) that is in the nature of interest; or

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128A

Income Tax Assessment Act 1936 69 (b) to the extent that it could reasonably be regarded as having
been converted into a form that is in substitution for interest;
or
(c) to the extent that it could reasonably be regarded as having
been received in exchange for interest in connection with a
washing arrangement; or
(d) that is a dividend paid in respect of a non-equity share; or
(e) if regulations under the Income Tax Assessment Act 1997 are
made having the effect that instruments known as upper tier 2
capital instruments, or a class of instruments of that kind, are
debt interests—that is paid on such a debt interest and is not a
return of an investment;
but does not include an amount to the extent to which it is a return
on an equity interest in a company.
washing arrangement means an arrangement under which the title
to a security is transferred to a resident shortly before an interest
payment is made where the sole or dominant purpose of the
arrangement is to reduce the amount of withholding tax payable by
a person.
(1AC) An example of an amount in the nature of interest is an amount
representing a discount on a security.
(1AD) An example of an amount in substitution for interest is a lump sum
payment made instead of payments of interest.
(1AE) For the purposes of this Division, if a lender assigns a loan, or the
right to interest under a loan, any payment from the borrower to the
assignee that represents an amount that would have been interest if
the assignment had not taken place is taken to be a payment of
interest.
(1AF) For the purposes of this Division, if a person acquires a security, or
the right to interest under a security, any payment from the issuer
of the security to that person that represents an amount that would
have been interest if the acquisition had not taken place is taken to
be a payment of interest.
(1A) Subject to subsection (1B), for the purposes of this subsection and
sections 128AA, 128AB, 128AD, 128C, 128NA and 128NBA:
(a) a reference to the reduced issue price of a security that has
been partially redeemed on one or more occasions is a

Part III Liability to taxation
Division 11A Dividends, interest and royalties paid to non-residents and to certain
other persons

Section 128A

70 Income Tax Assessment Act 1936 reference to the issue price of the security reduced by the
amount of the partial redemption or the sum of the amounts
of the partial redemptions, as the case may be;
(b) expressions used in this subsection or those sections that are
also used in Division 16E have the same respective meanings
as in that Division; and
(c) sections 159GV (other than subsection 159GV(2)) and
159GZ apply as if references in those sections to “this
Division” were references to “subsection 128A(1A) and
sections 128AA, 128AB, 128AD, 128C, 128NA and
128NBA”.
(1B) Subsection (1A) applies as if:
(a) paragraph (c) of the definition of qualifying security in
subsection 159GP(1) were omitted; and
(b) paragraph (a) of the definition of security in that subsection
included a reference to debt interests.
(2) For the purposes of this Division, interest or a royalty shall be
deemed to have been paid by a person to another person although it
is not actually paid over to the other person but is reinvested,
accumulated, capitalized, carried to any reserve, sinking fund or
insurance fund however designated, or otherwise dealt with on
behalf of the other person or as the other person directs.
(3) For the purposes of this Division, a beneficiary who is presently
entitled to a dividend, to interest or to a royalty included in the
income of a trust estate shall be deemed to have derived income
consisting of that dividend, interest or royalty at the time when he
became so entitled.
(4) In section 260, income tax or tax includes withholding tax.
(5) For the purposes of this Division:
(a) the borrowing of moneys by a company by means of the
issue of a number of debentures or debt interests in one
borrowing operation shall be deemed to be the raising of a
loan;
(b) subject to paragraph (a), each receipt of moneys by a
borrower under a contract under which moneys are to be, or
may be, advanced by way of loan shall be deemed to be the
raising of a loan; and

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128A

Income Tax Assessment Act 1936 71 (c) the moneys received by the raising of a loan, less the
expenses of borrowing, shall be deemed to be the loan
moneys in respect of the loan.
(6) A reference in this Division to beneficial interests in relation to an
entity shall be read:
(a) in the case of an entity being a company or the partners in a
partnership—as a reference to beneficial interests in respect
of the capital of, and in respect of any profits or income of,
the company or partnership;
(b) in the case of an entity being persons carrying on a joint
venture—as a reference to beneficial interests in respect of
the enterprise; and
(c) in the case of an entity being the trustees of a trust—as a
reference to beneficial interests under the trust.
(7) A reference in this Division to the use of moneys for the purposes
of an enterprise shall be read as not including use of those moneys
in the course of carrying on an enterprise:
(a) by way of providing capital for another enterprise; or
(b) by way of the making of loans.
(9) For the purposes of this Division:
(a) a reference to particular loan moneys (including the reference
in paragraph (b)) includes a reference to moneys that, in the
opinion of the Commissioner, represent those loan moneys;
and
(b) without limiting the generality of paragraph (a):
(i) moneys received by way of repayment of a loan made
out of particular loan moneys; and
(ii) moneys received in respect of shares in the capital of a
company, being shares purchased or subscribed for by
the expenditure of particular loan moneys, upon a sale
of the shares, a return of capital by the company or
liquidation of the company;
shall be deemed to represent those loan moneys.
(10) For the purposes of this Division, the trustee of a provident,
benefit, superannuation or retirement fund is a non-resident at a
particular time if, and only if, the fund is a foreign superannuation
fund at that time.

Part III Liability to taxation
Division 11A Dividends, interest and royalties paid to non-residents and to certain
other persons

Section 128AA

72 Income Tax Assessment Act 1936 (11) If, apart from this subsection, there is, in relation to a fund, no
person who is a trustee of the fund for the purposes of this
Division, the person, or each of the persons, who manages the fund
is taken, for the purposes of this Division, to be the trustee, or a
trustee, as the case requires, of the fund.
128AA Deemed interest in respect of transfers of certain securities
(1) Where:
(a) a person transfers a qualifying security; and
(b) the transfer price of the security exceeds the issue price or,
where the security has been partially redeemed, the reduced
issue price of the security;
so much of the transfer price as equals the excess referred to in
paragraph (b) shall, for the purposes of this Division, be deemed to
be income that consists of interest.
(2) For the purposes of references to the transfer price, issue price or
reduced issue price of a qualifying security in subsection (1), any
application of subsection 159GP(2) shall be disregarded.
128AB Certificates relating to issue price of certain securities
(1) Where:
(a) a qualifying security is or was transferred either before or
after the commencement of this section; and
(b) at the time of transfer either:
(i) the transferor is or was a resident; or
(ii) the transferor is or was a non-resident and the transfer
price is or was derived from a source in Australia;
the transferee may at any time after the transfer (including a time
after the transferee ceases to be the holder of the security) apply to
the Commissioner for the issue of a certificate under this section.
(2) An application under subsection (1) shall be in accordance with the
form required by the Commissioner, by notice in writing published
in the Gazette, for the purposes of applications under that
subsection.
(3) Where the Commissioner is satisfied that the requirements of
paragraph (1)(b) are satisfied in relation to the transfer of the
qualifying security to which an application under subsection (1)

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128AB

Income Tax Assessment Act 1936 73 relates and that the security was transferred on a particular date and
for a particular consideration to the applicant, the Commissioner
shall issue to the applicant a certificate that:
(a) is expressed to be issued under this section;
(b) identifies the security to which it relates;
(c) specifies that date as the date of transfer;
(d) specifies that consideration, or, where subsection 159GP(2)
applies, the amount that is taken under that subsection to be
the consideration for the transfer, as the transfer price; and
(e) specifies the name of the applicant as the transferee.
(4) Where the Commissioner issues a certificate under this section in
relation to a qualifying security that has been transferred to a
person, the following provisions have effect:
(a) for the purposes of the application of this Division in relation
to the first subsequent transfer (if any) of the qualifying
security by the person:
(i) the amount specified in the certificate shall be taken to
be the issue price of the security; and
(ii) where the security was partially redeemed before the
transfer to the person—any such partial redemption
shall be taken not to have occurred;
(b) if the security is redeemed or partially redeemed without
having been subsequently transferred by the person—in
determining for the purposes of the application of this
Division the extent (if any) to which the redemption payment
comprises an amount that is interest by reason only of the
definition of interest in subsection 128A(1AB):
(i) the amount specified in the certificate as the transfer
price shall be taken to be the issue price of the security;
and
(ii) where the security was partially redeemed before the
transfer to the person—any such partial redemption
shall be taken not to have occurred.
(5) If the Commissioner refuses an application under subsection (1),
the Commissioner shall serve on the applicant, by post or
otherwise, notice in writing that the application has been refused.

Part III Liability to taxation
Division 11A Dividends, interest and royalties paid to non-residents and to certain
other persons

Section 128AC

74 Income Tax Assessment Act 1936
128AC Deemed interest in respect of hire-purchase and certain
other agreements
(1) In this section:
agreement means any agreement, arrangement or understanding,
whether formal or informal, whether express or implied and
whether or not enforceable, or intended to be enforceable, by legal
proceedings.
attributable agreement payment, in relation to a relevant
agreement, means so much of any payment made or liable to be
made under the agreement as represents consideration for the use,
sale or disposal of the relevant agreement property.
carry forward interest, in relation to an attributable agreement
payment in relation to a relevant agreement, means so much (if
any) of the notional interest in relation to the payment as exceeds
the amount of the payment.
eligible value, in relation to the relevant agreement property in
relation to a relevant agreement, means the market value of the
property at the time at which the agreement commences or
commenced to apply in relation to the property.
formula interest, in relation to an attributable agreement payment
in relation to a relevant agreement, means the amount ascertained
in accordance with the formula
2 AC
B (B + 1) , where:
A is the total interest in relation to the relevant agreements.
B is the total number of attributable agreement payments liable to
be made under the relevant agreements; and
C is the number that is B, reduced by the number of attributable
agreement payments made under the relevant agreement before the
attributable agreement payment concerned.
notional interest, in relation to an attributable agreement payment
in relation to a relevant agreement, means the sum of the formula
interest (if any) in relation to the payment and the carry forward
interest (if any) in relation to the immediately preceding

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128AC

Income Tax Assessment Act 1936 75 attributable agreement payment in relation to the relevant
agreement.
relevant agreement means an agreement entered into after
16 December 1984, being:
(a) a hire-purchase agreement; or
(b) a lease or any other agreement relating to the use by a person
of property owned by another person, being a lease or
agreement under which:
(i) the lessee or person using the property is entitled to
purchase or require the transfer of the lease property or
property subject to the agreement on the termination or
expiration of the lease or agreement; or
(ii) the lease term or term of the agreement is for all, or
substantially all, of the effective life of the lease
property or property subject to the agreement.
relevant agreement property, in relation to a relevant agreement,
means:
(a) in the case of a hire-purchase agreement—the property that is
the subject of the agreement; and
(b) in any other case—the property in relation to which
subparagraph (b)(i) or (ii) of the definition of relevant
agreement applies.
total interest, in relation to a relevant agreement, means the sum of
all of the attributable agreement payments liable to be made under
the relevant agreement, reduced by the eligible value of the
relevant agreement property.
(2) Where an agreement (including a hire-purchase agreement and a
lease) relates to the use by a person of 2 or more items of property
owned by another person, this section applies as if, instead of the
single agreement, there were separate agreements relating to the
use of each of the items of property having such of the terms of the
first-mentioned agreement as are relevant.
(3) Where a variation is or was made in the terms of, or liability to
make payments under, a relevant agreement, then, for the purposes
of the application of this section:
(a) the relevant agreement shall be taken to be, or to have been,
terminated at the time at which the variation has effect; and

Part III Liability to taxation
Division 11A Dividends, interest and royalties paid to non-residents and to certain
other persons

Section 128AC

76 Income Tax Assessment Act 1936 (b) a new relevant agreement shall be taken to be, or to have
been, entered into at the time at which the variation has effect
and on the terms of the first-mentioned relevant agreement as
so varied.
(4) Where any right or option under an agreement to extend the term
of, or otherwise vary the effect of, the agreement is or was
exercised, then, for the purposes of this section, the exercise of that
right or option shall be taken to be a variation of the terms of the
agreement to provide for the extension or other effect.
(5) Where an attributable agreement payment in relation to a relevant
agreement is made, so much of the attributable agreement payment
as does not exceed the notional interest in relation to the payment
shall, for the purposes of this Division, be deemed to be income
that consists of interest.
(6) Where:
(a) a relevant agreement is entered into after the commencement
of this section; and
(b) at the time at which the relevant agreement is entered into,
the total interest in relation to the relevant agreement exceeds
the sum of all amounts that, if all of the attributable
agreement payments liable to be made under the relevant
agreement were made, would, disregarding this subsection,
be deemed to be income that consists of interest under
subsection (5) in relation to the relevant agreement;
the amount of the notional interest in relation to the first
attributable agreement payment in relation to the relevant
agreement shall, for the purposes of this section, be increased by an
amount equal to the excess referred to in paragraph (b).
(7) For the purposes of section 128D, where withholding tax is
payable on a part of an attributable agreement payment that is
taken under subsection (5) of this section to be an amount of
interest, the withholding tax shall be taken to be payable on the
whole of the attributable agreement payment.

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128AD

Income Tax Assessment Act 1936 77
128AD Indemnification etc. agreements in relation to bills of
exchange and promissory notes
(1) Where:
(a) the drawer of a bill of exchange issued after the day on which
this section comes into operation pays an amount (in this
subsection referred to as the indemnification amount) to the
acceptor of the bill to indemnify, reimburse or otherwise
compensate the acceptor in respect of the whole or a part of
an amount (which whole or part is in this subsection referred
to as the eligible presentment amount) that the acceptor has,
or will, become liable to pay to the payee under the bill on
presentment of the bill;
(b) no part of the indemnification amount is, or will be, included
in the assessable income of the acceptor of any year of
income; and
(c) the whole or a part (in this subsection referred to as the
eligible presentment interest) of the eligible presentment
amount consists or will consist of interest;
so much of the indemnification amount as indemnifies, reimburses
or otherwise compensates the acceptor in respect of the eligible
presentment interest shall, for the purposes of this Division, be
deemed to be income that consists of interest.
(2) Where:
(a) a person (in this subsection referred to as the indemnifier)
pays an amount (in this subsection referred to as the
indemnification amount) to the issuer of a promissory note
issued after the day on which this section comes into
operation to indemnify, reimburse or otherwise compensate
the issuer in respect of the whole or a part of an amount
(which whole or part is in this subsection referred to as the
eligible presentment amount) that the issuer has, or will,
become liable to pay to the payee under the note on
presentment of the note;
(b) no part of the indemnification amount is, or will be, included
in the assessable income of the issuer of any year of income;
and
(c) the whole or a part (in this subsection referred to as the
eligible presentment interest) of the eligible presentment
amount consists or will consist of interest;

Part III Liability to taxation
Division 11A Dividends, interest and royalties paid to non-residents and to certain
other persons

Section 128AE

78 Income Tax Assessment Act 1936 so much of the indemnification amount as indemnifies, reimburses
or otherwise compensates the issuer in respect of the eligible
presentment interest shall, for the purposes of this Division, be
deemed to be income that consists of interest.
128AE Interpretation provisions relating to offshore banking units
(1) In this Division, unless the contrary intention appears:
borrow includes raise finance by the issue of a security.
lend includes provide finance by the purchase of a security.
OB activity has the same meaning as in section 121D.
offshore banking unit has the meaning given by this section.
offshore borrowing means:
(a) a borrowing in any currency, by a person who is or has been
an offshore banking unit, from a non-resident who is not a
related person (within the meaning of Division 9A); or
(b) a borrowing in a currency other than Australian currency, by
a person who is or has been an offshore banking unit, from a
resident or a related person (within the meaning of
Division 9A).
offshore gold borrowing means borrowing gold from an offshore
person within the meaning of section 121E.
prevailing borrowing rate, in relation to a person who is or has
been an offshore banking unit, in relation to a particular time,
means the effective annual interest rate that the Commissioner
considers was payable by the person on borrowings at or about that
time or, where there were none, by offshore banking units
generally at or about that time.
prevailing borrowing term, in relation to a person who is or has
been an offshore banking unit, in relation to a particular time,
means the period that the Commissioner considers was the usual
term of borrowings by the person at or about that time or, where
there were none, by offshore banking units generally at or about
that time.

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128AE

Income Tax Assessment Act 1936 79 security means a bond, debenture, debt interest, bill of exchange,
promissory note or other security or similar instrument.
tax exempt gold means gold that is tax exempt gold under this
section.
tax exempt loan money means an amount that is tax exempt loan
money under this section.
transfer to a person includes apply an amount for the benefit of a
person.
(2) The Treasurer may, by notice published in the Gazette, declare a
person being:
(a) a body corporate that is an ADI (authorised deposit-taking
institution) for the purposes of the Banking Act 1959; or
(b) a public authority constituted by a law of a State, being a
public authority that carries on the business of State banking;
or
(ba) a company in which all of the equity interests are beneficially
owned by an offshore banking unit (other than one to which
paragraph (c) applies); or
(c) a person whom the Treasurer is satisfied is appropriately
authorised to carry on business as a dealer in foreign
exchange; or
(d) a life insurance company registered under the Life Insurance
Act 1995; or
(e) a company incorporated under the Corporations Act 2001
that provides funds management services on a commercial
basis (other than solely to related persons):
(i) that is, under the Financial Sector (Collection of Data)
Act 2001, a registered entity included in the category for
money market corporations; or
(ii) all of the shares which are beneficially owned by a
company covered by subparagraph (i); or
(iii) a financial services licensee (as defined by section 761A
of the Corporations Act 2001) whose licence covers
dealing in securities (as defined by subsection 92(3) of
the Corporations Act 2001), providing financial advice
in relation to such securities or operating a managed

Part III Liability to taxation
Division 11A Dividends, interest and royalties paid to non-residents and to certain
other persons

Section 128AE

80 Income Tax Assessment Act 1936 investment scheme (as defined by section 9 of the
Corporations Act 2001); or
(f) a company that the Treasurer determines, in writing, to be an
OBU under subsection (2AA);
to be an offshore banking unit for the purposes of this Division.
(2AA) The Treasurer may, on written application by a company, make a
written determination that the company is an OBU.
(2AB) The determination must:
(a) specify the day when the company commences to be an
OBU; and
(b) contain any other information the Treasurer considers
appropriate.
(2AC) A determination of the Treasurer under subsection (2AA) must be
made in accordance with guidelines determined by the Treasurer
under subsection (2AD).
(2AD) The Treasurer must, by legislative instrument, determine
guidelines for the making of determinations under
subsection (2AA). The guidelines may require the Treasurer to take
into account:
(a) specified criteria; or
(b) recommendations of particular bodies; or
(c) any other factors.
(2A) If a person who is an offshore banking unit for the purposes of this
Division:
(a) is convicted of an offence against section 8L, 8N, 8Q, 8T or
8U of the Taxation Administration Act 1953, or against
Division 136 or 137 of the Criminal Code in relation to a
taxation law (within the meaning of the Taxation
Administration Act 1953); or
(b) incurs a tax liability, within the meaning of that Act, by way
of a penalty equal to 90% of an amount;
the Treasurer may declare, by notice published in the Gazette, that
the person is no longer an offshore banking unit for the purposes of
this Division.
(2B) If the Treasurer makes such a declaration in respect of a company
that is an offshore banking unit only because of paragraph (2)(ba),

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128AE

Income Tax Assessment Act 1936 81 the offshore banking unit mentioned in that paragraph, and in any
previous application of that paragraph that was necessary for it to
apply to the company, is no longer an offshore banking unit from
the time when the declaration comes into force.
(2C) If a person who is an offshore banking unit ceases to be a person of
a kind mentioned in any of paragraphs (2)(a), (b), (ba) and (c), the
Treasurer must declare, by notice published in the Gazette, that the
person is no longer an offshore banking unit for the purposes of
this Division.
(2D) Except as mentioned in subsection (2A), (2B) or (2C), a person
does not cease to be an offshore banking unit for the purposes of
this Division.
(3) A declaration under subsection (2), (2A) or (2C) shall not come
into force before the day on which the notice containing the
declaration is published in the Gazette.
(4) Where:
(a) a person who is an offshore banking unit makes an offshore
borrowing or offshore gold borrowing; and
(b) the lender would, but for section 128GB, be liable to pay
withholding tax on income consisting of interest on the
offshore borrowing or offshore gold borrowing;
then, for the purposes of this Division, the amount borrowed is tax
exempt loan money or tax exempt gold of the person.
(5) Where:
(a) a person who is or has been an offshore banking unit makes a
loan of tax exempt loan money or tax exempt gold where the
loan is an OB activity or would be if the person were an
OBU; and
(b) the loan is repaid;
the amount repaid is, for the purposes of this Division, deemed to
be tax exempt loan money or tax exempt gold of the person.
(7) Where a person who is or has been an offshore banking unit
transfers an amount of tax exempt loan money or tax exempt gold
to another person, the following provisions have effect for the
purposes of this Division:

Part III Liability to taxation
Division 11A Dividends, interest and royalties paid to non-residents and to certain
other persons

Section 128AE

82 Income Tax Assessment Act 1936 (a) subject to subsections (10) and (11), the amount transferred
ceases to be tax exempt loan money or tax exempt gold of the
person; and
(b) the amount transferred does not become tax exempt loan
money or tax exempt gold of the other person.
(8) Where a person who is or has been an offshore banking unit
transfers to another person an amount of money or gold that, in the
opinion of the Commissioner, includes tax exempt loan money or
tax exempt gold, so much of the amount transferred as the
Commissioner considers was tax exempt loan money or tax exempt
gold is deemed, for the purposes of this Division, to have been tax
exempt loan money or tax exempt gold of the person.
(9) Where a person who is or has been an offshore banking unit deals
with an amount of tax exempt loan money or tax exempt gold of
the person under the person’s internal accounting arrangements in
such a way that the amount becomes available for possible transfer
to other persons (other than by way of payment in carrying on an
OB activity, or what would be an OB activity if the person were an
OBU, or repayment of an offshore borrowing or an offshore gold
borrowing), the following provisions have effect for the purposes
of this Division:
(a) the person is, when the amount so becomes available,
deemed to make a transfer of the amount to another person,
other than by way of payment in carrying on an OB activity
(or what would be an OB activity if the person were an OBU)
or repayment of an offshore borrowing or an offshore gold
borrowing;
(b) any actual transfer of the amount by the person to another
person shall be disregarded.
(10) For the purposes of this Division, where a person who is or has
been an offshore banking unit transfers tax exempt loan money to
another person in exchange for an equivalent amount in a different
currency:
(a) the amount received in exchange shall be taken to be the
same money as was transferred; and
(b) the transfer shall be taken not to have occurred.
(11) For the purposes of this Division, where a person who is or has
been an offshore banking unit transfers tax exempt loan money or

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128AF

Income Tax Assessment Act 1936 83 tax exempt gold to another person by way of a deposit for the
purposes of temporary safe-keeping pending the making of an
offshore loan or repayment of an offshore borrowing or an offshore
gold borrowing:
(a) the amount held on deposit and upon being repaid shall be
taken to be the same money as was transferred; and
(b) the transfer shall be taken not to have occurred.
(12) For the purposes of this section, an amount:
(a) deposited in an account with a bank or other financial
institution; or
(b) paid by way of consideration for the issue of a security;
shall be taken to have been lent to, and borrowed by, the bank,
financial institution or issuer of the security.
(13) 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 within the meaning of Division 9A; and
(b) one or more other permanent establishments either in
Australia or outside Australia;
then this section and section 128NB apply 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.
128AF Payments through interposed entities
(1) This section applies if:
(a) a payment received by a non-resident through one or more
interposed companies, partnerships, trusts or other persons is
attributable to an amount of dividends, interest or royalties
paid by a resident; and
(b) one or more of the interposed companies, partnerships, trusts
or other persons is exempt from tax.
(2) If this section applies, the amount of dividends, interest or royalties
paid by a resident is taken, for the purposes of this Division, to
have been paid by the resident directly to the non-resident.

Part III Liability to taxation
Division 11A Dividends, interest and royalties paid to non-residents and to certain
other persons

Section 128B

84 Income Tax Assessment Act 1936 (3) For the purposes of this section, a person is exempt from tax if, at
the time at which the payment was received by the non-resident, all
income of the person was exempt from tax.
128B Liability to withholding tax
(1A) In this section, a reference to a person to whom this section applies
is a reference to the Commonwealth, a State, an authority of the
Commonwealth or of a State or a person who is, or persons at least
1 of whom is, a resident.
(1) Subject to subsections (3), (3A), (3D) and (3E), this section applies
to income that:
(a) is derived, on or after 1 January 1968, by a non-resident; and
(b) consists of a dividend paid by a company that is a resident.
Note: An amount declared to be conduit foreign income is an amount to
which this section does not apply: see sections 802-15 and 802-17 of
the Income Tax Assessment Act 1997.
(2) Subject to subsection (3), this section also applies to income that:
(a) is derived, on or after 1 January 1968, by a non-resident; and
(b) consists of interest that:
(i) is paid to the non-resident by a person to whom this
section applies and is not an outgoing wholly incurred
by that person in carrying on business in a country
outside Australia at or through a permanent
establishment of that person in that country; or
(ii) is paid to the non-resident by a person who, or by
persons each of whom, is not a resident and is, or is in
part, an outgoing incurred by that person or those
persons in carrying on business in Australia at or
through a permanent establishment of that person or
those persons in Australia.
Note: An amount of interest paid to a person by a temporary resident is an
amount to which this section does not apply: see section 768-980 of
the Income Tax Assessment Act 1997.
(2A) Subject to subsection (3), where income:
(a) is, or has, after 2 July 1973, been, derived, or derived in part,
by a person to whom this section applies in carrying on
business in a country outside Australia at or through a
permanent establishment of the person in that country; and

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128B

Income Tax Assessment Act 1936 85 (b) consists of interest that:
(i) is or has been paid to the person by another person to
whom this section applies and is not an outgoing wholly
incurred by that other person in carrying on business in
a country outside Australia at or through a permanent
establishment of that other person in that country; or
(ii) is or has been paid to the first-mentioned person by a
person who is, or by persons each of whom is, not a
resident and is, or is in part, an outgoing incurred by
that last-mentioned person or those last-mentioned
persons in carrying on business in Australia at or
through a permanent establishment of that last-
mentioned person or those last-mentioned persons in
Australia;
this section also applies to that income or to the part of that income
so derived, as the case may be.
Note: An amount of interest paid to a person by a temporary resident is an
amount to which this section does not apply: see section 768-980 of
the Income Tax Assessment Act 1997.
(2B) Subject to subsection (3), this section also applies to income that:
(a) is derived by a non-resident:
(i) during the 1993-94 year of income of the non-resident;
or
(ii) during a later year of income of the non-resident; and
(b) consists of a royalty that:
(i) is paid to the non-resident by a person to whom this
section applies and is not an outgoing wholly incurred
by that person in carrying on business in a foreign
country at or through a permanent establishment of that
person in that country; or
(ii) is paid to the non-resident by a person who, or by
persons each of whom, is not a resident and is, or is in
part, an outgoing incurred by that person or those
persons in carrying on business in Australia at or
through a permanent establishment of that person or
those persons in Australia.
(2C) Subject to subsection (3), where income:
(a) is derived, or derived in part, by a person (the recipient) to
whom this section applies in carrying on business in a

Part III Liability to taxation
Division 11A Dividends, interest and royalties paid to non-residents and to certain
other persons

Section 128B

86 Income Tax Assessment Act 1936 country outside Australia at or through a permanent
establishment of the person in that country; and
(b) consists of a royalty that:
(i) is paid to the recipient by another person (the payer) to
whom this section applies and is not an outgoing wholly
incurred by the payer in carrying on business in a
country outside Australia at or through a permanent
establishment of the payer in that country; or
(ii) is paid to the recipient by one or more persons (the
non-resident payers), each of whom is not a resident,
and is, or is in part, an outgoing incurred by the
non-resident payers in carrying on business in Australia
at or through a permanent establishment of the
non-resident payers in Australia;
this section also applies to that income or to the part of that income
mentioned in paragraph (a).
(2D) Subsections (2B) and (2C) do not apply to income to the extent to
which it is a return on an equity interest in a company.
(3) This section does not apply to:
(aaa) income that consists of a non-share dividend that is
unfrankable under section 215-10 of the Income Tax
Assessment Act 1997; or
(a) income derived by a non-resident that is:
(i) exempt from income tax because of section 50-5 (other
than because of item 1.5A, 1.5B or 1.6 in the table in
that section) or 50-10, item 6.1 or 6.2 of the table in
section 50-30, section 50-40 or item 9.1 or 9.2 of the
table in section 50-45 of the Income Tax Assessment Act
1997; and
(ii) exempt from income tax in the country in which the
non-resident resides; or
(aa) income derived by a non-resident that is an overseas
charitable institution (within the meaning of section 121C)
where the income is exempt under subsection 121ELA(1); or
(ab) income that is exempt from income tax because of item 9.4
of the table in section 50-45 of the Income Tax Assessment
Act 1997 (which exempts income derived by the
Commonwealth Games Federation); or

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128B

Income Tax Assessment Act 1936 87 (b) income that is exempt from income tax by virtue of
subsection 23C(2); or
(ba) income that is exempt from income tax because of
section 124ZM (which exempts dividends paid by PDFs); or
(bb) income that is not included in assessable income because of
section 159GZZZZE; or
(d) income in respect of which a trustee is liable to be assessed
under section 99 or section 99A; or
(e) income that is derived by a trustee, being a trustee in relation
to a trust created by a person who, at the time the income is
derived, is a resident and in respect of which the
Commissioner is empowered, under section 102, to assess the
trustee to pay income tax; or
(ga) income that consists of:
(i) the franked part of a dividend; or
(ii) in relation to a dividend that is paid by a former
exempting entity (within the meaning of the Income Tax
Assessment Act 1997) on a share acquired under an
employee share scheme (within the meaning of that
Act)—the part of the dividend that is franked with an
exempting credit; or
(iii) in relation to a dividend that is paid by a former
exempting entity (within the meaning of the Income Tax
Assessment Act 1997) to an eligible continuing
substantial member (within the meaning of that Act)—
the part of the dividend that is franked with an
exempting credit;
other than a dividend in respect of which a determination is
made under paragraph 204-30(3)(c) of the Income Tax
Assessment Act 1997 or a dividend or a part of a dividend in
respect of which a determination is made under paragraph
177EA(5)(b) of this Act; or
(gb) income that consists of a dividend derived from assets
included in the insurance funds of a life assurance company
that carries on business in Australia at or through a
permanent establishment of the life assurance company in
Australia; or
(gc) income that consists of interest derived on a nostro account
by a non-resident that is a foreign bank; or

Part III Liability to taxation
Division 11A Dividends, interest and royalties paid to non-residents and to certain
other persons

Section 128B

88 Income Tax Assessment Act 1936 (h) income that consists of:
(ii) interest derived by a non-resident in carrying on
business in Australia at or through a permanent
establishment of the non-resident in Australia (except
interest derived by a limited partner in a VCLP,
ESVCLP or AFOF as such a partner);
(iv) interest to which section 128F, 128FA or 128GB
applies; or
(j) income in respect of which a taxpayer is liable to be assessed
under Division 9C; or
(jb) income that:
(i) is derived by a non-resident that is a superannuation
fund for foreign residents; and
(ii) consists of interest, or consists of dividends or
non-share dividends paid by a company that is a
resident; and
(iii) is exempt from income tax in the country in which the
non-resident resides; or
(k) income that is not included in assessable income because of
subsection 271-105(1); or
(l) income derived by a trustee that, because of paragraph
102UK(2)(b) or 102UM(2)(b), is not included in the
assessable income of a trustee beneficiary of the trust estate.
(3A) Paragraph (3)(ga) does not apply to income consisting of a
dividend, or a part of a dividend, that is derived by the trustee of a
trust, or a partnership, to the extent (if any) to which any amount
paid to, or applied for the benefit of, a taxpayer (being a
beneficiary in the trust or a partner in the partnership) that:
(a) was attributable to the dividend; and
(b) was paid or applied:
(i) in respect of an interest in the trust or partnership that
was acquired, or was acquired for a period that was
extended, at or after the commencing time; or
(ii) under a financing arrangement (including an
arrangement extending an earlier arrangement) entered
into at or after the commencing time;
may reasonably be regarded as equivalent to the payment of
interest on a loan.

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128B

Income Tax Assessment Act 1936 89 (3B) In subsection (3A):
commencing time means 7.30 pm by legal time in the Australian
Capital Territory on 13 May 1997.
financing arrangement has the meaning given by subsection
995-1(1) of the Income Tax Assessment Act 1997.
(3C) In determining for the purposes of subsection (3A) the extent (if
any) to which an amount may reasonably be regarded as equivalent
to the payment of interest on a loan, regard is to be had to:
(a) the way in which the amount was calculated; and
(b) the conditions applying to the payment or application of the
amount; and
(c) any other relevant matters.
(3D) This section does not apply to a demerger dividend to which
section 45B does not apply.
(3E) This section does not apply to income that consists of a dividend
that:
(a) is paid to a person who is a non-resident carrying on business
in Australia at or through a permanent establishment of the
person in Australia; and
(b) is attributable to the permanent establishment; and
(c) is not paid to the person in the person’s capacity as trustee.
Note: This subsection not only ensures that this section does not apply to
that income to make withholding tax payable on it, but also (as a
result) ensures that none of that income is non-assessable non-exempt
income under section 128D. Subsection 44(1) makes that income
assessable income.
(3F) In subsection (3E):
permanent establishment of a person:
(a) has the same meaning as in a double tax agreement (as
defined in Part X) that relates to a foreign country and affects
the person; or
(b) has the meaning given by subsection 6(1), if there is no such
agreement.
(4) A person who derives income to which this section applies that
consists of a dividend is liable to pay income tax upon that income

Part III Liability to taxation
Division 11A Dividends, interest and royalties paid to non-residents and to certain
other persons

Section 128B

90 Income Tax Assessment Act 1936 at the rate declared by the Parliament in respect of income to which
this subsection applies.
(5) A person who derives income to which this section applies that
consists of interest is, subject to subsections (6) and (7), liable to
pay income tax upon that income at the rate declared by the
Parliament in respect of income to which this subsection applies.
(5A) A person who derives income to which this section applies that
consists of a royalty is liable to pay income tax upon that income at
the rate declared by the Parliament in respect of income to which
this subsection applies.
(6) Where:
(a) income to which this section applies consists of interest and
is paid to the person by whom it is derived by a person to
whom this section applies; and
(b) the interest is, in part only, an outgoing incurred by that
person to whom this section applies in carrying on business
in a country outside Australia at or through a permanent
establishment of that person to whom this section applies in
that country;
income tax is payable under subsection (5) upon so much only of
the income as is attributable to so much of the interest as is not an
outgoing so incurred.
(7) Where:
(a) income to which this section applies consists of interest and
is paid to the person by whom it is derived by a person who,
or by persons each of whom, is not a resident; and
(b) the interest is, in part only, an outgoing incurred by the
person or persons by whom it is paid in carrying on business
in Australia at or through a permanent establishment of that
person or those persons in Australia;
income tax is payable under subsection (5) upon so much only of
the income as is attributable to so much of the interest as is an
outgoing so incurred.
(8) For the purposes of subparagraphs (2)(b)(i) and (2A)(b)(i) and
paragraph (6)(b), where:
(a) interest is paid, or has, after 2 July 1973, been paid, to a
person by another person, being a person to whom this

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128B

Income Tax Assessment Act 1936 91 section applies, carrying on business in a country outside
Australia; and
(b) the interest or a part of the interest:
(i) is interest incurred by the other person in gaining or
producing income that is derived by the other person
otherwise than in carrying on business in a country
outside Australia at or through a permanent
establishment of the other person in that country or is
interest incurred by the other person for the purpose of
gaining or producing income to be so derived; or
(ii) is interest incurred by the other person in carrying on
business for the purpose of gaining or producing income
and is reasonably attributable to income that is derived,
or may be derived, by the other person otherwise than in
so carrying on business at or through a permanent
establishment of the other person in a country outside
Australia;
the interest or the part of the interest, as the case may be, is not an
outgoing incurred by the other person in carrying on business in a
country outside Australia at or through a permanent establishment
of the other person in that country.
(9) For the purposes of subparagraphs (2)(b)(ii) and (2A)(b)(ii) and
paragraph (7)(b), where:
(a) interest is paid, or has, after 2 July 1973, been paid, to a
person by another person or other persons (in this subsection
referred to as the borrower), being:
(i) another person who is or was carrying on business in
Australia and is not or was not a resident; or
(ii) other persons who are or were carrying on business in
Australia and each of whom is not or was not a resident;
and
(b) the interest or a part of the interest:
(i) is interest incurred by the borrower in gaining or
producing income that is derived by the borrower in
carrying on business in Australia at or through a
permanent establishment of the borrower in Australia or
is interest incurred by the borrower for the purpose of
gaining or producing income to be so derived; or

Part III Liability to taxation
Division 11A Dividends, interest and royalties paid to non-residents and to certain
other persons

Section 128B

92 Income Tax Assessment Act 1936 (ii) is interest incurred by the borrower in carrying on a
business for the purpose of gaining or producing income
and is reasonably attributable to income that is derived,
or may be derived, by the borrower in so carrying on
business at or through a permanent establishment of the
borrower in Australia;
the interest or the part of the interest, as the case may be, is an
outgoing incurred by the borrower in carrying on business in
Australia at or through a permanent establishment of the borrower
in Australia.
(9A) For the purposes of subparagraphs (2B)(b)(i) and (2C)(b)(i),
where:
(a) a royalty is paid, to a person by another person, being a
person to whom this section applies, carrying on business in
a country outside Australia; and
(b) the royalty, or a part of the royalty:
(i) is a royalty incurred by the other person in gaining or
producing income that is derived by the other person
otherwise than in carrying on business in a country
outside Australia at or through a permanent
establishment of the other person in that country or is a
royalty incurred by the other person for the purpose of
gaining or producing income to be so derived; or
(ii) is a royalty incurred by the other person in carrying on
business for the purpose of gaining or producing income
and is reasonably attributable to income that is derived,
or may be derived, by the other person otherwise than in
so carrying on business at or through a permanent
establishment of the other person in a country outside
Australia;
the royalty or the part of the royalty, as the case may be, is not an
outgoing incurred by the other person in carrying on business in a
country outside Australia at or through a permanent establishment
of the other person in that country.
(9B) For the purposes of subparagraphs (2B)(b)(ii) and (2C)(b)(ii),
where:
(a) a royalty is paid to a person by another person or other
persons (the licensee), being:

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128B

Income Tax Assessment Act 1936 93 (i) another person who is or was carrying on business in
Australia and is not or was not a resident; or
(ii) other persons who are or were carrying on business in
Australia and each of whom is not or was not a resident;
and
(b) the royalty or a part of the royalty:
(i) is a royalty incurred by the licensee in gaining or
producing income that is derived by the licensee in
carrying on business in Australia at or through a
permanent establishment of the licensee in Australia or
is a royalty incurred by the licensee for the purpose of
gaining or producing income to be so derived; or
(ii) is a royalty incurred by the licensee in carrying on a
business for the purpose of gaining or producing income
and is reasonably attributable to income that is derived,
or may be derived, by the licensee in so carrying on
business at or through a permanent establishment of the
licensee in Australia;
the royalty or the part of the royalty, as the case may be, is an
outgoing incurred by the licensee in carrying on business in
Australia at or through a permanent establishment of the licensee in
Australia.
(9C) If:
(a) apart from this subsection, tax would be payable under
subsection 126(1) on an amount of interest paid to a person;
and
(b) section 128F would apply to the interest, assuming that
paragraph (1)(e) of that section had not been enacted;
then:
(c) despite anything else in this section, the interest is taken, for
the purposes of this Division, to be income derived by the
person and to be income to which this section applies; and
Note: As a result of this paragraph, the interest will not be subject to
tax under subsection 126(1): see paragraph 126(1)(b).
(d) in addition to the effect of any credit arising under
section 18-30 in Schedule 1 to the Taxation Administration
Act 1953 in respect of the interest, the total tax payable by
the person, other than under this section, is reduced by the

Part III Liability to taxation
Division 11A Dividends, interest and royalties paid to non-residents and to certain
other persons

Section 128C

94 Income Tax Assessment Act 1936 amount of any tax payable under this section on the interest;
and
(e) tax paid under this section on the interest is not an allowable
deduction.
(10) Income tax payable by a person in accordance with this section is
in addition to any other income tax payable by him upon income to
which this section does not apply.
(11) Income tax payable by a person in accordance with this section
upon income to which this section applies by virtue of
subsection (2A) or (2C) is in addition to, and shall not be taken into
account in arriving at the amount of, any other income tax payable
by him in respect of that income.
128C Payment of withholding tax
(1) Withholding tax is due and payable by the person liable to pay the
tax at the expiration of 21 days after the end of the month in which
the income to which the tax relates was derived by the person.
(3) If any of the withholding tax which a person is liable to pay
remains unpaid after the time by which it is due to be paid, the
person is liable to pay the general interest charge on the unpaid
amount for each day in the period that:
(a) started at the beginning of the day by which the withholding
tax was due to be paid; and
(b) finishes at the end of the last day on which, at the end of the
day, any of the following remains unpaid:
(i) the withholding tax;
(ii) general interest charge on any of the withholding tax.
Note: The general interest charge is worked out under Part IIA of the
Taxation Administration Act 1953.
(4AA) If:
(a) a person is liable to pay the general interest charge on an
amount of withholding tax which is payable on an amount
that, by virtue of the application of section 128AA, is taken
to consist of interest paid in relation to the transfer of a
qualifying security;

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128D

Income Tax Assessment Act 1936 95 (b) the Commissioner is satisfied that:
(i) before the security was transferred, a notice expressed
to be issued under subsection 265B(4) identifying the
security was given by the person, in connection with the
transfer, to the transferee;
(ii) one or more of the statements made in the notice is
incorrect; and
(iii) the person did not know of the circumstance referred to
in subparagraph (ii) at the time of transfer of the
security; and
(c) the proper amount of the withholding tax liability of the
person exceeds the amount that would have been the amount
of the withholding tax liability if it were determined on the
basis that the statements made in the notice were correct;
the Commissioner shall remit so much of the amount of the general
interest charge as bears to that amount the same proportion as the
amount of the excess referred to in paragraph (c) bears to the
amount of withholding tax.
(6) The ascertainment of the amount of any withholding tax shall not
be deemed to be an assessment within the meaning of any of the
provisions of this Act.
(7) The Commissioner may serve on a person, by post or otherwise, a
notice in which is specified:
(a) the amount of any withholding tax that the Commissioner has
ascertained is payable by that person; and
(b) the date on which that tax became due and payable.
(8) The production of a notice served under subsection (7), or of a
document under the hand of the Commissioner, a Second
Commissioner or a Deputy Commissioner purporting to be a copy
of such a notice, is evidence that the amount of withholding tax
specified in the notice became due and payable by the person on
whom the notice was served on the date so specified.
128D Certain income not assessable
Income other than income to which section 128B applies by virtue
of subsection (2A), (2C) or (9C) of that section upon which
withholding tax is payable, or upon which withholding tax would,
but for paragraph 128B(3)(ga) or (jb), section 128F, section 128FA

Part III Liability to taxation
Division 11A Dividends, interest and royalties paid to non-residents and to certain
other persons

Section 128F

96 Income Tax Assessment Act 1936 or section 128GB, be payable, is not assessable income and is not
exempt income of a person.
Note: An amount of interest paid to a person by a temporary resident is
non-assessable non-exempt income: see section 768-980 of the
Income Tax Assessment Act 1997.
128F Division does not apply to interest on certain publicly offered
company debentures or debt interests
Interest to which this section applies
(1) This section applies to interest paid by a company in respect of a
debenture or debt interest in the company if:
(a) the company was a resident of Australia when it issued the
debenture or debt interest; and
(b) the company is a resident of Australia when the interest is
paid; and
(c) for a debt interest other than a debenture—the debt interest:
(i) is a non-equity share; or
(ii) consists of 2 or more related schemes (within the
meaning of the Income Tax Assessment Act 1997) where
one or more of them is a non-equity share; or
(iii) is a syndicated loan; or
(iv) is prescribed by the regulations for the purposes of this
section; and
(d) either:
(i) the issue of the debenture or debt interest satisfies the
public offer test set out in subsection (3) or (4); or
(ii) for a syndicated loan—the invitation to become a lender
under the relevant syndicated loan facility satisfies the
public offer test set out in subsection (3A).
(1A) This section also applies to interest paid by a company in respect of
a debenture or debt interest in the company if:
(a) the company was a non-resident when it issued the debenture
or debt interest; and
(b) the company is a non-resident when the interest is paid; and
(c) the debenture or debt interest was issued, and the interest is
paid, by the company in carrying on business at or through a
permanent establishment in Australia; and

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128F

Income Tax Assessment Act 1936 97 (d) for a debt interest other than a debenture—the debt interest:
(i) is a non-equity share; or
(ii) consists of 2 or more related schemes (within the
meaning of the Income Tax Assessment Act 1997) where
one or more of them is a non-equity share; or
(iii) is a syndicated loan; or
(iv) is prescribed by the regulations for the purposes of this
section; and
(e) either:
(i) the issue of the debenture or debt interest satisfies the
public offer test set out in subsection (3) or (4); or
(ii) for a syndicated loan—the invitation to become a lender
under the relevant syndicated loan facility satisfies the
public offer test set out in subsection (3A).
(1B) If:
(a) some or all of the transfer price (within the meaning of
section 128AA) of a debenture or debt interest is taken under
that section to be income that consists of interest; and
(b) for a debt interest other than a debenture—the debt interest:
(i) is a non-equity share; or
(ii) consists of 2 or more related schemes (within the
meaning of the Income Tax Assessment Act 1997) where
one or more of them is a non-equity share; or
(iii) is a syndicated loan; or
(iv) is prescribed by the regulations for the purposes of this
section; and
(c) either:
(i) the issue of the debenture or debt interest satisfies the
public offer test set out in subsection (3) or (4); or
(ii) for a syndicated loan—the invitation to become a lender
under the relevant syndicated loan facility satisfies the
public offer test set out in subsection (3A);
this section applies to the interest.
Note: Subsection (6) does not apply to the interest because that subsection
deals only with interest paid on a debenture or debt interest by the
issuing company.

Part III Liability to taxation
Division 11A Dividends, interest and royalties paid to non-residents and to certain
other persons

Section 128F

98 Income Tax Assessment Act 1936 Tax not payable
(2) Tax is not payable under this Division in respect of interest to
which this section applies.
Public offer test
(3) The issue of a debenture or debt interest by a company satisfies the
public offer test if the issue resulted from the debenture or debt
interest being offered for issue:
(a) to at least 10 persons each of whom:
(i) was carrying on a business of providing finance, or
investing or dealing in securities, in the course of
operating in financial markets; and
(ii) was not known, or suspected, by the company to be an
associate (see subsection (9)) of any of the other persons
covered by this paragraph; or
(b) to at least 100 persons whom it was reasonable for the
company to have regarded as either:
(i) having acquired debentures or debt interests in the past;
or
(ii) being likely to be interested in acquiring debentures or
debt interests; or
(c) as a result of being accepted for listing on a stock exchange,
where the company had previously entered into an agreement
with a dealer, manager or underwriter, in relation to the
placement of debentures or debt interests, requiring the
company to seek such listing; or
(d) as a result of negotiations being initiated publicly in
electronic form, or in another form, that was used by
financial markets for dealing in debentures or debt interests;
or
(e) to a dealer, manager or underwriter, in relation to the
placement of debentures or debt interests, who, under an
agreement with the company, offered the debenture or debt
interest for sale within 30 days in a way covered by any of
paragraphs (a) to (d).
(3A) An invitation to become a lender under a syndicated loan facility
by a company satisfies the public offer test if the invitation was
made:

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128F

Income Tax Assessment Act 1936 99 (a) to at least 10 persons each of whom:
(i) was carrying on a business of providing finance, or
investing or dealing in securities, in the course of
operating in financial markets; and
(ii) was not known, or suspected, by the company to be an
associate (see subsection (9)) of any of the other persons
covered by this paragraph; or
(b) publicly in electronic form, or in another form, that was used
by financial markets for dealing in debentures or debt
interests; or
(c) to a dealer, manager or underwriter, in relation to the
placement of debentures or debt interests, who, under an
agreement with the company, made the invitation to become
a lender under the facility within 30 days in a way covered by
paragraph (a) or (b).
Global bonds
(4) The issue of a debenture or debt interest by a company also
satisfies the public offer test if the debenture or debt interest is a
global bond (see subsection (10)).
Issues and invitations that always fail the public offer test
(5) The issue of a debenture or debt interest by a company does not
satisfy the public offer test if, at the time of the issue, the company
knew, or had reasonable grounds to suspect, that:
(a) the debenture, an interest in the debenture or the debt interest
was being, or would be, acquired either directly or indirectly
by an associate of the company; and
(b) either:
(i) the associate is a non-resident and the debenture or
interest, or the debt interest, was not being, or would not
be, acquired by the associate in carrying on a business
in Australia at or through a permanent establishment of
the associate in Australia; or
(ii) the associate is a resident of Australia and the debenture
or interest, or the debt interest, was being, or would be,
acquired by the associate in carrying on a business in a
country outside Australia at or through a permanent
establishment of the associate in that country; and

Part III Liability to taxation
Division 11A Dividends, interest and royalties paid to non-residents and to certain
other persons

Section 128F

100 Income Tax Assessment Act 1936 (c) the debenture or interest, or the debt interest, was not being,
or would not be, acquired by the associate in the capacity of:
(i) a dealer, manager or underwriter in relation to the
placement of the debenture or debt interest; or
(ii) a clearing house, custodian, funds manager or
responsible entity of a registered scheme.
(5AA) An invitation to become a lender under a syndicated loan facility is
taken never to have satisfied the public offer test if, at the time the
invitation is made, the company knew, or had reasonable grounds
to suspect, that:
(a) an associate of the company is or will become a lender under
the facility; and
(b) either:
(i) the associate is a non-resident and the associate is not or
would not become a lender under the facility in carrying
on a business in Australia at or through a permanent
establishment of the associate in Australia; or
(ii) the associate is a resident of Australia and the associate
is or would become a lender under the facility in
carrying on a business in a country outside Australia at
or through a permanent establishment of the associate in
that country; and
(c) the associate is not or would not become a lender under the
facility in the capacity of:
(i) a dealer, manager or underwriter in relation to the
invitation; or
(ii) a clearing house, custodian, funds manager or
responsible entity of a registered scheme.
No exemption for central borrowing authorities
(5A) This section does not apply in relation to a debenture or debt
interest issued in Australia by a company that is covered by
subsection (7) or is a central borrowing authority of a State or
Territory. A central borrowing authority is a body established for
the purpose of raising finance for the State or Territory. The
following are examples of central borrowing authorities:
(a) the Tasmanian Public Finance Corporation;
(b) the Queensland Treasury Corporation;

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128F

Income Tax Assessment Act 1936 101 (c) the South Australian Government Financing Authority;
(d) the Western Australian Treasury Corporation;
(e) the New South Wales Treasury Corporation;
(f) the Treasury Corporation of Victoria;
(g) the Northern Territory Treasury Corporation.
No exemption for interest paid to certain associates of the issuing
company
(6) This section does not apply to interest paid by the company to a
person in respect of the debenture or debt interest if, at the time of
the payment, the company knows, or has reasonable grounds to
suspect, that:
(a) the person is an associate of the company; and
(b) either:
(i) the associate is a non-resident and the payment is not
received by the associate in respect of a debenture or
debt interest that the associate acquired in carrying on a
business in Australia at or through a permanent
establishment of the associate in Australia; or
(ii) the associate is a resident of Australia and the payment
is received by the associate in respect of a debenture or
debt interest that the associate acquired in carrying on a
business in a country outside Australia at or through a
permanent establishment of the associate in that
country; and
(c) the associate does not receive the payment in the capacity of
a clearing house, paying agent, custodian, funds manager or
responsible entity of a registered scheme.
Australian public bodies are treated as Australian resident
companies
(7) This section applies in relation to a debenture or debt interest
issued by:
(a) an authority of the Commonwealth; or
(b) a State or an authority of a State;
as if the authority or State were a company and a resident of
Australia.

Part III Liability to taxation
Division 11A Dividends, interest and royalties paid to non-residents and to certain
other persons

Section 128F

102 Income Tax Assessment Act 1936 Debentures or debt interests issued through certain non-resident
subsidiaries can also get the exemption
(8) If:
(a) a company (the parent company) beneficially owns all of the
issued equity interests in the capital of a company (the
subsidiary) that is not a resident of Australia; and
(b) the subsidiary’s only business is raising finance for the
purposes of the parent company; and
(c) the subsidiary raises finance in a country specified in the
regulations (but not Australia) by issuing a debenture or debt
interest in that country; and
(d) when the debenture or debt interest is issued, the subsidiary
is treated as a resident of that country for the purposes of the
tax law (see subsection (9)) of the country;
then this section has effect as if the parent company had raised the
finance and issued the debenture or debt interest.
Definitions
(9) In this section:
associate has the meaning given by section 318, except that
paragraphs (1)(b), (2)(a) and (4)(a) of that section must be
disregarded.
clearing house means a person who operates a facility that is used
by financial markets for investing in or dealing in securities.
company includes a company in the capacity of trustee of a
resident trust estate if:
(a) the trust is not established by a will, or instrument of trust,
for public charitable purposes; and
(b) the only person who is capable (whether by the exercise of a
power of appointment or otherwise) of benefiting under the
trust is a company other than a company in the capacity of
trustee.
debenture, without affecting its meaning elsewhere in this Act,
includes a promissory note or a bill of exchange (in addition to the
things mentioned in the definition of debenture in subsection 6(1)).
global bond has the meaning given by subsection (10).

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128F

Income Tax Assessment Act 1936 103 registered scheme has the same meaning as in the Corporations
Act 2001.
responsible entity, of a registered scheme, has the same meaning as
in the Corporations Act 2001.
syndicated loan means a loan or other form of financial
accommodation that is provided under a syndicated loan facility,
being a facility that has 2 or more lenders.
syndicated loan facility has the meaning given by subsections (11),
(12) and (13).
tax law, in relation to a country other than Australia, means:
(a) if the country has federal foreign tax—the law of the country
that imposes the federal foreign tax; or
(b) in any other case—the law of the country that imposes
foreign tax.
Global bond
(10) A debenture or debt interest issued by a company is a global bond
if:
(a) it describes itself as a global bond or a global note; and
(b) it is issued to a clearing house (see subsection (9)) or to a
person as trustee or agent for, or otherwise on behalf of, one
or more clearing houses; and
(c) in connection with the issue, the clearing house or houses:
(i) confer rights in relation to the debenture or debt interest
on other persons; and
(ii) record the existence of the rights; and
(d) before the issue:
(i) the company; or
(ii) a dealer, manager or underwriter, in relation to the
placement of debentures or debt interests, on behalf of
the company;
announces that, as a result of the issue, such rights will be
able to be created; and
(e) the announcement is made in a way or ways covered by any
of paragraphs (3)(a) to (e) (reading a reference in those
paragraphs to “debentures or debt interests” as if it were a

Part III Liability to taxation
Division 11A Dividends, interest and royalties paid to non-residents and to certain
other persons

Section 128F

104 Income Tax Assessment Act 1936 reference to such a right, and a reference to the “company” as
if it included a reference to the dealer, manager or
underwriter); and
(f) under the terms of the debenture or debt interest, interests in
the debenture or debt interest are able to be surrendered,
whether or not in particular circumstances, in exchange for
other debentures or debt interests issued by the company that
are not themselves global bonds.
(11) A written agreement is a syndicated loan facility if:
(a) the agreement describes itself as a syndicated loan facility or
syndicated facility agreement; and
(b) the agreement is between one or more borrowers and at least
2 lenders; and
(c) under the agreement each lender severally, but not jointly,
agrees to lend money to, or otherwise provide financial
accommodation to, the borrower or borrowers; and
(d) the amount to which the borrower or borrowers will have
access at the time the first loan or other form of financial
accommodation is to be provided under the agreement is at
least $100,000,000 (or a prescribed amount).
(12) A written agreement is also a syndicated loan facility if:
(a) the agreement describes itself as a syndicated loan facility or
syndicated facility agreement; and
(b) the agreement is between one or more borrowers and one
lender where the agreement provides for the addition of other
lenders; and
(c) the agreement provides that, when other lenders are added,
each lender severally, but not jointly, agrees to lend money
to, or otherwise provide financial accommodation to, the
borrower or borrowers; and
(d) the amount to which the borrower or borrowers will have
access at the time the first loan or other form of financial
accommodation is to be provided under the agreement is at
least $100,000,000 (or a prescribed amount).
(13) However, an agreement under which there are 2 or more borrowers
is a syndicated loan facility only if all of them are:
(a) members of the same wholly-owned group (within the
meaning of the Income Tax Assessment Act 1997); or

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128FA

Income Tax Assessment Act 1936 105 (b) parties to the same joint venture; or
(c) associates of each other.
(14) For the purposes of this section, a change (including by novation)
to the lenders under a syndicated loan facility does not result in a
different agreement.
(15) For a debt interest that consists of 2 or more related schemes
(within the meaning of the Income Tax Assessment Act 1997)
where one or more of them is a non-equity share, this section
applies only to interest paid in respect of the non-equity share.
Note: Subsection 128A(1AB) defines interest for the purposes of this
Division. Under that subsection, dividends paid in respect of a
non-equity share are treated as being interest.
(16) The rule in subsection (15) does not apply to the extent that interest
in respect of the other related scheme or schemes would be interest
to which this section applies in respect of a debenture or debt
interest.
128FA Division does not apply to interest on certain publicly offered
unit trust debentures or debt interests
Interest to which this section applies
(1) This section applies to interest paid by the trustee of an eligible
unit trust in respect of a debenture or debt interest issued by the
trustee if:
(a) for a debt interest other than a debenture—the debt interest:
(i) is a syndicated loan; or
(ii) is prescribed by the regulations for the purposes of this
section; and
(b) either:
(i) the issue of the debenture or debt interest satisfies the
public offer test set (see subsection (6)); or
(ii) for a syndicated loan—the invitation to become a lender
under the relevant syndicated loan facility satisfies the
public offer test (see subsection (6A)).
(2) If:
(a) some or all of the transfer price (within the meaning of
section 128AA) of a debenture or debt interest issued by the

Part III Liability to taxation
Division 11A Dividends, interest and royalties paid to non-residents and to certain
other persons

Section 128FA

106 Income Tax Assessment Act 1936 trustee of an eligible unit trust is taken under that section to
be income that consists of interest; and
(b) for a debt interest other than a debenture—the debt interest:
(i) is a syndicated loan; or
(ii) is prescribed by the regulations for the purposes of this
section; and
(c) either:
(i) the issue of the debenture or debt interest satisfies the
public offer test set (see subsection (6)); or
(ii) for a syndicated loan—the invitation to become a lender
under the relevant syndicated loan facility satisfies the
public offer test (see subsection (6A));
this section applies to the interest.
Note: Subsection (4) does not apply to the interest because that subsection
deals only with interest paid on a debenture or debt interest by the
issuing eligible unit trust.
Tax not payable
(3) Tax is not payable under this Division in respect of interest to
which this section applies.
No exemption for interest paid to certain associates of the issuing
trustee
(4) This section does not apply to interest paid by the trustee of an
eligible unit trust to a person in respect of the debenture or debt
interest if, at the time of the payment, the trustee knows, or has
reasonable grounds to suspect, that:
(a) the person is an associate of the trustee; and
(b) either:
(i) the associate is a non-resident and the payment is not
received by the associate in respect of a debenture or
debt interest that the associate acquired in carrying on a
business in Australia at or through a permanent
establishment of the associate in Australia; or
(ii) the associate is a resident of Australia and the payment
is received by the associate in respect of a debenture or
debt interest that the associate acquired in carrying on a
business in a country outside Australia at or through a

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128FA

Income Tax Assessment Act 1936 107 permanent establishment of the associate in that
country; and
(c) the associate does not receive the payment in the capacity of
a clearing house, paying agent, custodian, funds manager or
responsible entity of a registered scheme.
Debentures or debt interests issued through certain non-resident
subsidiaries can also get the exemption
(5) If:
(a) the trustee of an eligible unit trust holds all of the issued
equity interests in the capital of a company that is not a
resident of Australia; and
(b) the company’s only business is raising finance for the
purposes of the eligible unit trust; and
(c) the company raises finance in a country specified in the
regulations (but not Australia) by issuing a debenture or debt
interest in that country; and
(d) when the debenture or debt interest is issued, the company is
treated as a resident of that country for the purposes of the
tax law (see subsection (8)) of the country;
then this section has effect as if the trustee had raised the finance
and issued the debenture or debt interest.
Public offer test
(6) For the purposes of working out under this section whether the
issue of a debenture or debt interest by the trustee of an eligible
unit trust satisfies the public offer test, subsections 128F(3) to (5)
apply to the trustee of the eligible unit trust in a corresponding way
to the way in which those subsections apply to a company, subject
to subsection (7) of this section.
(6A) For the purposes of working out under this section whether an
invitation to become a lender under a syndicated loan facility
satisfies the public offer test, subsections 128F(3A) and (5AA)
apply to the trustee of the eligible unit trust in a corresponding way
to the way in which those subsections apply to a company, subject
to subsection (7) of this section.
(7) For the purposes of applying subsection 128F(3), (3A), (4), (5) or
(5AA) as mentioned in subsection (6) or (6A) of this section:

Part III Liability to taxation
Division 11A Dividends, interest and royalties paid to non-residents and to certain
other persons

Section 128FA

108 Income Tax Assessment Act 1936 (a) a reference in any of those subsections to a company
knowing, suspecting or having reasonable grounds to suspect
something, or it being reasonable for a company to have
regarded something, is taken to be a reference to the trustee
of the eligible unit trust knowing, suspecting or having
reasonable grounds to suspect that thing, or it being
reasonable for the trustee of the eligible unit trust to have
regarded that thing; and
(b) a reference in any of those subsections to an associate is
taken to be a reference to an associate within the meaning of
this section; and
(c) a reference in any of those subsections to a global bond is
taken to be a reference to a global bond within the meaning
of subsection 128F(10).
(7A) For the purposes of this section, a change (including by novation)
to the lenders under a syndicated loan facility does not result in a
different agreement.
Definitions
(8) In this section:
associate has the meaning given by section 318, except that:
(a) paragraphs (1)(b), (2)(a) and (4)(a) of that section must be
disregarded; and
(b) subsection (5) of that section applies to a unit trust mentioned
in paragraph (b) of the definition of eligible unit trust in this
subsection in the same way as that subsection applies in
relation to a public unit trust.
clearing house has the same meaning as in section 128F.
company has the same meaning as in section 128F.
debenture:
(a) in relation to the trustee of an eligible unit trust, includes
debenture stock, bonds, promissory and other notes, bills of
exchange and any other securities issued by the trustee,
whether constituting a charge on the assets of the eligible unit
trust or not; and
(b) in relation to a company, has the same meaning as in
section 128F.

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128FA

Income Tax Assessment Act 1936 109 eligible unit holder means:
(a) the trustee of a public unit trust; or
(b) the trustee (within the meaning of the Income Tax
Assessment Act 1997) of a complying superannuation fund
that has 50 or more members; or
(c) the trustee of a pooled superannuation trust within the
meaning of the Income Tax Assessment Act 1997; or
(d) the trustee (within the meaning of the Income Tax
Assessment Act 1997) of a complying approved deposit fund;
or
(e) a life insurance company within the meaning of the Income
Tax Assessment Act 1997; or
(f) a public company within the meaning of section 103A; or
(g) the trustee of a unit trust in which all of the issued units are
held by 2 or more entities that are eligible unit holders
because of:
(i) the application of another paragraph of this definition
(whether or not the same paragraph); or
(ii) a previous application of this paragraph; or
(iii) any combination of subparagraphs (i) and (ii).
eligible unit trust means:
(a) a public unit trust; or
(b) a unit trust in which all of the issued units are held by 2 or
more eligible unit holders.
public unit trust has the same meaning as in section 102G.
registered scheme has the same meaning as in section 128F.
responsible entity has the same meaning as in section 128F.
syndicated loan has the same meaning as in section 128F.
syndicated loan facility has the same meaning as in section 128F.
tax law has the same meaning as in section 128F.
(9) For the purposes of this section, a trust or fund of a kind mentioned
in any of paragraphs (a) to (d) of the definition of eligible unit
holder in subsection (8) in relation to a year of income is taken to

Part III Liability to taxation
Division 11A Dividends, interest and royalties paid to non-residents and to certain
other persons

Section 128GB

110 Income Tax Assessment Act 1936 be a trust or fund of that kind at all times during the year of
income.
128GB Division not to apply to interest payments on offshore
borrowings by offshore banking units
(1) This section applies to:
(a) interest paid by a person in respect of an offshore borrowing
of the person; or
(b) interest consisting of gold paid by a person in respect of an
offshore gold borrowing of the person;
if, when the borrowing took place, the person was an offshore
banking unit (whether or not the person is still an offshore banking
unit when the interest is paid).
(2) Tax is not payable in accordance with this Division in respect of
interest to which this section applies.
128NA Special tax payable in respect of certain securities and
agreements
(1) Where, but for subsection 128AA(2):
(a) the transferor of a qualifying security who is not liable to pay
withholding tax in relation to the transfer of the qualifying
security would be liable to pay withholding tax in relation to
the transfer; or
(b) the transferor of a qualifying security who is liable to pay
withholding tax in relation to the transfer of the qualifying
security would be liable to pay additional withholding tax in
relation to the transfer;
then, for the purposes of this section, there shall be taken to be an
avoided withholding tax amount in relation to the person who is
the transferee of the qualifying security of an amount equal to the
withholding tax or the additional withholding tax, as the case may
be, that the person would be so liable to pay.
(2) Where:
(a) an attributable agreement payment or attributable agreement
payments were made by a person under a relevant agreement
before the commencement of section 128AC; and

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128NB

Income Tax Assessment Act 1936 111 (b) the Commissioner is of the opinion that the payment or
payments were made before the commencement of that
section, or that the payment or payments were of a greater
amount than they would otherwise have been, for the sole or
dominant purpose of securing the result that the total amount
(in this subsection referred to as the actual withholding tax)
of withholding tax payable under that section in relation to all
attributable agreement payments made under the relevant
agreement after the commencement of that section would be
less than the amount (in this subsection referred to as the
notional withholding tax) that would otherwise have been
payable;
then, for the purposes of this section, there shall be taken to be an
avoided withholding tax amount in relation to the person of an
amount equal to the amount by which the notional withholding tax
exceeds the actual withholding tax.
(3) For the purposes of subsection (2), expressions used in that
subsection that are also used in section 128AC have the same
respective meanings in that subsection as in that section.
(4) Where there is an avoided withholding tax amount in relation to a
person under this section, the person is liable to pay income tax, as
imposed by the Income Tax (Securities and Agreements)
(Withholding Tax Recoupment) Act 1986, in respect of the avoided
withholding tax amount.
128NB Special tax payable in respect of certain dealings by current
and former offshore banking units
(1) Where a person who is or has been an offshore banking unit
transfers to another person an amount of tax exempt loan money or
tax exempt gold, other than by way of:
(a) payment in carrying on an OB activity or what would be an
OB activity if the person were an OBU; or
(b) repayment of an offshore borrowing or offshore gold
borrowing;
the person is liable to pay income tax, as imposed by the Income
Tax (Offshore Banking Units) (Withholding Tax Recoupment) Act
1988, on the lost withholding tax amount in respect of the transfer.

Part III Liability to taxation
Division 11A Dividends, interest and royalties paid to non-residents and to certain
other persons

Section 128NB

112 Income Tax Assessment Act 1936 (2) For the purposes of subsection (1), the lost withholding tax amount
in respect of the transfer is an amount ascertained in accordance
with the formula:
IWT rate × PB rate × PB term × TA
where:
IWT rate is the rate declared by the Parliament in respect of
income to which subsection 128B(5) applies.
PB rate is the prevailing borrowing rate in relation to the person at
the time of the transfer.
PB term is the number of years in the prevailing borrowing term in
relation to the person at the time of the transfer; and
TA is the amount of tax exempt loan money or tax exempt gold
transferred.
(3) Tax under this section is due and payable by the person liable to
pay the tax at the end of:
(a) 21 days after the end of the month in which the transfer to
which it relates takes place; or
(b) such further period as the Commissioner, in special
circumstances, allows.
Application
(3A) The Commissioner must not exercise his or her power under
paragraph (3)(b) on or after 1 July 2000.
Note: For provisions about collection and recovery of tax on or after 1 July
2000, see Part 4-15 in Schedule 1 to the Taxation Administration Act
1953.
(4) Section 128C (other than subsections (1) and (4AA)) applies, in
addition to its application apart from this subsection, as if
references in that section to withholding tax were references to tax
payable under this section.
(5) The Commissioner may remit the whole or part of an amount of
tax payable under this section in relation to the transfer of an
amount of tax exempt loan money or tax exempt gold to another
person if:
(a) the Commissioner is satisfied that:

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128NBA

Income Tax Assessment Act 1936 113 (i) the liability to pay the amount of tax arose because the
person mistakenly believed, on reasonable grounds, that
the other person was a non-resident or an offshore
banking unit, that interest payable to the person in
respect of the amount transferred would be an outgoing
of a particular kind or that the amount transferred was
not tax exempt loan money or tax exempt gold; and
(ii) the person had taken reasonable steps to ascertain the
matter to which the mistaken belief related; or
(b) the Commissioner is satisfied that there are special
circumstances justifying the remission of the whole or part of
the amount of tax.
128NBA Credits in respect of amounts assessed under Division 16E
of Part III
When section applies
(1) This section applies if:
(a) the amount of any withholding tax that has become payable
by a taxpayer on a payment of interest under, or in relation to
the transfer of, a qualifying security has been paid; and
(b) there is a net Division 16E amount (see subsection (5)) in
relation to the taxpayer in relation to:
(i) if the payment of interest is a payment in relation to the
transfer of the qualifying security—the security; or
(ii) if the payment of interest is such a payment by virtue of
the application of section 128AC in relation to an
attributable agreement payment within the meaning of
that section—the attributable agreement payment; or
(iii) in any other case—the payment of interest; and
(c) the amount of the withholding tax payable on the interest
exceeds the amount that would have been payable on the
interest if the interest were reduced by the net Division 16E
amount.
Entitlement to apply for credit
(2) The taxpayer may apply to the Commissioner for a credit of an
amount equal to the excess.

Part III Liability to taxation
Division 11A Dividends, interest and royalties paid to non-residents and to certain
other persons

Section 128P

114 Income Tax Assessment Act 1936 Requirements for application
(3) The application must be in the approved form.
Entitlement to credit
(4) If the Commissioner is satisfied as to the matters mentioned in
paragraphs (1)(a), (b) and (c), the applicant is entitled to a credit of
an amount equal to the excess.
Net Division 16E amount
(5) For the purposes of this section, if:
(a) the sum of all amounts (if any) included in the assessable
income of the taxpayer of any years of income in relation to
the qualifying security, attributable agreement payment or
payment of interest under section 159GQ;
exceeds:
(b) the sum of all amounts (if any) allowable as deductions from
the assessable income of the taxpayer of any years of income
in relation to the security or the payment, as the case may be,
under that section;
there is a net Division 16E amount equal to the excess.
128P Objections
If an applicant for a certificate under this Division is dissatisfied
with a decision of the Commissioner:
(a) in any case—to refuse to issue the certificate; or
(b) in the case of a certificate under section 128AB—to specify a
particular amount in the certificate;
the applicant may object against the decision in the manner set out
in Part IVC of the Taxation Administration Act 1953.
128Q Power of Commissioner to obtain information
Section 264 applies, for the purposes of this Division, as if the
reference in paragraph (1)(b) of that section to a person’s income
or assessment were a reference to a matter relevant to the
administration or operation of this Division.

Liability to taxation Part III
Dividends, interest and royalties paid to non-residents and to certain other persons
Division 11A

Section 128R

Income Tax Assessment Act 1936 115
128R Informal arrangements
For the purposes of this Division, the Commissioner may have
regard to arrangements, understandings and practices not having
legal force in the same manner as if they had legal force.

Part III Liability to taxation
Division 11B Equity investments in small-medium enterprises

Section 128TG

116 Income Tax Assessment Act 1936

Division 11B—Equity investments in small-medium
enterprises
128TG Summary of this Division
(1) The following is a summary of this Division.
(2) If, in connection with a money-lending business, a taxpayer is
issued shares in a small-medium enterprise, any profit or loss the
taxpayer makes when it disposes of certain shares that would be
dealt with under section 6-5 or 8-1 of the Income Tax Assessment
Act 1997 is, to the extent that it relates to the period after the issue,
instead dealt with under Parts 3-1 and 3-3 (about CGT) of the
Income Tax Assessment Act 1997.
(3) For this to apply, the taxpayer must, after the issue, hold shares
representing at least 10% of the value of the small-medium
enterprise.
128TH When Division applies
This Division applies if:
(a) a taxpayer acquires a threshold interest in an SME (see
section 128TJ); and
(b) afterwards, the taxpayer disposes of ordinary shares, or an
interest in ordinary shares, in the SME that were issued to the
taxpayer (whether before, at the time of, or after acquiring
the threshold interest); and
(ba) the disposal takes place:
(i) in any case—in the course of the taxpayer carrying on a
business of lending money or otherwise in connection
with such a business of the taxpayer; or
(ii) if the taxpayer is a company that is a subsidiary of
another company—while the one or more members of
the direct ownership group of the taxpayer (see
subsection 128TL(3)) are each carrying on a business of
lending money; and
(c) the shares are not trading stock of the taxpayer; and

Liability to taxation Part III
Equity investments in small-medium enterprises Division 11B

Section 128TI

Income Tax Assessment Act 1936 117 (d) apart from this section:
(i) any profit on the disposal would be included in the
taxpayer’s assessable income of a year of income under
section 6-5 of the Income Tax Assessment Act 1997; and
(ii) any loss on the disposal would be allowable as a
deduction from the taxpayer’s assessable income of a
year of income under section 8-1 of that Act.
128TI Consequences of Division applying
If this Division applies:
(a) no profit on the disposal is included in the taxpayer’s
assessable income of any year of income under section 6-5 of
the Income Tax Assessment Act 1997; and
(b) no loss on the disposal is allowable as a deduction from the
taxpayer’s assessable income of any year of income under
section 8-1 of that Act; and
(c) the taxpayer is taken:
(i) to have disposed of the shares, at the time of acquiring
the threshold interest in the SME, for a consideration
equal to their market value at the time; and
(ii) to have re-acquired the shares immediately afterwards
(for the purposes of this section, as if they had been
issued to the taxpayer) for an amount equal to that
consideration; and
(d) any profit or loss on the disposal that is taken to have
happened by subparagraph (c)(i) is included in the taxpayer’s
assessable income under section 6-5 of that Act, or is an
allowable deduction under section 8-1 of that Act, in the year
of income in which the shares are actually (disregarding that
subparagraph) disposed of, and not in any other year of
income.
Note: As a result of this section, the tax consequences of the actual disposal
will be dealt with under section 6-5 or 8-1 of that Act in respect of any
period of holding before the acquisition of the threshold interest and
under Parts 3-1 and 3-3 (about CGT) of the Income Tax Assessment
Act 1997 in respect of any period after the acquisition of that interest.

Part III Liability to taxation
Division 11B Equity investments in small-medium enterprises

Section 128TJ

118 Income Tax Assessment Act 1936
128TJ Acquiring a threshold interest in an SME
A taxpayer acquires a threshold interest in an SME if:
(a) ordinary shares in an SME (see section 128TK) are issued to
the taxpayer; and
(b) the shares are issued:
(i) in any case—in the course of the taxpayer carrying on a
business of lending money or otherwise in connection
with such a business of the taxpayer; or
(ii) if the taxpayer is a company that is a subsidiary of another
company—while the one or more members of the direct
ownership group of the taxpayer (see subsection 128TL(3))
are each carrying on a business of lending money; and
(c) immediately after the shares, and any other ordinary shares
forming part of the same issue, are issued to the taxpayer and
any other persons, the percentage of the value of the SME
represented by ordinary shares issued to the taxpayer
(whether before or as part of the threshold share issue) is at
least 10%; and
(d) no previous issue of shares to the taxpayer had resulted in the
taxpayer acquiring a threshold interest in the SME.
128TK SME or small-medium enterprise
(1) An SME or small-medium enterprise is a company the total value
of whose assets, as determined under this section, is no more than
$50 million.
(2) The total value of the company’s assets is the total value of its
assets (both current and non-current) as shown in the last audited
accounts prepared in relation to the company for the purposes of
Division 4 of Part 3.6 of the Corporations Act 2001 before the
investment is made.
(3) If:
(a) no such audited accounts have been prepared within the 12
months ending when the shares are issued; or
(b) the last such audited accounts prepared relate to a period that
ended more than 18 months before the shares are issued;

Liability to taxation Part III
Equity investments in small-medium enterprises Division 11B

Section 128TL

Income Tax Assessment Act 1936 119 then the company is not an SME unless:
(c) before the shares are issued, the taxpayer gets an audited
statement (see subsection (4)) showing the total value of the
company’s assets as at a time no more than 12 months before
the shares are issued; and
(d) that value is no more than $50 million.
(4) In subsection (3), an audited statement is a statement audited by a
person or firm:
(a) who is appointed as the company’s auditor in accordance
with the Corporations Act 2001; or
(b) who is eligible to consent to being so appointed.
128TL Subsidiary and direct ownership group
(1) A company (the first company) is a subsidiary of another company
(the second company) if all the shares in the first company are
beneficially owned by:
(a) the second company; or
(b) a company that is, or 2 or more companies each of which is,
a subsidiary of the second company; or
(c) the second company and a company that is, or 2 or more
companies each of which is, a subsidiary of the second
company.
(2) For the purposes of subsection (1), if a company is a subsidiary of
another company (including a company that is such a subsidiary
because of a previous application or applications of this
subsection), every company that is a subsidiary of the
first-mentioned company is taken to be a subsidiary of that other
company.
(3) The one or more companies in whichever of paragraph (1)(a), (b)
or (c) applies are the direct ownership group of the first company.

Part III Liability to taxation
Division 11C Payments in respect of mining operations on Aboriginal land

Section 128U

120 Income Tax Assessment Act 1936

Division 11C—Payments in respect of mining operations
on Aboriginal land
128U Interpretation
(1) In this Division, unless the contrary intention appears:
Aboriginal means a person who is:
(a) a member of the Aboriginal race of Australia; or
(b) a member of the race to which Torres Strait Islanders belong.
Aboriginal land means any estate or interest in land that, under
provisions of a law of the Commonwealth or of a State or Territory
that relate to Aboriginals, is held for the use or benefit of
Aboriginals.
Aboriginals Benefit Account means the Aboriginals Benefit
Account continued in existence by section 62 of the Aboriginal
Land Rights (Northern Territory) Act 1976.
distributing body means:
(a) an Aboriginal Land Council established by or under the
Aboriginal Land Rights (Northern Territory) Act 1976;
(b) a corporation registered under the Corporations (Aboriginal
and Torres Strait Islander) Act 2006; or
(d) any other incorporated body that:
(i) is established by or under provisions of a law of the
Commonwealth or of a State or Territory that relate to
Aboriginals; and
(ii) is empowered or required (whether under that law or
otherwise) to pay moneys received by the body to
Aboriginals or to apply such moneys for the benefit of
Aboriginals, either directly or indirectly.
mineral royalties means royalties payable in respect of the mining
of minerals.
minerals means:
(a) gold, silver, copper, tin and other metals;

Liability to taxation Part III
Payments in respect of mining operations on Aboriginal land Division 11C

Section 128U

Income Tax Assessment Act 1936 121 (b) coal, shale, petroleum (within the meaning of the Income Tax
Assessment Act 1997) and valuable earths and substances;
(c) mineral substances;
(d) gems and precious stones; and
(e) ores and other substances containing minerals;
whether suspended in water or not, and includes water.
miner’s right means a miner’s right or other authority issued or
granted under a law of the Commonwealth or of a State or
Territory relating to mining of minerals, being a right or authority
that empowers the holders to take possession of, mine or occupy
land or take any other action in relation to land for any purpose in
connection with mining.
mining includes the obtaining of minerals from alluvial or surface
deposits.
mining interests, in relation to any land, means any lease or other
interest in the land (including a right to prospect or explore for
minerals in or on the land) issued or granted under a law of the
Commonwealth or of a State or Territory relating to mining of
minerals.
mining payment means a payment made to a distributing body or
made to, or applied for the benefit of, an Aboriginal or Aboriginals,
being:
(a) a payment made on or after 1 July 1979 and before the day
that the Financial Management Legislation Amendment Act
1999 commenced, out of the Aboriginals Benefit Reserve to
the extent that the payment represents money paid into the
Aboriginals Benefit Reserve on or after 1 July 1979 in
pursuance of subsection 63(2) or (4) of the Aboriginal Land
Rights (Northern Territory) Act 1976; and
(aa) a payment made on or after the day that the Financial
Management Legislation Amendment Act 1999 commenced
by the Commonwealth in respect of a debit from the
Aboriginals Benefit Account to the extent that the payment
represents an amount credited to the Aboriginals Benefit
Account in pursuance of subsection 63(1) or (4) of the
Aboriginal Land Rights (Northern Territory) Act 1976; and

Part III Liability to taxation
Division 11C Payments in respect of mining operations on Aboriginal land

Section 128U

122 Income Tax Assessment Act 1936 (b) any payment made on or after 1 July 1979 that is of the kind
referred to in subsection 44 (1) or (2) of the Aboriginal Land
Rights (Northern Territory) Act 1976; and
(c) any other payment made on or after 1 July 1979 under
provisions of a law of the Commonwealth or of a State or
Territory that relate to Aboriginals or under an agreement
made in accordance with such provisions, being a payment
made:
(i) in consideration of the issuing, granting or renewal of a
miner’s right or mining interest in respect of Aboriginal
land;
(ii) in consideration of the granting of permission to a
person to enter or remain on Aboriginal land or to do
any act on Aboriginal land in relation to prospecting or
exploring for, or mining of, minerals; or
(iii) by way of payment of mineral royalties payable in
respect of the mining of minerals on Aboriginal land or
by way of payment of an amount determined by
reference to an amount of mineral royalties received by
the Commonwealth, a State or the Northern Territory in
respect of the mining of minerals on Aboriginal land;
but does not include a payment made by a distributing body.
(2) In section 260, income tax or tax includes mining withholding tax.
(3) For the purposes of this Division, a mining payment is taken to
include any amount that has been, or purports to have been,
withheld from the mining payment for the purposes of
section 12-320 in Schedule 1 to the Taxation Administration Act
1953.
(4) For the purposes of the succeeding provisions of this Division,
where a mining payment (in this subsection referred to as the
relevant mining payment) is made to, or applied for the benefit of,
2 or more persons, there shall be deemed to have been made to, or
applied for the benefit of, each of those persons, a mining payment
of an amount equal to so much of the relevant mining payment as
bears to the relevant mining payment the same proportion as 1
bears to the number of persons to whom the relevant mining
payment was made or for whose benefit the relevant mining
payment was applied, as the case may be.

Liability to taxation Part III
Payments in respect of mining operations on Aboriginal land Division 11C

Section 128V

Income Tax Assessment Act 1936 123
128V Liability to mining withholding tax
(1) Where a mining payment is made to, or applied for the benefit of, a
person, that person is liable to pay income tax on the amount of the
mining payment at the rate declared by the Parliament for the
purposes of this section.
(2) Income tax payable by a person in accordance with this section is
in addition to other income tax payable by that person upon
amounts that are not mining payments.
128W Payment of mining withholding tax
(1) Mining withholding tax is due and payable by a person liable to
pay the tax at the expiration of 21 days after the end of the month
in which the payment of the amount to which the tax relates was
made, or of such further period as the Commissioner, in special
circumstances, allows.
(2) Mining withholding tax, when it becomes due and payable, is a
debt due to the Queen on behalf of the Commonwealth and payable
to the Commissioner.
(3) Any unpaid mining withholding tax may be sued for and recovered
in a court of competent jurisdiction by the Commissioner or a
Deputy Commissioner suing in his official name.
(4) The ascertainment of the amount of any mining withholding tax
shall not be deemed to be an assessment within the meaning of any
of the provisions of this Act.
(5) The Commissioner may serve on a person liable to pay mining
withholding tax, by post or otherwise, a notice in which is
specified:
(a) the amount of any mining withholding tax that the
Commissioner has ascertained is payable by that person; and
(b) the date on which that tax became due and payable.
(6) The production of a notice served under subsection (5), or of a
document under the hand of the Commissioner, a Second
Commissioner or a Deputy Commissioner purporting to be a copy
of such a notice, is evidence that the amount of mining withholding
tax specified in the notice became due and payable by the person

Part III Liability to taxation
Division 11C Payments in respect of mining operations on Aboriginal land

Section 128X

124 Income Tax Assessment Act 1936 on whom the notice was served on the date specified in the notice
as the date on which that tax became due and payable.
Application
(7) Subsections (2) and (3) do not apply in relation to any mining
withholding tax that becomes due and payable on or after 1 July
2000.
Note: For provisions about collection and recovery of mining withholding
tax and other amounts on or after 1 July 2000, see Part 4-15 in
Schedule 1 to the Taxation Administration Act 1953.
128X Power of Commissioner to obtain information
Section 264 applies, for the purposes of this Division, as if the
reference in paragraph (1)(b) of that section to a person’s income
or assessment were a reference to a matter relevant to the
administration or operation of this Division.

Liability to taxation Part III
Oversea ships Division 12

Section 129

Income Tax Assessment Act 1936 125

Division 12—Oversea ships
129 Taxable income of ship-owner or charterer
Where a ship belonging to or chartered by a person whose
principal place of business is out of Australia carries passengers,
live-stock, mails or goods shipped in Australia, 5% of the amount
paid or payable to him in respect of such carriage, whether that
amount is payable in or out of Australia, shall be deemed to be
taxable income derived by him in Australia.
130 Master or agent to make return
The master of the ship, or the agent or other representative in
Australia of the owner or charterer, shall, when called upon by the
Commissioner by notice in the Gazette or by any other notice to
him, make a return of the amounts so paid or payable.
131 Determination by Commissioner
If such return is not made, or if the Commissioner is not satisfied
with the return, he may determine the amount so paid or payable.
132 Assessment of tax
The master, agent or representative, as agent for the owner or
charterer, may be assessed upon the taxable income and shall be
liable to pay the tax assessed.
133 Master liable to pay
(1) Where the assessment is made on the agent or representative, and
the tax is not paid forthwith upon receipt of notice of the
assessment, the master shall be liable to pay the tax.
(2) This section shall not, so long as any tax for which the master
becomes liable under this section remains unpaid, relieve any other
person to whom the notice of assessment has been given in respect
of that tax, from liability to pay the tax remaining unpaid.

Part III Liability to taxation
Division 12 Oversea ships

Section 134

126 Income Tax Assessment Act 1936
134 Notice of assessment
Where any person is liable to pay tax under this Division, the
Commissioner shall give notice to him of the assessment, and he
shall forthwith pay the tax.
135 Clearance of ship
A collector or officer of customs for any State or Territory shall not
grant a clearance to the ship until he is satisfied that any tax which
has been or may be assessed under this Division has been paid, or
that arrangements for its payment have been made to the
satisfaction of the Commissioner.
135A Freights payable under certain agreements
Where goods are shipped in pursuance of an agreement of the kind
specified in section 7C of the Australian Industries Preservation
Act 1906-1937, the amount paid or payable to the owner or
charterer of the ship in respect of the carriage of those goods shall,
for the purposes of this Division, be deemed to be the amount
remaining after deducting from the amount which would be
payable according to the gross rate of freight specified in the
agreement the amount of any rebate allowed in pursuance of the
agreement or any payment, whenever made, by the owner or
charterer, or out of funds provided by the owner or charterer, to
any person or persons being the owner or shipper of the goods or
the agent of either of them in respect of the shipment.

Liability to taxation Part III
International agreements and determination of source of certain income Division 13

Section 136AA

Income Tax Assessment Act 1936 127

Division 13—International agreements and determination
of source of certain income
136AA Interpretation
(1) In this Division, unless the contrary intention appears:
acquire includes:
(a) acquire by way of purchase, exchange, lease, hire or
hire-purchase; and
(b) obtain, gain or receive.
agreement means any agreement, arrangement, transaction,
understanding or scheme, whether formal or informal, whether
express or implied and whether or not enforceable, or intended to
be enforceable, by legal proceedings.
area covered by an international tax sharing treaty has the
meaning given by subsection (4).
derive includes gain or produce.
expenditure includes loss or outgoing.
income includes any amount that is, or may be, included in
assessable income or taken into account in calculating an amount
that is, or may be, included in assessable income.
permanent establishment, in relation to a taxpayer, means:
(a) a place that is a permanent establishment of the taxpayer by
virtue of the definition of permanent establishment in
section 6; or
(b) a place at which any property of the taxpayer is manufactured
or processed for the taxpayer, whether by the taxpayer or
another person.
property includes:
(a) a chose in action;
(b) any estate, interest, right or power, whether at law or in
equity, in or over property;
(c) any right to receive income; and

Part III Liability to taxation
Division 13 International agreements and determination of source of certain income

Section 136AA

128 Income Tax Assessment Act 1936 (d) services.
right to receive income means a right of a person to have income
that will or may be derived (whether from property or otherwise)
paid to, or applied or accumulated for the benefit of, the person.
services includes any rights, benefits, privileges or facilities and,
without limiting the generality of the foregoing, includes the rights,
benefits, privileges or facilities that are, or are to be, provided,
granted or conferred under:
(a) an agreement for or in relation to:
(i) the performance of work (including work of a
professional nature);
(ii) the provision of, or the use or enjoyment of facilities
for, amusement, entertainment, recreation or instruction;
(iii) the conferring of rights, benefits or privileges for which
consideration is payable in the form of a royalty, tribute,
levy or similar exaction; or
(iv) the carriage, storage or packaging of any property or the
doing of any other act in relation to property;
(b) an agreement of insurance;
(c) an agreement between a banker and a customer of the banker
entered into in the course of the carrying on by the banker of
the business of banking; or
(d) an agreement for or in relation to the lending of moneys.
supply includes:
(a) supply by way of sale, exchange, lease, hire or hire-purchase;
and
(b) provide, grant or confer.
taxpayer includes a partnership and a taxpayer in the capacity of a
trustee.
(2) The definition of taxpayer in subsection (1) shall not be taken to
affect in any way the interpretation of that expression where it is
used in this Act other than this Division.
(3) In this Division, unless the contrary intention appears:
(a) a reference to the supply or acquisition of property includes a
reference to agreeing to supply or acquire property;

Liability to taxation Part III
International agreements and determination of source of certain income Division 13

Section 136AB

Income Tax Assessment Act 1936 129 (b) a reference to consideration includes a reference to property
supplied or acquired as consideration and a reference to the
amount of any such consideration is a reference to the value
of the property;
(c) a reference to the arm’s length consideration in respect of the
supply of property is a reference to the consideration that
might reasonably be expected to have been received or
receivable as consideration in respect of the supply if the
property had been supplied under an agreement between
independent parties dealing at arm’s length with each other in
relation to the supply;
(d) a reference to the arm’s length consideration in respect of the
acquisition of property is a reference to the consideration that
might reasonably be expected to have been given or agreed to
be given in respect of the acquisition if the property had been
acquired under an agreement between independent parties
dealing at arm’s length with each other in relation to the
acquisition; and
(e) a reference to the supply or acquisition of property under an
agreement includes a reference to the supply or acquisition of
property in connection with an agreement.
(4) If, under an international tax sharing treaty, Australia and another
country share tax revenues from activities undertaken in an area
identified by or under the agreement, that area is referred to in this
Division as the area covered by the international tax sharing
treaty.
136AB Operation of Division
(1) Nothing in the provisions of this Act other than this Division shall
be taken to limit the operation of this Division.
(2) In the application of this Division, the operation of section 70-20 of
the Income Tax Assessment Act 1997 shall be disregarded.
136AC International agreements
For the purposes of this Division, an agreement is an international
agreement if:
(a) a non-resident supplied or acquired property under the
agreement otherwise than in connection with a business

Part III Liability to taxation
Division 13 International agreements and determination of source of certain income

Section 136AD

130 Income Tax Assessment Act 1936 carried on in Australia by the non-resident at or through a
permanent establishment of the non-resident in Australia; or
(b) a resident carrying on a business outside Australia supplied
or acquired property under the agreement, being property
supplied or acquired in connection with that business; or
(c) a taxpayer:
(i) supplied or acquired property under the agreement in
connection with a business; and
(ii) carries on that business in an area covered by an
international tax sharing treaty.
136AD Arm’s length consideration deemed to be received or given
(1) Where:
(a) a taxpayer has supplied property under an international
agreement;
(b) the Commissioner, having regard to any connection between
any 2 or more of the parties to the agreement or to any other
relevant circumstances, is satisfied that the parties to the
agreement, or any 2 or more of those parties, were not
dealing at arm’s length with each other in relation to the
supply;
(c) consideration was received or receivable by the taxpayer in
respect of the supply but the amount of that consideration
was less than the arm’s length consideration in respect of the
supply; and
(d) the Commissioner determines that this subsection should
apply in relation to the taxpayer in relation to the supply;
then, for all purposes of the application of this Act in relation to the
taxpayer, consideration equal to the arm’s length consideration in
respect of the supply shall be deemed to be the consideration
received or receivable by the taxpayer in respect of the supply.
(2) Where:
(a) a taxpayer has supplied property under an international
agreement;
(b) the Commissioner, having regard to any connection between
any 2 or more of the parties to the agreement or to any other
relevant circumstances, is satisfied that the parties to the
agreement, or any 2 or more of those parties, were not

Liability to taxation Part III
International agreements and determination of source of certain income Division 13

Section 136AD

Income Tax Assessment Act 1936 131 dealing at arm’s length with each other in relation to the
supply;
(c) no consideration was received or receivable by the taxpayer
in respect of the supply; and
(d) the Commissioner determines that this subsection should
apply in relation to the taxpayer in relation to the supply;
then, for all purposes of the application of this Act in relation to the
taxpayer, consideration equal to the arm’s length consideration in
respect of the supply shall be deemed to have been received and
receivable by the taxpayer in respect of the supply at the time when
the property was supplied or, as the case requires, any of the
property was first supplied, or at such later time or times as the
Commissioner considers appropriate.
(3) Where:
(a) a taxpayer has acquired property under an international
agreement;
(b) the Commissioner, having regard to any connection between
any 2 or more of the parties to the agreement or to any other
relevant circumstances, is satisfied that the parties to the
agreement, or any 2 or more of those parties, were not
dealing at arm’s length with each other in relation to the
acquisition;
(c) the taxpayer gave or agreed to give consideration in respect
of the acquisition and the amount of that consideration
exceeded the arm’s length consideration in respect of the
acquisition; and
(d) the Commissioner determines that this subsection should
apply in relation to the taxpayer in relation to the acquisition;
then, for all purposes of the application of this Act in relation to the
taxpayer, consideration equal to the arm’s length consideration in
respect of the acquisition shall be deemed to be the consideration
given or agreed to be given by the taxpayer in respect of the
acquisition.
(4) For the purposes of this section, where, for any reason (including
an insufficiency of information available to the Commissioner), it
is not possible or not practicable for the Commissioner to ascertain
the arm’s length consideration in respect of the supply or
acquisition of property, the arm’s length consideration in respect of

Part III Liability to taxation
Division 13 International agreements and determination of source of certain income

Section 136AE

132 Income Tax Assessment Act 1936 the supply or acquisition shall be deemed to be such amount as the
Commissioner determines.
136AE Determination of source of income etc.
(1) Where:
(a) by the application of section 136AD in relation to a taxpayer
other than a partnership or trustee, the arm’s length
consideration in respect of the supply or acquisition of
property by the taxpayer is deemed to have been received or
receivable or received and receivable, or to have been given
or agreed to be given, as the case may be; and
(b) a question arises whether, and if so, as to the extent to which:
(i) any income, being that consideration, is derived by the
taxpayer from sources in Australia or sources out of
Australia;
(ii) any income in the calculation of which that
consideration is taken into account is derived by the
taxpayer from sources in Australia or sources out of
Australia; or
(iii) that consideration is expenditure incurred by the
taxpayer in deriving income from sources in Australia
or sources out of Australia;
the income or expenditure shall be deemed, for all purposes of this
Act, to have been derived or to have been incurred in deriving
income, as the case may be, from such source, or from such
sources and in such proportions, as the Commissioner determines.
(2) Where:
(a) by the application of section 136AD in relation to a taxpayer
being a partnership, the arm’s length consideration in respect
of the supply or acquisition of property by the taxpayer is
deemed to have been received or receivable or received and
receivable, or to have been given or agreed to be given, as the
case may be; and
(b) in determining the net income, exempt income or partnership
loss of the taxpayer or the extent to which the individual
interest of a partner in the net income, exempt income or
partnership loss of the taxpayer is attributable to sources in
Australia, a question arises whether, and if so, as to the extent
to which:

Liability to taxation Part III
International agreements and determination of source of certain income Division 13

Section 136AE

Income Tax Assessment Act 1936 133 (i) any income, being that consideration, is derived by the
taxpayer from sources in Australia or sources out of
Australia;
(ii) any income in the calculation of which that
consideration is taken into account is derived by the
taxpayer from sources in Australia or sources out of
Australia; or
(iii) that consideration is expenditure incurred by the
taxpayer in deriving income from sources in Australia
or sources out of Australia;
the income or expenditure shall be deemed, for all purposes of this
Act, to have been derived or to have been incurred in deriving
income, as the case may be, from such source, or from such
sources and in such proportions, as the Commissioner determines.
(3) Where:
(a) by the application of section 136AD in relation to a taxpayer
being the trustee of a trust estate, the arm’s length
consideration in respect of the supply or acquisition of
property by the taxpayer is deemed to have been received or
receivable or received and receivable, or to have been given
or agreed to be given, as the case may be; and
(b) in determining the net income or exempt income of the trust
estate or the extent to which the share of a beneficiary of the
net income or exempt income of the trust estate is attributable
to sources in Australia, a question arises whether, and if so,
as to the extent to which:
(i) any income, being that consideration, is derived by the
taxpayer from sources in Australia or sources out of
Australia;
(ii) any income in the calculation of which that
consideration is taken into account is derived by the
taxpayer from sources in Australia or sources out of
Australia; or
(iii) that consideration is expenditure incurred by the
taxpayer in deriving income from sources in Australia
or sources out of Australia;
the income or expenditure shall be deemed, for all purposes of this
Act, to have been derived or to have been incurred in deriving
income, as the case may be, from such source, or from such
sources and in such proportions, as the Commissioner determines.

Part III Liability to taxation
Division 13 International agreements and determination of source of certain income

Section 136AE

134 Income Tax Assessment Act 1936 (4) Where:
(a) a taxpayer (other than a partnership or trustee):
(i) is a resident and carries on a business in a country other
than Australia at or through a permanent establishment
of the taxpayer in that other country; or
(ii) is a resident and carries on a business in an area covered
by an international tax sharing treaty; or
(iii) is a non-resident and carries on a business in Australia
at or through a permanent establishment of the taxpayer
in Australia; or
(iv) is a non-resident and carries on a business in an area
covered by an international tax sharing treaty and also
carries on a business somewhere else in Australia at or
through a permanent establishment of the taxpayer in
Australia; and
(b) a question arises whether, and if so, as to the extent to which:
(i) any income derived by the taxpayer is derived from
sources in Australia or sources out of Australia; or
(ii) any expenditure incurred by the taxpayer is incurred in
deriving income from sources in Australia or sources
out of Australia;
(c) none of the preceding provisions of this section applies in
relation to the determination of that question;
(d) that question, if determined on the basis of the return
furnished by the taxpayer, would have a tax result more
favourable to the taxpayer than the result that would occur if
that question were determined in accordance with this
subsection; and
(e) in the Commissioner’s opinion, the derivation of the income
or the incurring of the expenditure is attributable, in whole or
in part, to activities carried on by the taxpayer:
(i) at or through the permanent establishment that is
referred to in subparagraph (a)(i) or (iii); or
(ii) in the area covered by the international tax sharing
treaty that is referred to in paragraph (a)(ii) or (iv);
the income or expenditure shall be deemed, for all purposes of this
Act, to have been derived or to have been incurred in deriving
income, as the case may be, from such source, or from such
sources and in such proportions, as the Commissioner determines.

Liability to taxation Part III
International agreements and determination of source of certain income Division 13

Section 136AE

Income Tax Assessment Act 1936 135 (5) Where:
(a) a taxpayer:
(i) is a partnership and carries on a business in a country
other than Australia at or through a permanent
establishment of the taxpayer in that other country; or
(ii) is a partnership and carries on a business in an area
covered by an international tax sharing treaty; or
(iii) carries on a business in Australia at or through a
permanent establishment of the taxpayer in Australia
and is a partnership in which any of the partners is a
non-resident; or
(iv) carries on a business in an area covered by an
international tax sharing treaty and also carries on a
business somewhere else in Australia at or through a
permanent establishment of the taxpayer in Australia
and is a partnership in which any of the partners is a
non-resident; and
(b) in determining the net income, exempt income or partnership
loss of the taxpayer or the extent to which the individual
interest of a partner in the net income, exempt income or
partnership loss of the taxpayer is attributable to sources in
Australia, a question arises whether, and if so, as to the extent
to which:
(i) any income derived by the taxpayer is derived from
sources in Australia or sources out of Australia; or
(ii) any expenditure incurred by the taxpayer is incurred in
deriving income from sources in Australia or sources
out of Australia;
(c) none of the preceding provisions of this section applies in
relation to the determination of that question;
(d) that question, if determined on the basis of the return
furnished by the taxpayer, would have a tax result more
favourable to a taxpayer than the result that would occur if
that question were determined in accordance with this
subsection; and
(e) in the Commissioner’s opinion, the derivation of the income
or the incurring of the expenditure is attributable, in whole or
in part, to activities carried on by the taxpayer:
(i) at or through the permanent establishment that is
referred to in subparagraph (a)(i) or (iii); or

Part III Liability to taxation
Division 13 International agreements and determination of source of certain income

Section 136AE

136 Income Tax Assessment Act 1936 (ii) in the area covered by the international tax sharing
treaty that is referred to in paragraph (a)(ii) or (iv);
the income or expenditure shall be deemed, for all purposes of this
Act, to have been derived or to have been incurred in deriving
income, as the case may be, from such source, or from such
sources and in such proportions, as the Commissioner determines.
(6) Where:
(a) a taxpayer:
(i) is the trustee of a trust estate and carries on a business in
a country other than Australia at or through a permanent
establishment of the taxpayer in that other country; or
(ii) is the trustee of a trust estate and carries on a business in
an area covered by an international tax sharing treaty; or
(iii) carries on a business in Australia at or through a
permanent establishment of the taxpayer in Australia
and is the trustee of a trust estate of which any of the
beneficiaries is a non-resident; or
(iv) carries on a business in an area covered by an
international tax sharing treaty and also carries on a
business somewhere else in Australia at or through a
permanent establishment of the taxpayer in Australia
and is the trustee of a trust estate of which any of the
beneficiaries is a non-resident; and
(b) in determining the net income or exempt income of the trust
estate or the extent to which the share of a beneficiary of the
net income or exempt income of the trust estate is attributable
to sources in Australia, a question arises whether, and if so,
as to the extent to which:
(i) any income derived by the taxpayer is derived from
sources in Australia or sources out of Australia; or
(ii) any expenditure incurred by the taxpayer is incurred in
deriving income from sources in Australia or sources
out of Australia;
(c) none of the preceding provisions of this section applies in
relation to the determination of that question;
(d) that question, if determined on the basis of the return
furnished by the taxpayer, would have a tax result more
favourable to a taxpayer than the result that would occur if
that question were determined in accordance with this
subsection; and

Liability to taxation Part III
International agreements and determination of source of certain income Division 13

Section 136AE

Income Tax Assessment Act 1936 137 (e) in the Commissioner’s opinion, the derivation of the income
or the incurring of the expenditure is attributable, in whole or
in part, to activities carried on by the taxpayer:
(i) at or through the permanent establishment that is
referred to in subparagraph (a)(i) or (iii); or
(ii) in the area covered by the international tax sharing
treaty that is referred to in paragraph (a)(ii) or (iv);
the income or expenditure shall be deemed, for all purposes of this
Act, to have been derived or to have been incurred in deriving
income, as the case may be, from such source, or such sources and
in such proportions, as the Commissioner determines.
(7) In the application of the preceding provisions of this section in
determining the source or sources of any income derived by a
taxpayer or the extent to which expenditure incurred by the
taxpayer was incurred in deriving income from a particular source
or sources, the Commissioner shall have regard to:
(a) the nature and extent of any relevant business carried on by
the taxpayer and the place or places at which the business is
carried on;
(b) if any relevant business carried on by the taxpayer is carried
on at or through a permanent establishment—the
circumstances that would have, or might reasonably be
expected to have, existed if the permanent establishment
were a distinct and separate entity dealing at arm’s length
with the taxpayer and other persons; and
(c) such other matters as the Commissioner considers relevant.
(8) A reference in this section to expenditure incurred by a taxpayer in
deriving income includes a reference to expenditure incurred by
the taxpayer in carrying on a business for the purpose of deriving
income.
(8A) In this section:
(a) a reference to income being derived from a source in
Australia is to be read as including a separate reference to
income being derived from a source in an area in Australia
that is covered by an international tax sharing treaty; and
(b) a reference to expenditure being incurred in deriving income
from a source in Australia is to be read as including a
separate reference to expenditure being incurred in deriving

Part III Liability to taxation
Division 13 International agreements and determination of source of certain income

Section 136AF

138 Income Tax Assessment Act 1936 income from a source in an area in Australia that is covered
by an international tax sharing treaty.
Note: This means that the following are the 3 different kinds of sources
referred to in this section:
(a) a source in Australia (but not in an area covered by an
international tax sharing treaty);
(b) a source in an area in Australia that is covered by an international
tax sharing treaty;
(c) a source out of Australia.
136AF Consequential adjustments to assessable income and
allowable deductions
(1) Where, by reason of the application of section 136AD in relation to
the supply or acquisition of property by a taxpayer, an amount is
included in the assessable income of the taxpayer of a year of
income or a deduction is not allowable or is not, in part, allowable,
to the taxpayer in respect of a year of income, the Commissioner
may, in relation to any taxpayer (in this subsection referred to as
the relevant taxpayer):
(a) if, in the opinion of the Commissioner:
(i) there has been included, or would but for this subsection
be included, in the assessable income of the relevant
taxpayer of a year of income an amount that would not
have been included or would not be included, as the
case may be, in the assessable income of the relevant
taxpayer of that year of income if the property had been
supplied or acquired, as the case may be, under an
agreement between independent parties dealing at arm’s
length with each other in relation to the supply or
acquisition; and
(ii) it is fair and reasonable that that amount or a part of that
amount should not be included in the assessable income
of the relevant taxpayer of that year of income;
determine that that amount or that part of that amount, as the
case may be, should not have been included or shall not be
included, as the case may be, in the assessable income of the
relevant taxpayer of that year of income; and
(b) if, in the opinion of the Commissioner:
(i) an amount would have been allowed or would be
allowable to the relevant taxpayer as a deduction in

Liability to taxation Part III
International agreements and determination of source of certain income Division 13

Section 136AF

Income Tax Assessment Act 1936 139 relation to a year of income if the property had been
supplied or acquired, as the case may be, under an
agreement between independent parties dealing at arm’s
length with each other in relation to the supply or
acquisition, being an amount that was not allowed or
would not, but for this subsection, be allowable, as the
case may be, as a deduction to the relevant taxpayer in
relation to that year of income; and
(ii) it is fair and reasonable that that amount or a part of that
amount should be allowable as a deduction to the
relevant taxpayer in relation to that year of income;
determine that that amount or that part of that amount, as the
case may be, should have been allowed or shall be allowable,
as the case may be, as a deduction to the relevant taxpayer in
relation to that year of income;
and the Commissioner shall take such action as he considers
necessary to give effect to any such determination.
(1A) Subsection (1) also has the effect that it would have if the reference
in that subsection to the application of section 136AD in relation to
a taxpayer included references to:
(a) the application of section 136AD in accordance with
section 102AAZA for the purpose of calculating the
attributable income of a trust estate; and
(b) the application of section 136AD in accordance with
section 400 for the purpose of calculating the attributable
income of a CFC.
(2) Where the Commissioner makes a determination under
subsection (1) by virtue of which an amount is allowed as a
deduction to a taxpayer in relation to a year of income, that amount
shall be deemed to be so allowed as a deduction by virtue of such
provision of this Act as the Commissioner determines.
(3) Where:
(a) by reason of the application of section 136AD in relation to
the supply or acquisition of property by a taxpayer, an
amount is included in the assessable income of the taxpayer
of a year of income or a deduction is not allowable or is not,
in part, allowable, to the taxpayer in respect of a year of
income;

Part III Liability to taxation
Division 13 International agreements and determination of source of certain income

Section 136AF

140 Income Tax Assessment Act 1936 (b) in the opinion of the Commissioner, an amount of
withholding tax has become payable and has been paid in
respect of interest or royalties paid to a taxpayer (in this
subsection referred to as the relevant taxpayer), being
withholding tax that would not have become payable if the
property had been supplied or acquired by the
first-mentioned taxpayer under an agreement between
independent parties dealing at arm’s length with each other in
relation to the supply or acquisition; and
(c) in the opinion of the Commissioner, it is fair and reasonable
that that amount of withholding tax or part of that amount of
withholding tax should not have become payable by the
relevant taxpayer;
the Commissioner may determine that that amount of withholding
tax or that part of that amount of withholding tax, as the case may
be, should not have become payable by the relevant taxpayer and
the Commissioner shall take such action as he considers necessary
to give effect to any such determination.
(4) Where, at any time, a taxpayer considers that the Commissioner
ought to make a determination under subsection (1) or (3) in
relation to the taxpayer, the taxpayer may post to or lodge with the
Commissioner a request in writing for the making by the
Commissioner of a determination under the subsection concerned.
(5) The Commissioner shall consider the request and serve on the
taxpayer, by post or otherwise, a written notice of his decision on
the request.
(6) If the taxpayer is dissatisfied with the Commissioner’s decision on
the request, the taxpayer may object against it in the manner set out
in Part IVC of the Taxation Administration Act 1953.

Liability to taxation Part III
Employee share schemes Division 13A

Section 139

Income Tax Assessment Act 1936 141

Division 13A—Employee share schemes
Subdivision A—Key principle and overview of Division
139 The key principle
This Division provides for the taxation treatment of shares and
rights acquired under employee share schemes.
Any discount from the market price of the shares or rights is
assessable. However, 2 alternative concessions are available for
shares or rights provided under schemes that satisfy certain
requirements.
The first concession is that the discount will not be included in the
employee’s assessable income until a later year of income.
The second concession is that the employee may make an election
that reduces the amount assessed. Additional requirements must be
satisfied to obtain this concession.
139A Overview of Division
The following table summarises the contents of this Division:

OVERVIEW
Subdivision Coverage
A Key principle and overview
B The basic requirement that the discount be included in
assessable income
C Key concepts: employee share scheme, discount,
cessation time, qualifying shares, qualifying rights
and exemption conditions
D Special provisions
DA Takeovers and restructures
DB Stapled securities
E Elections

Part III Liability to taxation
Division 13A Employee share schemes

Section 139B

142 Income Tax Assessment Act 1936
OVERVIEW
Subdivision Coverage
F Special provisions about the market value of a share or
right
G Definitions (including a list of all terms defined in the
Division)
Subdivision B—Inclusion of discount in assessable income
139B Discount to be included in assessable income
(1) If a taxpayer has acquired a share or right under an employee share
scheme, the assessable income of the taxpayer includes the
discount given in relation to the share or right.
Note: Employee share scheme is defined in section 139C.
(1A) However, for any period during which the taxpayer is a
non-resident, the discount is not included under subsection (1) in
the assessable income of the taxpayer to the extent that the
discount is given in respect of, or for or in relation directly or
indirectly to, the taxpayer’s engagement in foreign service that
relates to the acquisition of the share or right.
Note: Foreign service is defined in section 139GBA.
When the discount is to be included
(2) Unless subsection (2A) or (3) applies, the discount is included in
the taxpayer’s assessable income of the year of income in which
the share or right is acquired.
(2A) Unless subsection (3) applies, if the taxpayer:
(a) acquired the share or right while the taxpayer was not an
employee; and
(b) subsequently became an employee while holding the share or
right;
the discount is included in the taxpayer’s assessable income in the
year of income in which, after the acquisition, the taxpayer first
becomes an employee in respect of employment or services that
affect the acquisition or holding of the share or right.

Liability to taxation Part III
Employee share schemes Division 13A

Section 139BA

Income Tax Assessment Act 1936 143
Note: Subsection 139GA(2) limits the meaning of employee in this
subsection, so that engagement in foreign service is not of itself
sufficient.
(3) If the share or right is a qualifying share or right and the taxpayer
has not made an election under section 139E covering the share or
right, the discount is included in the taxpayer’s assessable income
of the year of income in which the cessation time (see
sections 139CA and 139CB) occurs.
139BA Reduction of amounts included—elections
(1) This section applies if a taxpayer has made an election under
section 139E for a year of income and the exemption conditions
(see section 139CE) are satisfied in relation to shares or rights
covered by the election. It applies to the total amount otherwise
included in a taxpayer’s assessable income for the year of income
under section 139B in respect of those shares or rights.
(2) The total amount is only included in the assessable income to the
extent that it is greater than $1,000.
Subdivision C—Key concepts: employee share scheme,
discount, cessation time, qualifying shares and rights
and exemption conditions
139C Employee share schemes
(1) A taxpayer acquires a share or right under an employee share
scheme if the share or right is acquired by the taxpayer in respect
of, or for or in relation directly or indirectly to, any employment of
the taxpayer or an associate of the taxpayer.
(2) A taxpayer acquires a share or right under an employee share
scheme if the share or right is acquired by the taxpayer in respect
of, or for or in relation directly or indirectly to, any services
provided by the taxpayer or an associate of the taxpayer.
(3) The taxpayer does not acquire a share or right under an employee
share scheme if the consideration for the acquisition is equal to, or
more than, the market value of the share or right at the time that it
is acquired.

Part III Liability to taxation
Division 13A Employee share schemes

Section 139CA

144 Income Tax Assessment Act 1936 (4) The taxpayer does not (except for the purposes of Subdivision DA)
acquire a share under an employee share scheme if the taxpayer
acquires the share as the result of exercising a right that the
taxpayer acquired under an employee share scheme.
(5) The taxpayer does not acquire a share or right under an employee
share scheme if the taxpayer is the trustee of a trust whose sole
activities are obtaining shares, or rights to acquire shares, and
providing those shares or rights to employees of a company or to
associates of those employees.
139CA Cessation time—shares
(1) The cessation time for a share is the time when the taxpayer
acquires the share if:
(a) there is no restriction preventing the taxpayer from disposing
of the share before a particular time; and
(b) the scheme under which the share was acquired did not have
any conditions that could result in the taxpayer forfeiting
ownership of the share.
(2) If subsection (1) does not apply, the cessation time for a share is
the earliest of the following:
(a) the time when the taxpayer disposes of the share;
(b) subject to subsection (4), the later of:
(i) the time when any restriction preventing the taxpayer
from disposing of the share ceases to have effect; and
(ii) the time when any condition that could result in the
taxpayer forfeiting ownership of shares ceases to have
effect;
(c) the time when the employment in respect of which the share
was acquired ceases;
(d) the end of the 10 year period starting when the taxpayer
acquired the share.
(3) For the purposes of subsection (2), a taxpayer only ceases the
employment in respect of which the share was acquired when the
taxpayer is no longer employed by any of the following:
(a) the employer of the taxpayer in that employment;
(b) a holding company of the employer;

Liability to taxation Part III
Employee share schemes Division 13A

Section 139CB

Income Tax Assessment Act 1936 145 (c) a subsidiary of the employer or of a holding company of the
employer.
(4) Paragraph (2)(b) does not apply in relation to a share that, because
of section 139DQ, is treated, for the purposes of this Division, as if
it were a continuation of a share acquired under an employee share
scheme.
Note: Subdivision DA can affect whether the taxpayer is treated as having
disposed of a share or ceased employment.
139CB Cessation time—rights
(1) The cessation time for a right is the earliest of the following:
(a) the time when the taxpayer disposes of the right (other than
by exercising it);
(b) the time when the employment in respect of which the right
was acquired ceases;
(c) subject to subsection (3), if the right is exercised and there is
a restriction preventing the taxpayer from disposing of the
share acquired as a result of the exercise of the right or a
condition that could result in the taxpayer forfeiting
ownership of the share—the time when the last such
restriction or condition ceases to have effect;
(d) subject to subsection (3), if the right is exercised and there is
no such restriction or condition—the time when the right is
exercised;
(da) if subsection (3) applies—the time when the taxpayer
disposes of the share referred to in paragraph (3)(b);
(e) the end of the 10 year period starting when the taxpayer
acquired the right.
(2) For the purposes of subsection (1), a taxpayer only ceases the
employment in respect of which the right was acquired when the
taxpayer is no longer employed by any of the following:
(a) the employer of the taxpayer in that employment;
(b) a holding company of the employer;
(c) a subsidiary of the employer or of a holding company of the
employer.
Note: Subdivision DA can affect whether the taxpayer is treated as having
disposed of a right or ceased employment.

Part III Liability to taxation
Division 13A Employee share schemes

Section 139CC

146 Income Tax Assessment Act 1936 (3) Paragraphs (1)(c) and (d) do not apply in relation to a right if:
(a) a share has been or is acquired as a result of the exercise of
the right; and
(b) because of section 139DQ, another share is treated, for the
purposes of this Division, as if it were a continuation of that
share.
139CC Calculation of discount
(1) This section sets out how to calculate the discount given in relation
to a share or right.
Case 1—discount covered by subsection 139B(2) or (2A)
(2) If subsection 139B(2) or (2A) applies to the discount, the discount
is the market value of the share or right at the time when it was
acquired by the taxpayer less any consideration paid or given by
the taxpayer as consideration for the acquisition of the share or
right.
Case 2—discount covered by subsection 139B(3)—share or right
disposed of at arm’s length within 30 days
(3) If subsection 139B(3) applies to the discount, and the share or right
(or any share acquired as a result of the exercise of the right) is
disposed of by the taxpayer in an arm’s length transaction at the
cessation time or within 30 days after the cessation time, the
discount is:
(a) the amount or value of any consideration received by the
taxpayer for the disposal;
reduced by:
(b) the amount or value of any consideration paid or given by the
taxpayer as consideration for the acquisition of the share or
right; and
(c) for a right that has been exercised—the amount or value of
any consideration paid or given to exercise the right.
Case 3—discount covered by subsection 139B(3)—share or right
not disposed of at arm’s length within 30 days
(4) If subsection 139B(3) applies to the discount, and the share or right
(or any share acquired as a result of the exercise of the right) is not

Liability to taxation Part III
Employee share schemes Division 13A

Section 139CD

Income Tax Assessment Act 1936 147 disposed of by the taxpayer in an arm’s length transaction at the
cessation time or within 30 days after the cessation time, the
discount is:
(a) the market value of the share or right (or the share acquired
as a result of the exercise of the right) at the cessation time;
reduced by:
(b) the amount of any consideration paid or given by the
taxpayer as consideration for the acquisition of the share or
right; and
(c) for a right that has been exercised—the amount of any
consideration paid or given by the taxpayer to exercise the
right.
Note: Section 139DS can affect the amount of consideration that the
taxpayer is treated as having paid or given.
139CD Meaning of qualifying shares and qualifying rights
(1) For the purposes of this Division:
(a) a share in a company is a qualifying share if:
(i) the 6 conditions below are satisfied; and
(ii) in the case of a share that a taxpayer has acquired while
engaged in foreign service—section 139CDA applies to
the share; and
(b) a right to acquire a share in a company is a qualifying right
if:
(i) the first, second, third, fifth and sixth of the 6 conditions
below are satisfied; and
(ii) in the case of a right that a taxpayer has acquired while
engaged in foreign service—section 139CDA applies to
the right.
Note 1: Section 139DF excludes certain shares from being qualifying shares.
Note 2: Foreign service is defined in section 139GBA.
(2) The first condition is that the share or right is acquired by a
taxpayer under an employee share scheme.
(3) The second condition is that the company is the employer of the
taxpayer or a holding company of the employer of the taxpayer.
(4) The third condition is that all the shares available for acquisition
under the scheme are ordinary shares and all the rights available

Part III Liability to taxation
Division 13A Employee share schemes

Section 139CDA

148 Income Tax Assessment Act 1936 for acquisition under the scheme are rights to acquire ordinary
shares.
(5) The fourth condition is that, at the time the share was acquired, at
least 75% of the permanent employees of the employer were, or at
some earlier time had been, entitled to acquire:
(a) shares or rights under the scheme; or
(b) shares or rights in the employer, or a holding company of the
employer, under another employee share scheme.
(6) The fifth condition is that, immediately after the acquisition of the
share or right, the taxpayer does not hold a legal or beneficial
interest in more than 5% of the shares in the company.
(7) The sixth condition is that, immediately after the acquisition of the
share or right, the taxpayer is not in a position to cast, or control
the casting of, more than 5% of the maximum number of votes that
might be cast at a general meeting of the company.
(8) The Commissioner may determine that the fourth condition (see
subsection (5)) is taken to have been satisfied in relation to a share
if the Commissioner considers that the employer has done
everything reasonably practicable to ensure that the condition was
satisfied.
139CDA Additional requirement for shares or rights acquired while
engaged in foreign service
This section applies to a share in a company, or a right to acquire a
share in a company, if the taxpayer in question first becomes an
employee, in respect of employment or services that affect the
acquisition or holding of the share or right, before the cessation
time for the share or right.
Note: Subsection 139GA(2) limits the meaning of employee in this section,
so that engagement in foreign service is not of itself sufficient.
139CE Exemption conditions
(1) This section sets out the 3 exemption conditions that, subject to
subsection (3A), must be satisfied for section 139BA to apply to a
share or right acquired under an employee share scheme.

Liability to taxation Part III
Employee share schemes Division 13A

Section 139D

Income Tax Assessment Act 1936 149 (2) The first condition is that the scheme did not have any conditions
that could result in any recipient forfeiting ownership of shares or
rights acquired under it.
(3) The second condition is that the scheme was operated so that no
recipient would be permitted to dispose of a share or right (the
scheme share or scheme right) acquired under it, or of a share
acquired as a result of a scheme right, before the earlier of the
following times:
(a) the end of the period of 3 years after the time of the
acquisition of the scheme share or scheme right;
(b) the time when the taxpayer ceased, or first ceased, to be
employed by the employer.
(3A) Subsection (3) does not apply in relation to a share or right that,
because of section 139DQ, is treated, for the purposes of this
Division, as if it were a continuation of a share or right acquired
under an employee share scheme.
(4) The third condition is that both the employee share scheme and any
scheme for the provision of financial assistance in respect of
acquisitions of shares or rights under the employee share scheme
are operated on a non-discriminatory basis (see section 139GF).
(5) For the purposes of subsection (3), a taxpayer only ceases the
employment in respect of which the share or right was acquired
when the taxpayer is no longer employed by any of the following:
(a) the employer of the taxpayer in that employment;
(b) a holding company of the employer;
(c) a subsidiary of the employer or of a holding company of the
employer.
Subdivision D—Special provisions
139D Discount assessable to associate if share acquired by taxpayer
in respect of associate’s employment
(1) This section applies if:
(a) a taxpayer has acquired a share or right under an employee
share scheme; and

Part III Liability to taxation
Division 13A Employee share schemes

Section 139DA

150 Income Tax Assessment Act 1936 (b) the share or right was acquired by the taxpayer in respect of,
or for or in relation directly or indirectly to, any employment
of, or services rendered by, an associate of the taxpayer; and
(c) apart from this section, an amount:
(i) would be included in respect of the acquisition in the
assessable income of the taxpayer of a year of income
under this Division; or
(ii) would have been so included if the taxpayer had been a
resident at the time of the acquisition.
(2) Subject to subsection (3), if this section applies, the amount is
included in the associate’s assessable income of the year of income
instead of in the taxpayer’s assessable income.
(3) If:
(a) this section applies; and
(b) the taxpayer acquired the share or right while the associate
was not an employee; and
(c) the associate subsequently became an employee while the
taxpayer was holding the share or right;
the amount is included in the associate’s assessable income in the
year of income in which, after the acquisition, the associate first
becomes an employee in respect of employment or services that
affect the acquisition or holding of the share or right.
Note: Subsection 139GA(2) limits the meaning of employee in this
subsection, so that engagement in foreign service is not of itself
sufficient.
139DA Acquisition of legal interest in shares or rights—certain
discounts not assessable
If:
(a) a taxpayer has acquired the legal interest in a share or right;
and
(b) the taxpayer, or an associate of the taxpayer, is required to
include an amount under section 139B in the taxpayer’s or
the associate’s assessable income as a result of the
acquisition; and
(c) the taxpayer, or the associate, is, or would apart from
section 139BA be, required to include an amount under

Liability to taxation Part III
Employee share schemes Division 13A

Section 139DB

Income Tax Assessment Act 1936 151 section 139B in his or her assessable income as a result of the
acquisition of the beneficial interest in the share or right;
the taxpayer, or the associate, is not required to include the amount
mentioned in paragraph (b).
139DB No deduction until share or right acquired
If, at a particular time, a person (the provider) provides another
person with money or other property:
(a) under an arrangement; and
(b) for the purpose of enabling another person (the ultimate
beneficiary) to acquire, directly or indirectly, a share or right,
under an employee share scheme;
then, for the purpose of determining when any deduction is
allowable to the provider in respect of provision of the money or
other property, the provider is taken to have provided it not before
the time when the ultimate beneficiary acquires the share or right.
Note: The amount included in assessable income for the acquisition of an
interest in a share is the same as for the acquisition of the share—see
Subdivision F and section 139G.
139DC Deduction for provider of certain qualifying shares or rights
(1) A taxpayer is entitled to an allowable deduction in the taxpayer’s
assessment in respect of income of a year of income (the benefit
year) if the taxpayer provides one or more qualifying shares or
qualifying rights to another person in the benefit year that satisfy
the following conditions:
(a) the exemption conditions (see section 139CE);
(b) the condition that no amount has been allowed, is allowable,
or will be allowable, as a deduction in the assessment of the
taxpayer in respect of income of any year of income in
respect of expenditure incurred in providing the share or
right.
(2) The amount of the deduction in respect of the shares or rights
provided by the taxpayer to the person in the benefit year is the
lesser of:
(a) $1,000; and
(b) the sum of the market values, at the time that the share or
right is provided, of each qualifying share or qualifying right

Part III Liability to taxation
Division 13A Employee share schemes

Section 139DD

152 Income Tax Assessment Act 1936 that satisfies the conditions in subsection (1) reduced by the
sum of any amounts paid by the person as consideration for
those shares or rights.
Note: Only one deduction is allowable under this section in respect of each
person to whom the taxpayer provided shares or rights in a year.
139DD No benefit where rights lost
(1) For the purposes of this Division, a right to acquire a share in a
company is never acquired by a taxpayer if the following 2
requirements are satisfied.
(2) The first requirement is that the taxpayer loses the right without
having exercised it.
(2A) To avoid doubt:
(a) the taxpayer does not lose the right if, because of
section 139DQ, another right is treated, for the purposes of
this Division, as if it were a continuation of that right; but
(b) the taxpayer loses the right if the taxpayer loses the other
right without having exercised it.
(3) The second requirement is that the company was, at the time the
right was acquired, the employer of the taxpayer or a holding
company of the employer of the taxpayer.
(3A) To avoid doubt, the company does not cease to be the employer of
the taxpayer or a holding company of the employer of the taxpayer
if, because of section 139DQ, the taxpayer’s employment by
another company is treated, for the purposes of this Division, as if
it were a continuation of that employment.
(3B) If, but for subsection 139DR(2), rights acquired by the taxpayer
would, because of section 139DQ, be treated for the purposes of
this Division as a continuation of other rights, the rights are to be
treated for the purposes of this section as if they were a
continuation of the other rights.
(4) Section 170 does not prevent the amendment of an assessment at
any time for the purpose of giving effect to this section.

Liability to taxation Part III
Employee share schemes Division 13A

Section 139DE

Income Tax Assessment Act 1936 153
139DE Amount not assessable under other provisions
Section 21A of this Act and section 15-2 of the Income Tax
Assessment Act 1997 do not apply to:
(a) a share or right that a taxpayer acquires under an employee
share scheme; or
(b) any share acquired by a taxpayer as a result of a right covered
by paragraph (a).
139DF Anti-avoidance—certain shares and rights not qualifying
shares and qualifying rights
(1) Despite any other provision of this Part, a share in a company, or a
right to acquire a share in a company, acquired by a taxpayer is not
a qualifying share or right if:
(a) the predominant business of the company (whether or not
stated in its constituent documents) is the acquisition, sale or
holding of shares, securities or other investments (whether
directly or indirectly through one or more companies,
partnerships or trusts); and
(b) the taxpayer is employed by the company and is also
employed by another company; and
(c) the company and the other company are members of the
same company group.
(2) A company is a member of the same company group as another
company if one of the companies is a holding company of the other
or if another company is a holding company of both companies.
139DG Amendment of assessments to account for reductions of
amounts included in assessable income
(1) If:
(a) an amount has been included in a taxpayer’s assessable
income of a particular year of income; and
(b) that amount is reduced or increased because of a change in
the extent (if any) of the application of section 23AF or
23AG or subsection 139B(1A) in relation to the amount
during a subsequent year of income;
section 170 does not prevent the amendment of an assessment, for
the purpose of giving effect to the reduction or increase, at any

Part III Liability to taxation
Division 13A Employee share schemes

Section 139DP

154 Income Tax Assessment Act 1936 time during the period of 4 years starting immediately after the
income year during which the period of employment or service
relating to the acquisition of the share or right in question ends.
(2) In paragraph (1)(b):
(a) the reference to an amount being reduced includes a
reference to the amount being reduced to a nil amount; and
(b) the reference to an amount being increased includes a
reference to the amount being increased from a nil amount.
Subdivision DA—Takeovers and restructures
139DP Object of this Subdivision
The object of this Subdivision is to allow this Division to continue
to apply, in appropriate circumstances, to 100% takeovers or
restructures of companies that have employee share schemes.
139DQ The effect of 100% takeovers and restructures on employee
share schemes
Treating acquisitions as continuations of existing shares etc.
(1) To the extent that:
(a) a taxpayer acquires:
(i) shares in a company (the new company) that can
reasonably be regarded as matching shares in another
company (the old company) that the taxpayer had
acquired under an employee share scheme; or
(ii) rights in a company (the new company) that can
reasonably be regarded as matching rights in another
company (the old company) that the taxpayer had
acquired under an employee share scheme; and
(b) the acquisition occurs in connection with a 100% takeover, or
a restructure, of the old company; and
(c) as a result of the takeover or restructure, the taxpayer ceased
to hold the shares or rights in the old company;
then, if the conditions in section 139DR are met, the matching
shares or rights are treated, for the purposes of this Division and
Subdivision 768-R of the Income Tax Assessment Act 1997, as if
they were a continuation of the shares or rights in the old company.

Liability to taxation Part III
Employee share schemes Division 13A

Section 139DR

Income Tax Assessment Act 1936 155
Note: In determining to what extent something can reasonably be regarded
as matching shares or rights in the old company, one of the factors to
consider is the respective market values of that thing and of those
shares or rights.
Treating acquisitions as disposals of existing shares etc.
(2) However, to the extent that, in connection with the takeover or
restructure, the taxpayer acquires anything that:
(a) can reasonably be regarded as matching shares or rights in
the old company that the taxpayer had acquired under an
employee share scheme; but
(b) is not a matching share or right to which subsection (1)
applies;
the taxpayer is treated, for the purposes of this Division and
Subdivision 768-R of the Income Tax Assessment Act 1997, as
having disposed of shares, or disposed of rights (other than by
exercising them), that the taxpayer held, under an employee share
scheme, in the old company immediately before the takeover or
restructure.
Treating new employment as continuation of existing employment
(3) If subsection (1) applies, any employment of the taxpayer in:
(a) the new company; or
(b) a holding company of the new company; or
(c) a subsidiary of the new company or of a holding company of
the new company;
is treated, for the purposes of this Division and Subdivision 768-R
of the Income Tax Assessment Act 1997, as a continuation of the
employment in respect of which he or she acquired the shares or
rights in the old company or in a subsidiary of the old company.
139DR Conditions for the continuation of shares or rights
(1) The first condition is that, immediately before the takeover or
restructure, the taxpayer held shares or rights in the old company
under an employee share scheme.
(2) The second condition is that, if the taxpayer has not made an
election under section 139E covering the share or right, the
taxpayer is, at or about the time the taxpayer acquires the matching
shares or rights, an employee of:

Part III Liability to taxation
Division 13A Employee share schemes

Section 139DS

156 Income Tax Assessment Act 1936 (a) the new company; or
(b) a holding company of the new company; or
(c) a subsidiary of the new company or of a holding company of
the new company.
(3) The third condition is that:
(a) to the extent that the matching shares or rights are shares,
they are ordinary shares; or
(b) to the extent that the matching shares or rights are rights, they
are rights to acquire ordinary shares.
(5) The fourth condition is that, at the time the taxpayer acquires the
matching shares or rights, the taxpayer does not hold a legal or
beneficial interest in more than 5% of the shares of the new
company.
(6) The fifth condition is that, at that time, the taxpayer is not in a
position to cast, or control the casting of, more than 5% of the
maximum number of votes that may be cast at a general meeting of
the new company.
139DS Apportionment rules
(1) If:
(a) subsection 139DQ(1) applies to shares or rights that the
taxpayer has acquired; and
(b) the taxpayer had paid or given consideration (the original
consideration) for an acquisition, under an employee share
scheme, of any of the shares or rights in the old company (the
original shares or rights);
the taxpayer is treated as having paid or given, for any of the
apportionable assets for the original shares or rights, consideration
of an amount worked out by spreading the original consideration
proportionately among all the apportionable assets according to
their market values immediately after the takeover or restructure.
Note: Subsection 139FA(4) alters the meaning of market value of a share or
right for the purposes of this section.
(2) The apportionable assets for the original shares or rights are:
(a) all matching shares or rights held by the taxpayer that are
treated because of this Division as a continuation of the
original shares or rights; and

Liability to taxation Part III
Employee share schemes Division 13A

Section 139DSA

Income Tax Assessment Act 1936 157 (b) anything else that the taxpayer acquired in connection with
the takeover or restructure and that can reasonably be
regarded as matching the original shares or rights; and
(c) in the case of a restructure—any shares or rights in the old
company that the taxpayer held immediately before, and
continues to hold immediately after, the restructure and that
can reasonably be regarded as matching the original shares or
rights.
Subdivision DB—Stapled securities
139DSA Object of this Subdivision
The object of this Subdivision is to allow this Division to apply to
stapled securities that include an ordinary share and are listed for
quotation on the Australian Stock Exchange, and to rights to
acquire such stapled securities.
139DSB Application of Division to stapled securities
(1) This Division (except this Subdivision) applies, with the
modifications set out in this Subdivision, in relation to a stapled
security in the same way as it applies in relation to a share
(including an ordinary share) in a company.
Note 1: For the definition of stapled security, see subsection 139GCD(1).
Note 2: This means the Division also applies to rights to acquire a stapled
security in the same way it applies to rights to acquire a share.
Example: Subsection 139CD(4) will be satisfied if all the securities available for
acquisition under the scheme are stapled securities, and all the rights
available for acquisition are rights to acquire stapled securities.
(2) For the purposes of the application of this Division (except this
Subdivision) in relation to a stapled security or right to acquire a
stapled security, a company, the shares in which are the subject of
this Division, is taken to include (as part of the company) each
stapled entity for the stapled security.
Note 1: For the definition of stapled entity, see subsection 139GCD(2).
Note 2: There are some modifications to this rule in this Subdivision.
Note 3: This rule has the effect that the company is treated as having all the
interests in another entity that stapled entities for the stapled security
have.

Part III Liability to taxation
Division 13A Employee share schemes

Section 139DSC

158 Income Tax Assessment Act 1936
Example: The condition in subsection 139CD(3) will be satisfied if the company
would be a holding company of the employer if all those stapled
entities’ interests in the employer were counted together.
139DSC Discount not to be included in assessable income unless
stapled security or right is qualifying
Section 139B includes a discount given in relation to a stapled
security or right to acquire a stapled security in the assessable
income of the taxpayer only if the stapled security or right to
acquire a stapled security is treated as a qualifying share or
qualifying right because of this Subdivision.
139DSD Division does not also apply to share part of stapled
security
(1) If a stapled security or right to acquire a stapled security is treated
as a qualifying share or qualifying right because of this
Subdivision, this Division does not also apply separately in relation
to a share that is a part of the stapled security.
(2) However, if a stapled security is not treated as a qualifying share
because of this Subdivision, the rest of this Division applies
separately in relation to each share that is a part of the stapled
security. To avoid doubt, section 139DSC does not prevent a
discount given in relation to such a share from being included in
the assessable income of a taxpayer.
139DSE Modifications relating to employment
Proportion of permanent employees of employer
(1) Subsection 139DSB(2) does not affect a provision setting out a
condition relating to a specified proportion of the permanent
employees of a stapled entity that is the employer.
Example: In applying subsection 139CD(5), the employer of the taxpayer is not
taken to include any other stapled entities. The condition in that
subsection will be satisfied if it is satisfied for the employing entity
alone.
(2) The reference in paragraph 139CD(5)(b) to a holding company of
an employer includes a reference to the stapled entities for the
stapled security if:

Liability to taxation Part III
Employee share schemes Division 13A

Section 139DSF

Income Tax Assessment Act 1936 159 (a) the employer is not a stapled entity for the stapled security;
and
(b) a company that included the stapled entities as parts of the
company would be a holding company of the employer.
Cessation of employment
(3) For the purposes of working out the time when a taxpayer ceases to
be employed by the employer of the taxpayer, that employer is
taken to include (as part of it) each other stapled entity for the
stapled security.
Note: This rule affects the operation of subsections 139CA(2), 139CB(1)
and 139CE(3).
139DSF Modification relating to legal or beneficial interest
A taxpayer is taken to satisfy a condition that the taxpayer not hold
a legal or beneficial interest in more than 5% of the shares in a
company at a time only if the taxpayer does not hold a legal or
beneficial interest in more than 5% of any of the following at that
time:
(a) the shares in any company that is a stapled entity for the
stapled security;
(b) the units in any unit trust that is a stapled entity for the
stapled security.
Note: This rule affects the operation of subsections 139CD(6) and
139DR(5).
139DSG Modification relating to voting rights
A taxpayer is taken to satisfy a condition that the taxpayer not be in
a position to cast, or control the casting of, more than 5% of the
maximum number of votes that might be cast at a general meeting
of a company only if the taxpayer is not in a position to control the
casting of more than 5% of the maximum number of votes that
might be cast at a general meeting of:
(a) a company that is a stapled entity for the stapled security
because an ordinary share in the company is part of the
stapled security; or
(b) if more than one company is a stapled entity for the stapled
security because an ordinary share in the company is part of
the stapled security—each of those companies.

Part III Liability to taxation
Division 13A Employee share schemes

Section 139DSH

160 Income Tax Assessment Act 1936
Note: This rule affects the operation of subsections 139CD(7) and
139DR(6).
139DSH Cessation time when stapling arrangement ceases
The cessation time for a stapled security or right to acquire a
stapled security is the earlier of:
(a) the time when any of the interests forming the stapled
security cease to be stapled together; and
(b) the time when the stapled security ceases to be listed for
quotation in the official list of the ASX Limited;
if that time is earlier than:
(c) in the case of a stapled security where subsection 139CA(1)
does not apply—the earliest time when an event described in
any of paragraphs 139CA(2)(a) to (d) happens; and
(d) in the case of a right to acquire a stapled security—the
earliest time when an event described in any of paragraphs
139CB(1)(a) to (e) happens.
Note: The times mentioned in paragraphs (a) and (b) are additional to the
times mentioned in subsections 139CA(2) and 139CB(1). The actual
cessation time is the time that is the earliest, unless subsection
139CA(1) applies (when the cessation time is the time of acquisition).
139DSI Deduction to be apportioned
(1) If a stapled security is jointly provided by 2 or more taxpayers to
another person in a year of income, each of those taxpayers is
entitled to an allowable deduction in respect of income of the year
of income under section 139DC if, because of this Subdivision:
(a) the stapled security is treated as a qualifying share; and
(b) the conditions in subsection 139DC(1) are satisfied for the
stapled security.
(2) The amount of the deduction worked out under subsection
139DC(2) in respect of the stapled security must be apportioned
between each of the taxpayers on a reasonable basis.

Liability to taxation Part III
Employee share schemes Division 13A

Section 139E

Income Tax Assessment Act 1936 161
Subdivision E—Elections
139E Taxpayer may make election
(1) A taxpayer may make an election under this section that subsection
139B(2) applies for a year of income. The election covers each
qualifying share or qualifying right acquired in that year by the
taxpayer.
How and when election must be made
(2) An election under subsection (1) must be in writing in the
approved form and be made before the taxpayer lodges his or her
return of income for the year of income, or within such further time
as the Commissioner allows.
(3) If:
(a) a taxpayer becomes an employee during a year of income
(the employment year); and
(b) before the employment year, the taxpayer had acquired a
qualifying share or qualifying right, being an acquisition that
occurred:
(i) while the taxpayer was not an employee; and
(ii) after the year of income (if any) in which the taxpayer
last became an employee;
the taxpayer may make an election under this section that
subsection 139B(2A) applies for each of the years of income
before the employment year and after the year referred to in
paragraph (b). The election covers each qualifying share or
qualifying right acquired in any of those years by the taxpayer.
Note: Subsection 139GA(2) limits the meaning of employee in this
subsection, so that engagement in foreign service is not of itself
sufficient.
(4) An election under subsection (3) must be in writing in the
approved form and be made before the taxpayer lodges his or her
return of income for the employment year, or within such further
time as the Commissioner allows.

Part III Liability to taxation
Division 13A Employee share schemes

Section 139F

162 Income Tax Assessment Act 1936
Subdivision F—Special provisions about the market value of a
share or right
139F Meaning of market value of a share or right
This Subdivision sets out how to determine the market value of a
share or right to acquire a share on a particular day.
139FA Listed shares or rights—market value
(1) If the share or right is quoted on a stock market of an approved
stock exchange on that day, the market value is:
(a) if there was at least one transaction on that stock market in
shares or rights of that class during the one week period up to
and including that day—the weighted average of the prices at
which those shares or rights were traded on that stock market
during the one week period up to and including that day; or
(b) if there were no transactions on that stock market in that one
week period in such shares and rights:
(i) the last price at which an offer was made on that stock
market in that period to buy such a share or right; or
(ii) if, in the case of a share, no such offer has been made—
the value of the share that would have been determined
under section 139FB if that section applied to the share;
or
(iii) if, in the case of a right, no such offer has been made—
the value of the right that would have been determined
under section 139FC if that section applied to the right.
(2) If a share or right is quoted on 2 or more approved stock markets
on that day, the market value is the value determined under
subsection (1) in respect of whichever of those the taxpayer
chooses.
(3) This section does not apply to a share if section 139FAA applies to
the share.
(4) This section applies for the purposes of section 139DS as if
references in this section to the one week period up to and
including that day were references to the period consisting of that
day.

Liability to taxation Part III
Employee share schemes Division 13A

Section 139FAA

Income Tax Assessment Act 1936 163
139FAA Listed shares—market value where public offer
(1) This section applies to a share in a company if:
(a) the share is acquired within the period starting 7 days before
and ending 7 days after the day on which shares are first
acquired under a public offer of shares in the company; and
(b) the following rights attached to the share are the same as
those attached to the shares acquired under the public offer:
(i) rights in respect of voting;
(ii) rights in respect of dividends;
(iii) rights in respect of distribution of share capital in
consequence of a reduction of share capital;
(iv) rights in respect of distribution of the property of the
company in the event of the winding up of the company;
and
(c) there is at least one price at which shares were sold under the
public offer that satisfies the following requirements:
(i) 1,000 Australian residents (other than residents who are
employees of the company or who held shares in the
company immediately before the offer was made)
acquired shares at the price;
(ii) the total cost of shares acquired by such Australian
residents at the price was at least $1,000,000; and
(d) the company has been a listed public company for at least 6
months immediately before the share is acquired.
However, this section does not apply if subsection 139CC(4)
applies to the share.
(2) The market value of a share is the lowest price that satisfies the
requirements of subparagraphs (1)(c)(i) and (ii) at which shares
were sold under the public offer.
What is a public offer?
(3) A public offer of shares is an offer of shares in a company where:
(a) the offer is by the company or by a person who, immediately
before the offer is made, owns at least 20% of the shares with
rights in respect of voting in the company; and
(b) the offer is made to at least 10,000 Australian residents (other
than residents who are employees of the company or who

Part III Liability to taxation
Division 13A Employee share schemes

Section 139FB

164 Income Tax Assessment Act 1936 held shares in the company immediately before the offer was
made).
139FB Unlisted shares—market value
(1) If the share is not quoted on an approved stock exchange on that
day, the market value is the arm’s length value of the share:
(a) as specified in a written report, in a form approved by the
Commissioner, given to the person from whom the taxpayer
acquires the share by a person who is a qualified person in
relation to valuing the share (see section 139FG); or
(b) as calculated in accordance with any other method approved
in writing by the Commissioner as a reasonable method of
calculating the arm’s length value of unlisted shares.
Partly paid unlisted shares
(2) Without limiting the factors that must be taken into account in
valuing, under paragraph (1)(a), a share that is partly paid, the
qualified person must take into account:
(a) the amount unpaid on the share; and
(b) the amount and timing of future calls; and
(c) rights to dividends that arise from holding the share.
139FC Unlisted rights—market value
(1) If the right is not quoted on an approved stock exchange on that
day, the market value is the greater of:
(a) the market value, on the particular day, of the share that may
be acquired by exercising the right, less the lowest amount
that must be paid to exercise the right to acquire the share;
and
whichever of the following applies:
(b) if the right can not be exercised more than 10 years after the
day when the right was acquired—subject to section 139FE,
the value determined in accordance with regulations for the
purpose of this paragraph or, if no such regulations are in
force, the value determined in accordance with
sections 139FJ to 139FN;
(c) if the right can be exercised more than 10 years after the day
when the right was acquired—the greater of:

Liability to taxation Part III
Employee share schemes Division 13A

Section 139FD

Income Tax Assessment Act 1936 165 (i) the arm’s length value of the right as specified in a
written report, in a form approved by the Commissioner,
given to the person from whom the taxpayer acquires
the right by a suitably qualified valuer; and
(ii) the value that would have been determined under
paragraph (b) if the right could be exercised 10 years
after the particular day.
(2) In calculating, for the purpose of subsection (1), the market value
of the share that may be acquired by exercising the right,
subsection 139FAA(1) applies as if the share were acquired on the
particular day.
139FD Conditions and restrictions to be disregarded
In determining the market value of a share or right under
section 139FB or 139FC, the share or right, and any share that may
be acquired as a consequence of the exercise or operation of the
right, is taken not to be subject to any conditions or restrictions.
139FE Value of right nil or can not be determined
(1) If the lowest amount that must be paid to exercise a right to acquire
a share is nil or can not be determined, the market value of the
right on a particular day is the same as the market value of the
share on that day.
(2) In calculating, for the purpose of subsection (1), the market value
of the share that may be acquired by exercising the right,
subsection 139FAA(1) applies as if the share were acquired on the
particular day.
139FF Value of legal and beneficial interests
To avoid doubt, if a person acquires either the beneficial interest or
the legal interest in a share or right, the value that is applicable for
the purposes of this Division is the value of the share or right, not
the value of the interest in the share or right.
Notes: 1. It is the value of the share or right that is relevant because the taxpayer
is taken to have acquired the share or right—see section 139G.
2. Double taxation is avoided by section 139DA.

Part III Liability to taxation
Division 13A Employee share schemes

Section 139FG

166 Income Tax Assessment Act 1936
139FG Meaning of qualified person
A person is a qualified person in relation to valuing a share in a
company if the person is registered as a company auditor under a
law in force in a State or a Territory, and is not:
(a) a director, secretary or employee of the company; or
(b) a partner, employer or employee of a person referred to in
paragraph (a); or
(c) a partner or employee of an employee of a person so referred
to.
139FI Provision of information about market value
If a taxpayer requests the person from whom he or she acquired a
share or right to provide information necessary for the taxpayer to
calculate the market value of the share or right at a particular time,
the person must take all reasonable steps to provide that
information within 60 days after the request.
139FJ Outline of remainder of Subdivision
The remainder of this Subdivision sets out the method of
calculating, for the purposes of paragraph 139FC(b), the market
value, on a particular day, of a right to acquire a share.
139FK Step 1—calculate the calculation percentage
(1) Apply the following formula. The result is the calculation
percentage.
Market value, on the particular day, of the
share that is the subject of the right
100%
Amount, or lowest amount, that must be
paid to exercise the right×

(2) In calculating, for the purpose of subsection (1), the market value
of the share that is the subject of the right, subsection 139FAA(1)
applies as if the share were acquired on the particular day.

Liability to taxation Part III
Employee share schemes Division 13A

Section 139FL

Income Tax Assessment Act 1936 167
139FL Step 2—how to use calculation percentage
If calculation percentage is less than 50%
(1) If the calculation percentage is less than 50%, the market value of
the right is nil.
If calculation percentage is equal to or greater than 50% but less
than 110%
(2) If the calculation percentage is equal to, or greater than, 50% but
less than 110%, go to the instructions for using Table 1 in
section 139FM that are set out below that Table.
If calculation percentage is equal to or greater than 110%
(3) If the calculation percentage is equal to, or greater than, 110%, go
to the instructions for using Table 2 in section 139FN that are set
out below that Table.
139FM Table 1 and instructions
Table 1
(1) The following is Table 1:

Calculation percentage
Exercise
period
(months) 50% to
60% 60% to
70% 70% to
75% 75% to
80% 80% to
85% 85% to
90% 90% to
92.5% 92.5%
to 95%
108 to
120 0.6% 2.1% 4.8% 6.7% 8.9% 11.4% 14.1% 15.5%
96 to 108 0.4% 1.5% 4.0% 5.8% 7.9% 10.3% 13.0% 14.5%
84 to 96 0.2% 1.1% 3.2% 4.8% 6.8% 9.2% 11.8% 13.3%
72 to 84 0.1% 0.7% 2.4% 3.8% 5.6% 7.9% 10.5% 11.9%
60 to 72 0.0% 0.4% 1.6% 2.8% 4.4% 6.5% 9.0% 10.4%
48 to 60 0.0% 0.1% 0.9% 1.8% 3.1% 4.9% 7.3% 8.6%
36 to 48 0.0% 0.0% 0.4% 0.9% 1.9% 3.3% 5.4% 6.6%
24 to 36 0.0% 0.0% 0.1% 0.3% 0.8% 1.8% 3.4% 4.4%
18 to 24 0.0% 0.0% 0.0% 0.1% 0.4% 1.0% 2.3% 3.2%

Part III Liability to taxation
Division 13A Employee share schemes

Section 139FM

168 Income Tax Assessment Act 1936
Calculation percentage
Exercise
period
(months) 50% to
60% 60% to
70% 70% to
75% 75% to
80% 80% to
85% 85% to
90% 90% to
92.5% 92.5%
to 95%
12 to 18 0.0% 0.0% 0.0% 0.0% 0.1% 0.4% 1.3% 2.0%
9 to 12 0.0% 0.0% 0.0% 0.0% 0.0% 0.2% 0.8% 1.3%
6 to 9 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.3% 0.7%
3 to 6 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.2%
0 to 3 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Calculation percentage
Exercise
period
(months)
95% to
97.5%
97.5% to
100%
100% to
102.5%
102.5%
to 105%
105% to
107.5%
107.5% to
110%
108 to
120 16.9% 18.4% 20.0% 21.5% 23.1% 24.7%
96 to 108 15.9% 17.5% 19.0% 20.6% 22.2% 23.9%
84 to 96 14.8% 16.3% 17.9% 19.5% 21.2% 22.9%
72 to 84 13.4% 15.0% 16.6% 18.2% 19.9% 21.7%
60 to 72 11.8% 13.4% 15.0% 16.7% 18.5% 20.3%
48 to 60 10.1% 11.6% 13.2% 14.9% 16.7% 18.6%
36 to 48 8.0% 9.5% 11.1% 12.9% 14.7% 16.5%
24 to 36 5.7% 7.1% 8.7% 10.4% 12.2% 14.1%
18 to 24 4.4% 5.7% 7.2% 8.9% 10.8% 12.7%
12 to 18 2.9% 4.1% 5.6% 7.3% 9.1% 11.2%
9 to 12 2.2% 3.3% 4.7% 6.3% 8.2% 10.3%
6 to 9 1.4% 2.3% 3.6% 5.3% 7.2% 9.4%
3 to 6 0.5% 1.2% 2.4% 4.1% 6.1% 8.4%
0 to 3 0.1% 0.4% 1.3% 3.0% 5.3% 7.8%

Instructions for using Table 1
(2) From Table 1, select the percentage (the Table 1 percentage) that
corresponds to:

Liability to taxation Part III
Employee share schemes Division 13A

Section 139FN

Income Tax Assessment Act 1936 169 (a) the period, in months, from the particular day until the last
day on which the right may be exercised (the exercise
period); and
(b) the calculation percentage;
and then multiply the amount, or lowest amount, that must be paid
to exercise the right by the Table 1 percentage. The result is the
market value of the right.
139FN Table 2 and instructions
Table 2
(1) The following is Table 2:

Exercise period
(months) Column 1 Column 2
108 to 120 24.7% 0.6%
96 to 108 23.9% 0.6%
84 to 96 22.9% 0.7%
72 to 84 21.7% 0.7%
60 to 72 20.3% 0.7%
48 to 60 18.6% 0.7%
36 to 48 16.5% 0.8%
24 to 36 14.1% 0.8%
18 to 24 12.7% 0.8%
12 to 18 11.2% 0.9%
9 to 12 10.3% 0.9%
6 to 9 9.4% 0.9%
3 to 6 8.4% 0.9%
0 to 3 7.8% 1.0%
Instructions for using Table 2—calculating the base percentage
(2) From column 1 of Table 2, select the percentage that corresponds
to the period, in months, from the particular day until the last day
on which the right may be exercised (the exercise period). This
percentage is called the base percentage.

Part III Liability to taxation
Division 13A Employee share schemes

Section 139G

170 Income Tax Assessment Act 1936 Instructions for using Table 2—calculating the additional
percentage
(3) From column 2 of Table 2, select the percentage that corresponds
to the exercise period. This percentage is called the additional
percentage.
Instructions for using Table 2—calculating the excess
(4) Work out the result of the following formula. Disregard any
fraction. The result is called the excess.
Calculation
100 – 110%
percentage ⎡⎤
×
⎢⎥
⎣⎦

Instructions for using Table 2—calculating the market value
(5) The market value of the right is the amount worked out using the
following formula:
Amount or lowest
Base Additional
amount that must be + Excess
percentage percentage
paid to exercise the right
⎡ ⎤
⎛⎞ ⎢ ⎥
⎜⎟
××
⎜⎟ ⎢ ⎥
⎝⎠ ⎣ ⎦
Note: If:
(a) the exercise period; or
(b) the calculation percentage in relation to a particular right;
is the top of one range in Table 1 or 2 and is also the bottom of
another range in that Table, it is taken to be in the lower range and not
in the higher range.
Subdivision G—Definitions
139G Meaning of acquiring or providing a share or right
A person acquires a share or right if:
(a) another person transfers the share or right to that person
(other than, in the case of a share, by issuing the share to that
person); or
(b) in the case of a share—another person allots the share to that
person; or
(c) in the case of a right—another person creates the right in that
person; or

Liability to taxation Part III
Employee share schemes Division 13A

Section 139GA

Income Tax Assessment Act 1936 171 (d) the person otherwise acquires a legal interest in the share or
right from another person; or
(e) the person acquires a beneficial interest in the share or right
from another person.
In those circumstances, the other person provides the share or right.
139GA Meaning of employee and employer
(1) The expression employee means:
(a) a person who receives, or is entitled to receive, work and
income support related withholding payments and benefits;
or
(b) a person who is engaged in foreign service.
(2) However:
(a) subsection (1) does not apply in relation to section 139GBA;
and
(b) paragraph (1)(b) does not apply in relation to subsection
139B(2A), section 139CDA or subsection 139D(3), 139E(3)
or 139GB(1).
(3) The expression employer means:
(a) a person who pays, or is liable to pay, work and income
support related withholding payments and benefits; or
(b) a person who engages another person in foreign service.
139GB Meaning of permanent employee
(1) Subject to subsections (2) and (3), permanent employee of an
employer is:
(a) a full-time employee of the employer; or
(b) a permanent part-time employee of the employer;
with at least 36 months service (whether continuous or
non-continuous).
Note: Subsection 139GA(2) limits the meaning of employee in this
subsection, so that engagement in foreign service is not of itself
sufficient.
(2) A person is not a permanent employee of an employer that is a
company at any time when the person is a director of the company.

Part III Liability to taxation
Division 13A Employee share schemes

Section 139GBA

172 Income Tax Assessment Act 1936 (3) A person is not a permanent employee at any time when the
person:
(a) is a temporary resident within the meaning of the Income Tax
Assessment Act 1997; or
(b) is not a resident; or
(c) is not physically present in Australia.
(4) For the purposes of subsection (1), the length of a person’s service
includes any period when the person is, in accordance with the
terms and conditions of that service:
(a) absent on recreation leave; or
(b) absent from work because of accident or illness.
(5) In paragraph (4)(a), recreation leave does not include:
(a) long service leave, furlough, extended leave or leave of a
similar kind (however described); or
(b) leave without pay or on reduced pay.
139GBA Meaning of foreign service
Foreign service is service in a foreign country as the holder of an
office or in the capacity of an employee.
139GC Meaning of holding company
The expression “holding company” has the same meaning as in the
Corporations Act 2001.
139GCA Meaning of subsidiary
The expression subsidiary has the same meaning as in the
Corporations Act 2001.
139GCB Meaning of 100% takeover
A 100% takeover of a company by another company is an
arrangement that is intended to result in the company becoming a
100% subsidiary of the other company, or of a holding company or
subsidiary of the other company.

Liability to taxation Part III
Employee share schemes Division 13A

Section 139GCC

Income Tax Assessment Act 1936 173
139GCC Meaning of restructure
A restructure of a company is a change in the ownership, or the
structure of the ownership, of the company as a result of which
some or all shares or rights held in the company under an employee
share scheme immediately before the change:
(a) are replaced; or
(b) could reasonably be regarded as having been replaced;
wholly or partly by shares or rights in one or more other
companies.
139GCD Meaning of stapled security and stapled entity
(1) A security consisting of 2 or more interests is a stapled security if:
(a) each interest is either a share in a company or a unit in a unit
trust; and
(b) at least one of the interests is an ordinary share; and
(c) all the interests are stapled together; and
(d) the security is listed for quotation in the official list of the
ASX Limited.
(2) A stapled entity for a stapled security is a company or a unit trust
covered by subsection (1) for the stapled security.
139GD Meaning of approved stock exchange
A stock exchange is an approved stock exchange if:
(a) the stock exchange is named in regulations made for the
purposes of this section; or
(b) if no such regulations are in force—the stock exchange is an
approved stock exchange within the meaning of Part XI.
139GE Meaning of associate
The expression associate has the same meaning as it would have in
section 318 if references in that section to subsection (1) included a
reference to subsection (1A) and the following subsection were
inserted before subsection (1):
(1A) For the purposes of this Part, if an entity holds (whether directly or
indirectly through one or more interposed companies, partnerships

Part III Liability to taxation
Division 13A Employee share schemes

Section 139GF

174 Income Tax Assessment Act 1936 or trusts) a share in a company, or a right to acquire a share in a
company, the company is an associate of the entity.
139GF Meaning of conducting a scheme on a non-discriminatory
basis
(1) This section sets out the conditions that must be satisfied for the
employee share scheme mentioned in subsection 139CE(4) or a
scheme for the provision of financial assistance in respect of
acquisitions of shares or rights under the employee share scheme to
be operated on a non-discriminatory basis.
Non-discriminatory employee share scheme
(2) The employee share scheme is operated on a non-discriminatory
basis if, and only if, the following conditions are satisfied in
relation to all offers to acquire shares or rights under the scheme:
(a) participation in the scheme is open to at least 75% of
permanent employees of the employer;
(b) the time for acceptance of each offer is reasonable;
(c) the essential features of each offer are the same for at least
75% of permanent employees of the employer.
Essential features of offer
(3) The essential features of an offer for an employee share scheme
are:
(a) the consideration for the acquisition of the share or right
concerned (whether that consideration is determined by
reference to the value of the share or right or otherwise); and
(b) the number of shares or rights, the minimum number of
shares or rights or the maximum number of shares or rights,
offered to each employee, as the case may be; and
(c) the time for acceptance of the offer; and
(d) the steps taken for the circulation of information about the
offer.
Non-discriminatory financial assistance schemes
(4) The scheme for the provision of financial assistance in respect of
acquisitions of shares or rights under the employee share scheme is
operated on a non-discriminatory basis if, and only if, the

Liability to taxation Part III
Employee share schemes Division 13A

Section 139GG

Income Tax Assessment Act 1936 175 following conditions are satisfied in relation to all financial
assistance provided under the scheme:
(a) the time for taking up each offer of assistance is reasonable;
(b) the essential features of each offer of assistance are the same
for at least 75% of permanent employees of the employer.
Essential features of offer of financial assistance
(5) The essential features of an offer of financial assistance are:
(a) the terms and conditions of the offer; and
(b) the amount, the minimum amount, or the maximum amount,
of assistance offered to each employee, as the case may be.
(6) The Commissioner may determine that the condition mentioned in
paragraph (2)(a), (2)(c) or (4)(b) is taken to have been satisfied in
relation to a scheme if the Commissioner considers that the
employer has done everything reasonably practicable to ensure that
the condition was satisfied.
139GG Meaning of provision of financial assistance
The expression “provision of financial assistance” includes the
making of a loan, giving of a guarantee, provision of security,
release of an obligation and forgiving of a debt.
139GH Index of definitions
The following table lists the definitions in this Division and shows
their location:

Definition Provision
100% takeover 139GCB
Acquiring a share or right 139G
Approved stock exchange 139GD
Associate 139GE
Cessation time-rights 139CB
Cessation time-shares 139CA
Discount 139CC
Employee 139GA
Employee share scheme 139C

Part III Liability to taxation
Division 13A Employee share schemes

Section 139GH

176 Income Tax Assessment Act 1936
Definition Provision
Employer 139GA
Exemption conditions 139CE
Financial assistance 139GG
Foreign service 139GBA
Holding company 139GC
Market value of a share or right Subdivision F
Non-discriminatory schemes 139GF
Permanent employee 139GB
Providing a share or right 139G
Qualified person 139FG
Qualifying shares and qualifying rights 139CD
Restructure 139GCC
Stapled entity 139GCD
Stapled security 139GCD
Subsidiary 139GCA

Liability to taxation Part III
Insurance with non-residents Division 15

Section 141

Income Tax Assessment Act 1936 177

Division 15—Insurance with non-residents
141 Interpretation
In this Division:
insurance contract means a contract or guarantee whereby liability
is undertaken, contingent upon the happening of any specified
event, to pay any money or make good any loss or damage, but
does not include a contract of life assurance.
insured event means an event upon the happening of which the
liability under an insurance contract arises.
insured person means a person with whom any insurance contract
is entered into by an insurer.
insured property means the property the subject of an insurance
contract made or given by an insurer.
insurer means any non-resident who undertakes liability under an
insurance contract.
142 Income derived by non-resident insurer
(1) Where an insured person, whether a resident or non-resident, has
entered into an insurance contract with an insurer, and the insured
property at the time of the making of the contract is situated in
Australia, or the insured event is one which can happen only in
Australia, the premium paid or payable under the contract shall be
included in the assessable income of the insurer, and shall be
deemed to be derived by him from sources in Australia, and, unless
the contract was made by a principal office or branch established
by the insurer in Australia, this Division shall apply to that
premium.
(2) Where an insured person who is a resident has entered into an
insurance contract with an insurer, and an agent or representative
in Australia of the insurer was in any way instrumental in inducing
the entry of the insured person into that contract, any premium paid
or payable under the contract shall, wherever the insured property
is situate, or the insured event may happen, be included in the

Part III Liability to taxation
Division 15 Insurance with non-residents

Section 143

178 Income Tax Assessment Act 1936 assessable income of the insurer and shall be deemed to be derived
by him from sources in Australia, and, unless the contract was
made by a principal office or branch established by the insurer in
Australia, this Division shall apply to that premium.
143 Taxable income of non-resident insurer
The insurer shall be deemed to have derived in any year, in respect
of the premiums paid or payable in that year under such contracts,
a taxable income equal to 10% of the total amount of such
premiums:
Provided that, where the actual profit or loss derived or made
by the insurer in respect of such premiums is established to the
satisfaction of the Commissioner, the taxable income of the insurer
in respect thereof, or the amount of the loss so made by him shall,
subject to this Act, be calculated by reference to receipts and
expenditure taken into account in calculating that profit or loss.
144 Liability of agents of insurer
The insured person and any person in Australia acting on behalf of
the insurer shall be the agents of the insurer, and shall be jointly
and severally liable as such for all purposes of this Act. If either of
those persons pays or credits to the insurer any amount in respect
of the insurance contract before arrangements have been made to
the satisfaction of the Commissioner for the payment of any
income tax which has been or may be assessed under this Division
in respect of that amount, that person shall be personally liable to
pay that tax.
145 Deduction of premiums
Notwithstanding any other provision of this Act, no such premium
shall be an allowable deduction to the insured person unless
arrangements have been made to the satisfaction of the
Commissioner for the payment of any income tax which has been
or may be assessed in respect of that premium.
146 Exporter to furnish information
Every person who exports any goods from Australia shall furnish
to the Collector of Customs for transmission to the Commissioner a

Liability to taxation Part III
Insurance with non-residents Division 15

Section 147

Income Tax Assessment Act 1936 179 copy of the customs entry for such goods, and shall show thereon
such information as is prescribed regarding the insurance of such
goods.
147 Rate of tax in special circumstances
Where the insurer satisfies the Commissioner that, on account of
special circumstances, it is necessary that the rate of tax payable by
him under this Division should be ascertained at the time when
premiums are paid to him, the Commissioner may direct that the
tax so payable in respect of premiums paid during any financial
year shall be calculated at the rate which would have been payable
if an assessment had been made in respect of those premiums at the
date when they were paid.
148 Reinsurance with non-residents
(1) Notwithstanding anything contained in this Act other than
section 177F, but subject to this section, where a person carrying
on the business of insurance in Australia reinsures out of Australia
the whole or part of any risk with a non-resident:
(a) the premiums paid or credited in respect of the reinsurance
shall not be:
(i) an allowable deduction to the person carrying on the
business of insurance in Australia; or
(ii) included in the assessable income of the non-resident;
and
(b) the income of the person carrying on the business of
insurance in Australia shall not include sums recovered from
that non-resident in respect of a loss on any risk so reinsured.
(2) A person carrying on the business of insurance in Australia who
reinsures out of Australia the whole or part of any risk with a
non-resident may elect, in accordance with this section, that the
provisions of subsection (1) shall not be applied in arriving at his
taxable income, and thereupon:
(a) those provisions shall not apply in arriving at his taxable
income of a year of income to which the election applies; and
(b) that person shall be liable to furnish returns, and to pay tax,
in accordance with the succeeding provisions of this section,
as agent for all non-residents with whom he so reinsures.

Part III Liability to taxation
Division 15 Insurance with non-residents

Section 148

180 Income Tax Assessment Act 1936 (3) Where a person makes an election under subsection (2), he shall,
subject to subsection (5), be assessed and liable to pay tax as agent,
on an amount equal to 10% of the sum of the gross amounts of the
premiums paid or credited by him in the year of income (being a
year of income to which the election applies) to non-residents in
respect of all such reinsurances, as if that amount were the taxable
income of a non-resident company (not being a private company)
not carrying on business in Australia by means either of a principal
office or a branch.
(4) A person who has made an election under this section shall, as
agent, furnish to the Commissioner, within the prescribed time, or
within such further time as the Commissioner allows, in respect of
every year of income to which the election applies:
(a) a return showing the gross amounts of the premiums paid or
credited by him to non-residents in respect of all such
reinsurances; or
(b) 2 returns, of which:
(i) one shall show the gross amounts of such premiums
paid or credited by him to non-residents which are
companies; and
(ii) the other shall show the gross amounts of such
premiums paid or credited by him to non-residents who
are not companies.
(5) Where returns are furnished by a person in accordance with
paragraph (4)(b), there shall be excluded from the amount on
which that person shall be assessed and liable to pay tax as agent in
pursuance of subsection (3) an amount equal to 10% of the sum of
the gross premiums properly shown in the return specified in
subparagraph (4)(b)(ii), and that person shall, in addition to any
other tax which he is liable under this section to pay as agent, be
assessed and liable to pay tax as agent on the amount so excluded
as if it were the taxable income of a non-resident company (being a
private company) not carrying on business in Australia by means
either of a principal office or a branch.
(6) An election for the purposes of this section shall:
(c) be made on or before the last day for the furnishing of the
taxpayer’s return of income of the year of income in respect
of which the election is first to apply, or within such further
time as the Commissioner allows;

Liability to taxation Part III
Insurance with non-residents Division 15

Section 148

Income Tax Assessment Act 1936 181 (d) first apply in respect of a year of income which shall be
specified in the election; and
(e) apply in respect of all subsequent years of income.
(7) An assessment for the purposes of subsection (3) or (5) shall be
made and notified separately from any other assessment.
(8) Where a person is liable, in pursuance of an assessment for the
purposes of this section, to pay tax, in respect of any premiums, as
agent for more than one non-resident, the amount which he shall be
liable to pay as agent for any one of those non-residents shall be so
much of the tax so payable as bears to the whole of that tax the
same proportion as the total amount of such of those premiums as
were paid to that non-resident bears to the total amount of those
premiums.
(9) Where a person is or may become liable under this section to pay
tax as agent for a non-resident in respect of any premium paid or
credited by him to that non-resident:
(a) he shall, for the purposes of section 254, be deemed to have
received the premium in his representative capacity
immediately before it was so paid or credited; and
(b) if he pays or credits the premium before arrangements have
been made to the satisfaction of the Commissioner for the
payment of any tax which may be assessed in respect of that
premium, he shall be personally liable to pay that tax.
Application to a life assurance company
(10) This section applies to a life assurance company in relation to the
whole or a part of a risk if, and only if, the risk or that part of the
risk:
(a) is covered by a disability policy as defined in subsection
995-1(1) of the Income Tax Assessment Act 1997; and
(b) relates to a benefit that is payable in an event mentioned in
that definition.

Part III Liability to taxation
Division 16 Averaging of incomes

Section 149

182 Income Tax Assessment Act 1936
Division 16—Averaging of incomes
149 Average income
(1) For the purposes of the application of this Division in relation to a
taxpayer in relation to a year of income, a reference in this
Division to the average income of the taxpayer shall be construed
as a reference to the average of the taxable incomes of the taxpayer
of the years of income (in this Division referred to as average
years) beginning with the first average year and ending with the
first-mentioned year of income.
149A Capital gains, abnormal income and certain death benefits to
be disregarded
(1) For the purposes of this Division (including the purpose of
determining whether this Division applies to the income of a
taxpayer):
(a) references in this Division to the assessable income of a
taxpayer shall be read as references to the amount that would
have been the assessable income if the assessable income did
not include any net capital gain and did not include any
amount under section 82-65, 82-70 or 302-145 of the Income
Tax Assessment Act 1997; and
(b) references in this Division to the taxable income of a
taxpayer shall be read as references to the amount that would
have been the taxable income if:
(i) the assessable income did not include any net capital
gain and did not include any amount under
section 82-65, 82-70 or 302-145 of the Income Tax
Assessment Act 1997; and
(ii) the taxable income were reduced by so much of the
taxable income as consists of above-average special
professional income within the meaning of the Income
Tax Assessment Act 1997.
(2) A reference in subsection (1) to the assessable income or taxable
income of a taxpayer of a year of income shall, in relation to a
taxpayer in the capacity of trustee of a trust estate, be read as a

Liability to taxation Part III
Averaging of incomes Division 16

Section 150

Income Tax Assessment Act 1936 183 reference to the assesssable income or net income, as the case may
be, of the trust estate of the year of income.
150 First average year
Subject to this Division, the first average year shall be the fourth
year before the year of income. A year the income of which was
subject to assessment under the previous Act shall be capable of
being a first or subsequent average year.
151 First application of Division in relation to a taxpayer
(1) For the purposes of the first application of this Division in
determining the tax payable by a taxpayer, the first average year
shall be the first year which is otherwise capable of being an
average year, and in which the taxable income is not greater than
that of the next succeeding year. No year prior to that first average
year shall, for the purposes of any application of this Division in
determining the tax payable by a taxpayer, be capable of being an
average year.
(2) Any year in which the taxpayer was not carrying on business and
was not in receipt of a taxable income shall not be counted as a
first average year for the purposes of the first application of this
Division in determining the tax payable by a taxpayer.
(3) This section shall not apply to a taxpayer whose income has been
or is liable to be assessed at an average rate of tax determined
under the provisions of the previous Act.
152 Taxpayer not in receipt of assessable income
Any year in which the taxpayer was not carrying on business and
was not in receipt of assessable income shall not be counted as an
average year, and the provisions of this Division shall apply to the
income thereafter derived by him as if he had never been a
taxpayer before that year.
153 Taxpayer with no taxable income
Any year in which the taxpayer was carrying on business but had
no taxable income shall be capable of being an average year.

Part III Liability to taxation
Division 16 Averaging of incomes

Section 154

184 Income Tax Assessment Act 1936
154 Excess of allowable deductions
Any excess of allowable deductions over the assessable income of
the taxpayer in any average year shall not be taken into account in
calculating the average income.
155 Permanent reduction of income
(1) Where a taxpayer establishes that, owing to his retirement from his
occupation, or from any other cause (but not including a change in
the investment of assets from which assessable income was derived
into assets from which the taxpayer derives income which is not
liable to be assessed under this Act), his taxable income has been
permanently reduced to an amount which is less than two-thirds of
his average taxable income, he shall be assessed, and the
provisions of this Division shall apply to the income thereafter
derived by him, as if he had never been a taxpayer before that year.
(2) For the purposes of the application of subsection (1) in relation to a
taxpayer in relation to a year of income, a reference in that
subsection to the average taxable income of the taxpayer shall be
construed as a reference to the amount that would be the average
income of the taxpayer in relation to that year of income
ascertained in accordance with section 149 if there were excluded
from the assessable income of the taxpayer of the average years
any income received by him from sources from which he does not
usually receive income.
156 Rebate of tax for, or complementary tax payable by, certain
primary producers

(1) In this section:
actual taxable income from primary production, in relation to a
taxpayer in relation to a year of income, means the amount (if any)
remaining after deducting from the assessable primary production
income of the taxpayer of the year of income so much of the
aggregate of the relevant primary production deductions of the
taxpayer of the year of income as does not exceed that assessable
income.
assessable primary production income, in relation to a taxpayer in
relation to a year of income, means so much of the assessable

Liability to taxation Part III
Averaging of incomes Division 16

Section 156

Income Tax Assessment Act 1936 185 income of the taxpayer of the year of income as was derived from
the carrying on of a primary production business by the taxpayer or
was included in the assessable income of the taxpayer of the year
of income in consequence of the carrying on of a primary
production business by the taxpayer.
deemed taxable income from primary production, in relation to a
taxpayer in relation to a year of income, means:
(a) if the taxpayer did not have a non-primary production profit
in relation to the year of income—the taxable income of the
taxpayer; and
(b) in any other case—the sum of the actual taxable income from
primary production of the taxpayer of the year of income and
the notional taxable income from primary production of the
taxpayer of the year of income.
notional taxable income from primary production, in relation to a
taxpayer in relation to a year of income, being a taxpayer who had
a non-primary production profit in relation to the year of income,
means:
(a) where the taxpayer did not incur a primary production loss in
relation to the year of income:
(i) in a case to which subparagraph (ii) does not apply—the
amount ascertained by deducting from the taxable
income of the taxpayer of the year of income the actual
taxable income from primary production of the taxpayer
of the year of income; and
(ii) where the taxable income of the taxpayer of the year of
income exceeds the actual taxable income from primary
production of the taxpayer of the year of income and
that excess is greater than $5,000—$5,000 reduced by
$1 for each whole dollar by which the amount of that
excess exceeds $5,000; and
(b) where the taxpayer incurred a primary production loss in
relation to the year of income:
(i) in a case where the sum of the taxable income of the
taxpayer of the year of income and the amount of the
primary production loss is less than or equal to
$5,000—the taxable income of the taxpayer of the year
of income; and

Part III Liability to taxation
Division 16 Averaging of incomes

Section 156

186 Income Tax Assessment Act 1936 (ii) in a case where the sum of the taxable income of the
taxpayer of the year of income and the amount of the
primary production loss (which sum is in this
subparagraph referred to as the non-farm income)
exceeds $5,000—an amount ascertained by deducting
from $5,000 one dollar for each whole dollar by which
so much of the non-farm income as does not exceed
$10,000 exceeds $5,000 and deducting from the
resultant amount so much (if any) of the amount of the
primary production loss as does not exceed that
resultant amount.
relevant primary production deductions, in relation to a taxpayer
in relation to a year of income, means:
(a) any deductions allowed or allowable in his assessment in
respect of income of the year of income that relate
exclusively to assessable primary production income of the
taxpayer of a year of income;
(b) so much of any other deductions (other than apportionable
deductions) allowed or allowable in his assessment in respect
of income of the year of income as, in the opinion of the
Commissioner, may appropriately be related to assessable
primary production income of the taxpayer of a year of
income; and
(c) the amount that bears to the apportionable deductions
allowed or allowable in his assessment the same proportion
as the amount ascertained by deduction from the assessable
primary production income of the taxpayer of the year of
income any deductions allowable from that assessable
income in accordance with paragraphs (a) and (b) bears to the
sum of the taxable income of the taxpayer of the year of
income and the apportionable deductions.
(2) For the purposes of subsection (1), a taxpayer shall be taken to
have a non-primary production profit in relation to a year of
income if the assessable income of the taxpayer of the year of
income other than assessable primary production income exceeds
the aggregate of the deductions (other than relevant primary
production deductions) allowable to the taxpayer in respect of the
year of income.

Liability to taxation Part III
Averaging of incomes Division 16

Section 156

Income Tax Assessment Act 1936 187 (3) For the purposes of subsection (1), a taxpayer shall be taken to
have incurred a primary production loss in relation to a year of
income if the aggregate of the relevant primary production
deductions in relation to the year of income exceeds the assessable
primary production income of the taxpayer of the year of income,
and the amount of that loss shall be taken to be the amount of the
excess.
(5) Where:
(a) this Division applies to a share of the net income of a trust
estate of a year of income in respect of which a trustee is
liable to be assessed and to pay tax in pursuance of
subsection 98(1) or (2) or to the net income or a part of the
net income of a trust estate of a year of income in respect of
which a trustee is liable to be assessed and to pay tax in
pursuance of section 99 (which share, net income or part, as
the case may be, is in this subsection referred to as the
eligible net income); and
(b) the amount of tax that would, apart from this section,
section 94, Division 6AA and Part VIIB and but for any
rebate or credit to which the trustee is entitled, be payable by
the trustee in respect of the eligible net income exceeds the
amount of tax that would, apart from this section, section 94,
Division 6AA and Part VIIB and but for any rebate or credit
to which the trustee is entitled, be payable by the trustee in
respect of the eligible net income if the notional rates
declared by the Parliament for the purposes of this section
were the rates of tax payable by the trustee in respect of the
eligible net income;
the trustee is entitled, in his assessment in respect of the eligible
net income, to a rebate of tax of an amount ascertained in
accordance with the formula
AB
C , where:
A is the number of whole dollars in the amount of the deemed net
income from primary production.
B is the excess referred to in paragraph (b); and
C is the number of whole dollars in the eligible net income.

Part III Liability to taxation
Division 16 Averaging of incomes

Section 156

188 Income Tax Assessment Act 1936 (5A) Where:
(a) this Division applies to a share of the net income of a trust
estate of a year of income in respect of which a trustee is
liable to be assessed and to pay tax in pursuance of
subsection 98(1) or (2) or to the net income or a part of the
net income of a trust estate of a year of income in respect of
which a trustee is liable to be assessed and to pay tax in
pursuance of section 99 (which share, net income or part, as
the case may be, is in this subsection referred to as the
eligible net income); and
(b) the amount of tax that would, apart from this section,
section 94, Division 6AA and Part VIIB and but for any
rebate or credit to which the trustee is entitled, be payable by
the trustee in respect of the eligible net income if the notional
rates declared by the Parliament for the purposes of this
section were the rates of tax payable by the trustee in respect
of the eligible net income exceeds the amount of tax that
would, apart from this section, section 94, Division 6AA and
Part VIIB and but for any rebate or credit to which the trustee
is entitled, be payable by the trustee in respect of the eligible
net income;
the trustee is liable to pay complementary tax, at the rate declared
by the Parliament for the purposes of this subsection, on so much
of the net income of the trust estate as is equal to the deemed net
income from primary production.
(6) For the purposes of the application of this section in relation to a
share of the net income of a trust estate of a year of income in
respect of which a trustee is liable to be assessed and to pay tax in
pursuance of subsection 98(1) or (2) or in relation to the net
income or a part of the net income of a trust estate of a year of
income in respect of which a trustee is liable to be assessed and to
pay tax in pursuance of section 99 (which share, net income or
part, as the case may be, is in this subsection referred to as the
eligible net income):
actual net income from primary production means so much of the
net income from primary production of the trust estate as is
included in the eligible net income.
assessable primary production income means so much of the
assessable income of the trust estate of the year of income as was

Liability to taxation Part III
Averaging of incomes Division 16

Section 156

Income Tax Assessment Act 1936 189 derived from the carrying on of a primary production business by
the trustee or was included in the assessable income of the trust
estate of the year of income in consequence of the carrying on of a
primary production business by the trustee.
deemed net income from primary production means:
(a) if the trust estate did not have a non-primary production
profit in relation to the year of income—the eligible net
income; and
(b) in any other case—the sum of the actual net income from
primary production of the trust estate of the year of income
and the notional net income from primary production of the
trust estate of the year of income.
eligible part of the primary production loss, in relation to a
primary production loss incurred by the trust estate in the year of
income, means so much of the primary production loss as is equal
to the amount by which the eligible net income would have been
increased if the aggregate of the relevant primary production
deductions allowable in calculating the amount of the net income
of the trust estate of the year of income had been equal to the
assessable primary production income of the trust estate of the year
of income.
net income from primary production means the amount (if any)
remaining after deducting from the assessable primary production
income of the trust estate of the year of income so much of the
aggregate of the relevant primary production deductions allowable
in calculating the net income of the trust estate as does not exceed
that assessable primary production income.
notional net income from primary production means:
(a) where the trust estate had a non-primary production profit in
relation to the year of income and did not incur a primary
production loss in relation to the year of income:
(i) in a case to which subparagraph (ii) does not apply—the
amount ascertained by deducting from the eligible net
income the actual net income from primary production
(if any); and
(ii) where the eligible net income exceeds the actual net
income from primary production in relation to the year
of income and that excess is greater than $5,000—

Part III Liability to taxation
Division 16 Averaging of incomes

Section 156

190 Income Tax Assessment Act 1936 $5,000 reduced by $1 for each whole dollar by which
the amount of that excess exceeds $5,000; and
(b) where the trust estate had a non-primary production profit in
relation to the year of income and incurred a primary
production loss in relation to the year of income:
(i) in a case where the sum of the eligible net income and
the eligible part of the primary production loss is less
than or equal to $5,000—the eligible net income; and
(ii) in a case where the sum of the eligible net income and
the eligible part of the primary production loss (which
sum is in this subparagraph referred to as the non-farm
income) exceeds $5,000—an amount ascertained by
deducting from $5,000 one dollar for each whole dollar
by which so much of the non-farm income as does not
exceed $10,000 exceeds $5,000 and deducting from the
resultant amount so much (if any) of the eligible part of
the primary production loss as does not exceed that
resultant amount.
relevant primary production deductions means:
(a) any deductions allowed or allowable in calculating the
amount of the net income of the trust estate of the year of
income that relate exclusively to assessable primary
production income of a year of income;
(b) so much of any other deductions (other than apportionable
deductions) allowed or allowable in calculating the amount
of that net income as, in the opinion of the Commissioner,
may appropriately be related to assessable primary
production income of the trust estate of a year of income; and
(c) the amount that bears to the apportionable deductions
allowed or allowable in calculating the amount of that net
income the same proportion as the amount ascertained by
deducting from the assessable primary production income of
the trust estate of the year of income any deductions
allowable from that assessable primary production income in
accordance with paragraphs (a) and (b) bears to the sum of
the net income of the trust estate and the apportionable
deductions.
(7) For the purposes of subsection (6), a trust estate shall be taken to
have incurred a primary production loss in relation to a year of
income if the aggregate of the relevant primary production

Liability to taxation Part III
Averaging of incomes Division 16

Section 157

Income Tax Assessment Act 1936 191 deductions allowable in calculating the amount of the net income
of the trust estate of the year of income exceeds the assessable
primary production income of the trust estate of the year of
income, and the amount of that loss shall be taken to be the amount
of the excess.
(8) For the purposes of subsection (6), a trust estate shall be taken to
have a non-primary production profit in relation to a year of
income if the assessable income of the trust estate of the year of
income other than assessable primary production income exceeds
the aggregate of the deductions (other than relevant primary
production deductions) allowable in calculating the amount of the
net income of the trust estate of the year of income.
157 Application of Division to primary producers
(1) In respect of income derived during the year ending on 30 June
1938 and during any subsequent year or during any accounting
period adopted in lieu of any such year, the foregoing provisions of
this Division shall not apply except in respect of income derived by
a primary producer.
(2) For the purposes of this section, primary producer means a person
who carries on in Australia a primary production business.
(3) Subject to subsection (3A), for the purposes only of determining
whether a person is carrying on a primary production business, a
beneficiary in a trust estate shall, to the extent to which he is
presently entitled to the income or part of the income of that estate,
be deemed to be carrying on the business carried on by the trustees
of the estate which produces that income.
(3A) Subsection (3) does not operate to deem a beneficiary in a trust
estate who is presently entitled to the income or a part of the
income of that estate to be carrying on the business carried on by
the trustees of the trust estate in a year of income unless:
(a) the share of the income of that trust estate of the year of
income to which the beneficiary is presently entitled is not
less than $1,040; or
(b) the Commissioner is satisfied that the interest of the
beneficiary in the trust estate was not acquired by, or granted
to, the beneficiary for the purpose, or primarily for the

Part III Liability to taxation
Division 16 Averaging of incomes

Section 158

192 Income Tax Assessment Act 1936 purpose, of enabling the provisions of this Division to apply
in respect of income derived by the beneficiary.
(4) If in any year in respect of which this Division applies only to
taxpayers who are primary producers, a taxpayer was not carrying
on business as a primary producer, that year shall not be counted as
an average year and the provisions of this Division shall apply to
the income thereafter derived by him as if he had never been a
taxpayer before that year.
158 Application of Division
This Division shall not apply in any case where there are not at
least 2 average years or where the taxpayer is assessed in
accordance with section 99A in respect of the year of income, and
shall not apply to the taxable income of a company except income
in respect of which it is assessable as a trustee.
158A Election that Division not apply
(1) A taxpayer may elect that this Division shall not apply in relation
to income of the taxpayer of a year of income specified in the
election and of all subsequent years of income.
(2) An election in pursuance of subsection (1) shall be made in writing
and lodged with the Commissioner on or before the date of
lodgment of the return of income of the taxpayer for the year of
income specified in the election or within such further time as the
Commissioner allows.
(3) Where a taxpayer makes an election under subsection (1), this
Division shall not apply in relation to income of the taxpayer of the
year of income specified in the election or of any subsequent year
of income.

Liability to taxation Part III
Certain arrangements relating to the use of property Division 16D

Section 159GE

Income Tax Assessment Act 1936 193

Division 16D—Certain arrangements relating to the use of
property
159GE Interpretation
(1) In this Division:
arrangement includes:
(a) any agreement, arrangement, understanding, promise or
undertaking, whether express or implied, and whether or not
enforceable, or intended to be enforceable, by legal
proceedings; and
(b) any scheme, plan, proposal, action, course of action or course
of conduct whether unilateral or otherwise.
arrangement payment, in relation to an arrangement relating to the
use, or the control of the use, of an item of property, means so
much of any payment liable to be made under the arrangement as
represents consideration for any one or more of the following:
(a) the use of the item;
(b) the control of the use of the item;
(c) the sale or disposal of the item.
arrangement period, in relation to an item of eligible property that
is, or is included in, arrangement property in relation to an
arrangement at a particular time, means the period that is at that
time the total period during which the arrangement is likely to be in
force in relation to that item of eligible property (including any
period before that time when the arrangement was in force in
relation to that item of eligible property).
arrangement property means property that is, or is to be, used, or
the use of which is, or is to be, controlled, under an arrangement.
assessable arrangement payment means an arrangement payment
that, apart from this Division, would be included in whole or in
part in the assessable income of a taxpayer of a year of income.
associate means, in relation to a person other than an exempt
public body, any person who is an associate, within the meaning of

Part III Liability to taxation
Division 16D Certain arrangements relating to the use of property

Section 159GE

194 Income Tax Assessment Act 1936 section 318, in relation to the person or, in relation to an exempt
public body:
(a) a partner of the exempt public body or a partnership in which
the exempt public body is a partner; or
(b) if a partner of the exempt public body is a natural person
otherwise than in the capacity of trustee—the spouse or a
child of that partner; or
(c) a trustee of a trust where the exempt public body, or another
entity that is an associate of the exempt public body because
of paragraph (a), (b) or (d), benefits under the trust; or
(d) a company where:
(i) the company is sufficiently influenced by:
(A) the exempt public body; or
(B) another entity that is an associate of the exempt
public body because of paragraph (a), (b) or (c);
or
(C) another company that is an associate of the
exempt public body because of another
application of this paragraph; or
(D) 2 or more entities covered by the preceding
sub-subparagraphs; or
(ii) a majority voting interest in the company is held by:
(A) the exempt public body; or
(B) the entities that are associates of the primary
entity because of subparagraph (i) of this
paragraph and paragraphs (a), (b) and (c); or
(C) the exempt public body and the entities that are
associates of the exempt public body because of
subparagraph (i) of this paragraph and because
of paragraphs (a), (b) and (c).
Subsections 318(6) and (7) apply for the purposes of paragraphs (a)
to (d) in the same way as those subsections apply for the purposes
of section 318.
capital expenditure deduction means a deduction:
(a) under the former Division 10, 10AAA, 10AA, 10A, 10C or
10D of this Part; or
(b) under Subdivision 40-B of the Income Tax Assessment Act
1997 for a depreciating asset that is a forestry road or timber
mill building; or

Liability to taxation Part III
Certain arrangements relating to the use of property Division 16D

Section 159GE

Income Tax Assessment Act 1936 195 (c) under Division 43 of that Act; or
(d) under section 40-830 of that Act for an amount that is a
project amount under subsection 40-840(1) (about mining
capital expenditure and transport capital expenditure); or
(e) under the former Subdivision 330-C, 330-H or 387-G of that
Act.
control means effectively control.
depreciation deduction means a deduction:
(a) in respect of depreciation under Division 3 of this Act or the
former Division 42 of the Income Tax Assessment Act 1997;
or
(b) for the decline in value of a depreciating asset under
Division 40 of the Income Tax Assessment Act 1997.
Division 10, 10AA or 10A property means property in relation to
which there has been incurred:
(a) allowable capital expenditure within the meaning of the
former Division 10 or 10AA of this Part or the former
Subdivision 330-C of the Income Tax Assessment Act 1997
or mining capital expenditure within the meaning of
section 40-860 of that Act;
(b) expenditure taken into account in ascertaining an amount of
residual capital expenditure specified in the former paragraph
122C(1)(a); or
(c) capital expenditure specified in the former subsection
124F(1) or 124JA(1) of this Act or the former
section 387-460 of the Income Tax Assessment Act 1997; or
(d) capital expenditure on a forestry road in connection with a
timber operation, or capital expenditure for the construction
or acquisition of a timber mill building.
Division 10AAA property means property in relation to which
there has been incurred capital expenditure to which the former
Division 10AAA of this Part applies or transport capital
expenditure within the meaning of the former Subdivision 330-H,
or section 40-865 of the Income Tax Assessment Act 1997.
Division 10C or 10D property means property in relation to which
there has been incurred qualifying expenditure within the meaning
of the former Division 10C or 10D or for which there is a pool of