Macquarie Group Limited - Macquarie Group Capital Notes 5

This Ruling sets out the way in which the relevant tax provisions apply to specified entities who subscribed for and acquired Macquarie Group Capital Notes 5 (MCN5) issued by Macquarie Group Limited (MGL).

The scheme is set out in paragraphs 41 to 70 of this Ruling.

In this Ruling, unless otherwise defined, capitalised terms have the meaning specified in the Terms of the MCN5 (the Terms) which are contained in Appendix A of the Prospectus dated 23 February 2021 (the Prospectus).

All legislative references in this Ruling are to provisions of the Income Tax Assessment Act 1997, unless otherwise indicated.

This Ruling applies to you if you: • acquired your MCN5 by initial application under the Prospectus, and • are a resident of Australia (as defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)) during the period you hold your MCN5, and • hold your MCN5 on capital account, that is, you do not hold your MCN5 as revenue assets (as defined in section 977-50) or as trading stock (as defined in subsection 995-1(1)).This Ruling does not apply to anyone who is subject to the taxation of financial arrangements rules in Division 230 in relation to the scheme outlined in this Ruling. Note: Division 230 will not apply to individuals, unless they have made an election for it to apply.

This Ruling does not deal with: • the tax implications for Macquarie Group Capital Notes 2 (MCN2) holders of the redemption of their MCN2 in connection with the Reinvestment Offer or of receiving distributions on MCN2 • the tax implications in relation to a non-resident who holds their MCN5 through a permanent establishment (as defined in subsection 6(1) of the ITAA 1936) in Australia • the tax implications of the Redemption of your MCN5 (other than for the application of sections 26BB, 45A, 45B and 70B of the ITAA 1936) • the tax implications for a Nominated Party who acquires MCN5 under a Resale Notice, and • how the gross-up and tax offset rules in Division 207 apply to a partnership or trustee investors (other than a partnership or trustee that is a corporate tax entity, or a trustee of a trust that is a complying superannuation entity), or indirect distributions to partners in a partnership or beneficiaries or trustees of a trust.

This Ruling applies from 1 July 2020 to 30 June 2031.

You acquired your MCN5 on 17 March 2021 under table item 2 of section 109-10.

The first element of the Cost base / reduced cost base of each MCN5 is A$100, being the money you paid to acquire your MCN5 (subsections 110-25(2) and 110-55(2)).

A Distribution on an MCN5 is a non-share dividend under section 974-120 and is included in your assessable income (subparagraph 44(1)(a)(ii) of the ITAA 1936).

If a Distribution is franked, your assessable income includes the amount of the franking credit on the Distribution (subsection 207-20(1)) and you are entitled to a tax offset equal to the amount of the franking credit (subsection 207-20(2)), provided you are a qualified person (refer to paragraphs 17 and 18 of this Ruling).

To the extent that a Distribution is exempt income or non-assessable non-exempt income in your hands (and none of the exceptions in Subdivision 207-E apply), the amount of any franking credit on the Distribution is not included in your assessable income, and you are not entitled to a tax offset under Subdivision 207-D.

The franking credit tax offset that you are entitled to is subject to the refundable tax offset rules in Division 67, provided you are not excluded by the operation of section 67-25. Entities excluded by section 67-25 include corporate tax entities (such as companies, corporate limited partnerships and public trading trusts), unless they satisfy the requisite conditions in subsections 67-25(1C) or (1D).

The Commissioner will not make a determination under paragraph 204-30(3)(c) to deny the whole, or any part, of the imputation benefits you receive in relation to a Distribution.

The Commissioner will not make a determination under paragraph 177EA(5)(b) of the ITAA 1936 to deny the whole, or any part, of the imputation benefits you receive in relation to a Distribution.

Paragraph 207-145(1)(a) will not apply to cancel the effect of the gross-up and tax offset for a franked Distribution if you are a qualified person in respect of that Distribution.

You will be a qualified person in relation to a Distribution if, during the primary qualification period, you held your MCN5 for a continuous period of at least 90 days during which you did not have 'materially diminished risks or loss of opportunities for gain' (as defined in former section 160APHM of the ITAA 1936) in respect of your MCN5.

The Resale and Exchange features of MCN5 will not affect your risks of loss or opportunities for gain in respect of your MCN5 as neither the Resale nor the Exchange mechanism constitutes a separate position (former sections 160APHM and 160APHJ of the ITAA 1936).

Paragraphs 207-145(1)(b) to (db) will not apply to cancel the effect of the gross-up and tax offset rules in respect of a franked Distribution on your MCN5.

As your MCN5 is not a 'qualifying security' (as defined in subsection 159GP of the ITAA 1936), Division 16E of Part III of the ITAA 1936 will not apply.

Your MCN5 are not traditional securities as defined in section 26BB of the ITAA 1936.

Section 26BB of the ITAA 1936 will not apply to include any gain on the disposal or Redemption of your MCN5 in your assessable income.

Section 70B of the ITAA 1936 will not apply to allow any loss on the disposal or Redemption of your MCN5 as a deduction to you.

Each MCN5 is a 'convertible interest' as defined in subsection 995-1(1).

CGT event C2 happens on Exchange of each of your MCN5 for MGL Ordinary Shares.

A capital gain or capital loss you make from CGT event C2 happening on Exchange will be disregarded (subsection 130-60(3)).

MGL Ordinary Shares you acquire on Exchange will be taken to have been acquired when the Exchange happens on the relevant Exchange Date (subsection 130-60(2)). The first element of the Cost base / reduced cost base of MGL Ordinary Shares you acquired on Exchange will be equal to the Cost base / reduced cost base of your relevant MCN5 at the time of Exchange (table item 2 of subsection 130-60(1)).

As you hold your MCN5 on capital account, no amount will be included in your assessable income on the Exchange of an MCN5 under section 6-5. In addition, you will not incur a deductible loss under section 8-1 as a consequence of the Exchange of an MCN5.

On the Exchange of an MCN5 for MGL Ordinary shares, you will not be taken to have received a dividend or non-share dividend.

CGT event A1 in section 104-10 happens on the Resale of your MCN5. The Resale of your MCN5 to the Nominated Party will be for the Issue Price of the MCN5.

As the capital proceeds you receive will not be more than the cost base of your MCN5, you will not make a capital gain as a result of the Resale.

As you hold your MCN5 on capital account, no amount will be included in your assessable income on the Resale under section 6-5 and you will not incur a deductible loss under section 8-1 as a consequence of the Resale.

CGT event A1 happens where the allocation of MGL Ordinary Shares you received on Exchange are disposed of by a Sale Agent and the net proceeds are remitted to you (section 104-10).

CGT event A1 happens when the Sale Agent, on your behalf, enters into the contract for the sale of the MGL Ordinary Shares (paragraph 104-10(3)(a)).

You will make a capital gain if the capital proceeds exceed your cost base (subsection 104-10(4)).

You will make a capital loss if the capital proceeds are less than your reduced cost base (subsection 104-10(4)).

In calculating the capital gain or capital loss, the: • time you are taken to have acquired the MGL Ordinary Shares, and • first element of your cost base and your reduced cost base is worked out according to paragraph 27 of this Ruling.

Section 45 of the ITAA 1936 will not apply to treat the value of MGL Ordinary Shares issued to you on Exchange as an unfrankable dividend.

The Commissioner will not make a determination under subsection 45A(2) of the ITAA 1936 that section 45C of the ITAA 1936 applies to treat the whole, or a part, of the capital benefit provided to you on Exchange or Redemption as an unfranked dividend.

The Commissioner will not make a determination under paragraph 45B(3)(b) of the ITAA 1936 that section 45C of the ITAA 1936 applies to treat the whole, or a part, of the capital benefit provided to you on Exchange or Redemption as an unfranked dividend.

The following description of the scheme is based on information provided by the applicant. If the scheme is not carried out as described, this Ruling cannot be relied upon.

MGL is an Australian resident company with shares listed on the Australian Securities Exchange (ASX). The only shares that MGL has issued are ordinary shares.

MGL is regulated by the Australian Prudential Regulation Authority (APRA) as a non-operating holding company (NOHC) of Macquarie Bank Limited (MBL). MBL is an authorised deposit-taking institution for the purposes of the Banking Act 1959.

For Australian income tax purposes, MGL is the head company of the MGL income tax consolidated group.

Under the Prospectus, MGL offered to undertake a capital raising by the issue of MCN5 for an issue price of A$100 each (the Offer).

MCN5 were issued on 17 March 2021 and raised A$725 million.

MCN5 are issued by MGL in Australia. MCN5 are not issued at or through an offshore permanent establishment or subsidiary of MGL.

The Offer has been made as part of MGL's ongoing capital management strategy within the regulatory capital requirements prescribed by APRA. The issue of MCN5 is a new capital raising, and the proceeds from the issue will be used for general corporate funding and capital management purposes. MCN5 will be Eligible Capital of MGL under its NOHC Authority from APRA.

MCN5 are Australian Dollar-denominated, fully paid, unsecured, subordinated, non-cumulative, mandatorily convertible notes issued by MGL.

MCN5 are listed on the ASX and trade under the code MQGPE.

The Issue Price of each MCN5 was A$100. MCN5 were fully paid on the Issue Date, being 17 March 2021.

MGL will pay in arrears quarterly cash floating-rate Distributions in respect of each MCN5 on a Distribution Payment Date (each a Distribution Payment Date) in accordance with the Terms.

The Distribution payable is calculated on the Issue Price of each MCN5 using a Distribution Rate, which is equal to the Bank Bill Rate plus a Margin adjusted by the corporate tax rate and based on the number of days in the relevant Distribution Period. The Margin was determined under the Bookbuild.

Distributions are expected to be partly franked, at the same rate as the dividends on MGL's ordinary shares. The franking percentage of the Distributions may vary over time in line with the franking percentage that applies to MGL Ordinary Shares. Distributions may be partially, fully or not franked.

The payment of a Distribution is subject to the absolute discretion of MGL and can also only be paid if certain Payment Conditions are met, including that payment will not breach certain APRA conditions or make MGL insolvent.

Distributions are non-cumulative. To the extent that all or part of a Distribution is not paid on a scheduled Distribution Payment Date, Holders of MCN5 will have no claim or entitlement in respect of the non-payment of the Distribution. A Distribution that is not paid on a Distribution Payment Date for any reason does not accrue interest for the period during which it remains unpaid.

Subject to certain exceptions, if any Distribution is not paid in full on the relevant Distribution Payment Date or within 10 Business Days, this will restrict MGL from determining, declaring or paying any MGL Ordinary Share Dividend, or undertaking any Buy-Backs or Capital Reductions in relation to any MGL Ordinary Shares.

MCN5 will be Exchanged for MGL Ordinary Shares on the date that is the earlier of (each a Mandatory Exchange Date), unless the MCN5 have been or will be Redeemed or Exchanged before that date: • 18 September 2030 (Scheduled Mandatory Exchange Date), subject to the satisfaction of the relevant Exchange Conditions, or • any Distribution Payment Date after the Scheduled Mandatory Exchange Date on which the relevant Exchange Conditions are satisfied.

In certain circumstances, some or all of the MCN5 must be Exchanged for MGL Ordinary Shares before a Mandatory Exchange Date if a Non-Viability Event occurs.

Where Exchange of any MCN5 is required on account of a Non-Viability Event and Exchange fails to take effect within five Business Days after the Non-Viability Event Exchange Date for any reason, then Exchange will not occur and the relevant MCN5 will instead be Written-Off.

Some or all of the MCN5 may be Exchanged for MGL Ordinary Shares before a Mandatory Exchange Date if MGL elects to do so on any Scheduled Optional Exchange Date or following the occurrence of a Tax Event or a Regulatory Event.

All of the MCN5 must be Exchanged for MGL Ordinary Shares before a Mandatory Exchange Date if an Acquisition Event occurs, unless the Directors make certain determinations.

Upon Exchange: • each MCN5 will be automatically terminated, and • MGL will allot and issue the Exchange Number of MGL Ordinary Shares to the Holders for each MCN5 held by the Holder.

In certain circumstances, including by the request of a Holder, the MGL Ordinary Shares may be issued to a Sale Agent instead of the Holder. The Sale Agent will, subject to the Terms, arrange for the sale of those shares and pay the relevant Holder a cash amount equal to the net proceeds of the sale.

MGL may elect to Redeem all or some of the MCN5: • on a Scheduled Optional Exchange Date, or • following the occurrence of a Tax Event or Regulatory Event.

Each MCN5 will be Redeemed by payment of the Issue Price to the relevant Holder (Redemption Price). Distributions for the period since the last Distribution Payment Date to (but excluding) the Redemption Date will be paid subject to the conditions for payment of a Distribution being met.

MGL may elect that all or some of the Holder's holding of the MCN5 will be transferred to one or more Nominated Parties (Resale).

The Nominated Party or Nominated Parties will be one or more third parties selected by MGL and cannot be MGL itself or a Related Entity.

Under a Resale, each Holder on the Resale Date is taken to irrevocably offer to sell the MCN5 that are subject to the Resale Notice to the Nominated Party on the Resale Date for a purchase price equal to the Issue Price of that MCN5. Each MCN5 which is to be Resold will be transferred to the Nominated Party free from any encumbrance.

This Ruling is made on the basis that: (a) During the term of the scheme, MGL is a resident of Australia under the income tax laws of Australia and of no other jurisdiction. (b) MCN5 are equity interests in MGL under Division 974 and are non-share equity interests as defined in subsection 995-1(1). (c) Distributions are frankable distributions under section 202-40. (d) MGL expects to frank each Distribution in accordance with the franking policy that applies to ordinary shares in MGL (as such time as Distributions are made), and in a manner that satisfies the benchmark rule in Division 203 for the franking period in which a Distribution is made. The policy of MGL in relation to the franking of dividends on the ordinary shares of MGL is not expected to change as a result of the issuance of the MCN5. (e) MGL will not differentially frank Distributions to different Holders according to their tax status or on any other basis. (f) Immediately before payment of a Distribution on MCN5, MGL will have available frankable profits (worked out under section 215-20) at least equal to the Distribution. (g) Distributions on MCN5 will not be sourced directly or indirectly from MGL's non-share capital account or share capital account. (h) Distributions on MCN5 will not be debited to any extent against MGL's non-share capital account or share capital account. (i) The share capital account of MGL will not become tainted (within the meaning of Division 197) by the issue of MCN5 or the issue of MGL Ordinary Shares on Exchange of MCN5. (j) Franked distributions on MCN5 made by MGL will not give rise to a foreign income tax deduction (as defined in section 832-120) for MGL. (k) MGL does not have any foreign branches through which it carries on business, although there are members of the MGL tax consolidated group (other than MGL itself) that have one or more foreign branches. (l) On Exchange or Redemption, MGL will debit the Issue Price of MCN5 to its non-share capital account (within the meaning of section 164-10). (m) Any MGL Ordinary Shares issued on Exchange will be equity interests in MGL as defined in Subdivision 974-C. (n) The accounts of the MGL group will be prepared in accordance with the applicable accounting standards. (o) You (or an associate) will not make, be under an obligation to make, or be likely to make, a 'related payment' (as defined under former section 160APHN of the ITAA 1936) in relation to a Distribution. (p) You will hold your MCN5 for a continuous period of at least 90 days (excluding the day of acquisition and disposal (if relevant)) during the 'primary qualification period' (as defined in former section 160APHD of the ITAA 1936) in relation to a Distribution. (q) You will not take any 'positions' as defined in former section 160APHJ of the ITAA 1936) at any time in relation to their MCN5 apart from holding their MCN5. (r) You (or your connected entities) will not engage in distribution washing (as outlined in section 207-157) in relation to a Distribution (unless entitled to the exception under subsection 207-157(4)).

Section 177EA of the ITAA 1936 is a general anti-avoidance provision that applies to deny an imputation benefit in certain circumstances. In order for section 177EA to apply, the conditions in paragraphs 177EA(3)(a) to (e) must be satisfied.

The conditions in paragraphs 177EA(3)(a) to (d) of the ITAA 1936 will be satisfied, therefore the relevant circumstances of the scheme must be considered to establish whether any person who entered into or carried out the scheme, or any part of the scheme, did so for a more than incidental purpose of enabling a Holder to obtain an imputation benefit (paragraph 177EA(3)(e) of the ITAA 1936).

The Commissioner considers that the relevant circumstances of the scheme do not, on balance, lead to a conclusion that the purpose of enabling Holders to obtain imputation benefits is more than incidental to MGL's primary purpose of raising eligible capital for general corporate funding and capital management purposes.

Subdivision 207-F may cancel the effect of the gross-up and tax offset rules where the entity concerned has manipulated the imputation system in a manner that is not permitted under the income tax law.

Under subsection 207-145(1), this adjustment will occur where a franked distribution is made to an entity in one or more of the following circumstances: • the entity is not a 'qualified person' in relation to the distribution for the purposes of Division 1A of former Part IIIAA of the ITAA 1936 (paragraph 207-145(1)(a)) • the Commissioner has made a determination under paragraph 177EA(5)(b) of the ITAA 1936 that no imputation benefit is to arise in respect of the distribution for the entity (paragraph 207-145(1)(b)) • the Commissioner has made a determination under paragraph 204-30(3)(c) that no imputation benefit is to arise in respect of the distribution for the entity (paragraph 207-145(1)(c)) • the distribution is made as part of a dividend stripping operation (paragraph 207-145(1)(d)) • the distribution is one to which section 207-157 (which is about distribution washing) applies (paragraph 207-145(1)(da)), or • the distribution is one to which section 207-158 (which is about distributions entitled to a foreign income tax deductions) applies (paragraph 207-145(1)(db).

Paragraphs 207-145(1)(a) to (db) will not apply to franked Distributions paid to Holders as explained in paragraphs 77 to 86 of this Ruling.

Paragraph 207-145(1)(a) will not apply to cancel the effect of the gross-up and tax offset rules for a franked Distribution provided you are a qualified person.

As this Ruling is made on the basis that you have not made a related payment in respect of a Distribution, the relevant qualification period is the 'primary qualification period' (as defined in former section 160APHD of the ITAA 1936). The primary qualification period begins on the day after you acquire your MCN5 and ends on the 90th day after the day MCN5 become ex-distribution.

You generally need to have held MCN5 'at risk' for a continuous period of 90 days (excluding the days of acquisition and disposal, if relevant) during the primary qualification period. Any days you had materially diminished risks of loss or opportunities for gain in respect of your holding are also excluded (former subsection 160APHO(3) of the ITAA 1936).

Under former subsection 160APHM(2) of the ITAA 1936, you are taken to have materially diminished the risks of loss and opportunities for gain on a particular day with respect to your MCN5 if your net position on that day does not retain 30% or more of the risks and opportunities associated with holding MCN5.

Embedded options such as the Resale and Exchange mechanisms do not represent separate positions in relation to MCN5 (see also Taxation Determination TD 2007/29 Income tax: holding period rule: is an embedded share option a position in relation to the share if it is exercisable by or against a party other than the issuer of the share?). Under the Resale mechanism, you will only be taken to have made an offer to sell MCN5 if MGL issues a Resale Notice. As MGL is the only party entitled to make an election to exercise the Resale option, it is not a separate position that you have taken in relation to your MCN5. Similarly, under the Exchange mechanism you do not have the right to elect Exchange of your MCN5.

Therefore, the Resale and Exchange mechanisms will not, of themselves, affect your risks of loss or opportunities for gain in respect of your MCN5.

Paragraphs 207-145(1)(b) and (c) will not apply to cancel the effect of the gross-up and tax offset rules in respect of a franked Distribution as the Commissioner will not make determinations under paragraph 204-30(3)(c) or paragraph 177EA(5)(b) of the ITAA 1936 (refer to paragraphs 14 and 15 of this Ruling).

Paragraph 207-145(1)(d) will not apply to cancel the effect of the gross-up and tax offset rules in respect of a franked Distribution as there is no evidence that the Distributions will be made as part of a dividend stripping operation.

Paragraph 207-145(1)(da) will not apply to cancel the effect of the gross-up and tax offset rules in respect of a franked Distribution as this Ruling is made on the basis the distribution washing provision does not apply (refer to subparagraph 70(r) of this Ruling).

This Ruling is made on the basis that Distributions on MCN5 do not give rise to any 'foreign income tax deductions' (as defined in section 832-120) for MGL. Accordingly, subsection 207-158(1) does not apply to the Distributions on MCN5 and therefore paragraph 207-145(db) will not apply to cancel the effect of the gross-up and tax offset rules in respect of a franked Distribution.

The Exchange of MCN5 for MGL Ordinary Shares will not result in Holders being taken to have received a dividend or a non-share dividend.

Holders are not shareholders of MGL in respect of their MCN5 holdings. Accordingly, Holders will not receive a dividend as defined in subsection 6(1) of the ITAA 1936.

The application of the Issue Price to subscribe for MGL Ordinary Shares on Exchange of MCN5 is a crediting of that amount to the Holder and, therefore, a non-share distribution under section 974-115. All non-share distributions are non-share dividends unless they are debited against the distributing company's share capital account (section 974-120). The issue of MGL Ordinary Shares to Holders on Exchange of MCN5 will not be a non-share dividend as defined in section 974-120, as the Issue Price of MCN5 will be debited against MGL's non-share capital account.

Section 45 applies where a company streams the provision of shares and the payment of minimally franked dividends to its shareholders in such a way that: • the shares are received by some shareholders but not all shareholders, and • some or all of the shareholders who do not receive the shares receive or will receive minimally franked dividends.

The Terms do not provide for the issue of shares to all or some Holders in satisfaction of their Distribution entitlement. The issue of MGL Ordinary Shares on Exchange merely reflects a change in the type of equity interests held by Holders.

Based on the information provided and having regard to the circumstances of the scheme, section 45 of the ITAA 1936 will not apply to treat the value of MGL ordinary shares on Exchange as an unfranked dividend in the hands of Holders.

Section 45A of the ITAA 1936 applies where a company streams capital benefits and the payment of dividends in such a way that capital benefits are received by shareholders who would derive a greater benefit from receiving the capital benefits (the advantaged shareholders), and it is reasonable to assume that other shareholders (the disadvantaged shareholders) have received, or will receive, dividends.

Both the issue of MGL Ordinary Shares on Exchange and the Redemption of MCN5 will constitute the provision of a capital benefit to Holders (paragraph 45A(3)(a) of the ITAA 1936 for an Exchange, and paragraph 45A(3)(b) of the ITAA 1936 as affected by subsection 45A(3A) of the ITAA 1936 for a Redemption).

However, the issue of MGL Ordinary Shares on Exchange and the Redemption of MCN5 will not constitute the streaming of capital benefits because, under an Exchange or Redemption, MGL will not selectively direct the flow of capital benefits to Holders who could most benefit from capital. Accordingly, as this requirement does not apply to the Exchange or Redemption of MCN5, the Commissioner will not make a determination to treat the whole, or a part, of the capital benefit received by Holders as an unfranked dividend.

Section 45B of the ITAA 1936 applies where certain capital benefits are provided to shareholders in substitution for dividends. Where the conditions are met, the Commissioner may make a determination under paragraph 45B(3)(b) of the ITAA 1936 that section 45C of the ITAA 1936 applies to the whole, or a part, of the capital benefit such that it will be treated as an unfranked dividend.

The issue of MGL Ordinary Shares to Holders on Exchange and the Redemption of MCN5 (a Redemption being a non-share capital return) will each constitute a scheme under which Holders are provided with a capital benefit by MGL (paragraphs 45B(5)(a) and (b) and subsection 45B(7) of the ITAA 1936). As a result, paragraph 45B(2)(a) of the ITAA 1936 will be satisfied.

At least some Holders will obtain a tax benefit as defined in subsection 45B(9) of the ITAA 1936 as a result of an Exchange or Redemption. As a result, paragraph 45B(2)(b) of the ITAA 1936 will be satisfied.

Therefore, whether section 45B of the ITAA 1936 will apply to an Exchange or Redemption turns on whether paragraph 45B(2)(c) of the ITAA 1936 will be satisfied. This involves considering the relevant circumstances, including but not limited to those listed in subsection 45B(8) of the ITAA 1936, of the Exchange and Redemption schemes to establish whether one of the persons who will enter into or carry out the schemes will do so for a more than incidental purpose of enabling a relevant taxpayer (the Holder) to obtain a tax benefit.

Having regard to the relevant circumstances, it could not be concluded that the Exchange or Redemption of MCN5 will be entered into for a more than incidental purpose of enabling Holders to obtain a tax benefit. Accordingly, paragraph 45B(2)(c) of the ITAA 1936 would not be satisfied and the Commissioner will not make a determination under paragraph 45B(3)(b) of the ITAA 1936 that section 45C of the ITAA 1936 applies to the whole, or a part, of the capital benefit provided to Holders on Exchange or Redemption.