CGT consequences for satisfying an unpaid present entitlement by converting it into a loan Glossary Table 1: Terms and symbols in this private ruling and our reasons have the meanings in the glossary. Term or symbol Meaning Division 7A Division 7A of Part III of the Income Tax Assessment Act 1936 Division 245 Division 245 of the Income Tax Assessment Act 1997 Unhyphenated provisions (eg, section 109D) the corresponding provision in the Income Tax Assessment Act 1936 Hyphenated provisions (eg, section 6-10) the corresponding provision in the Income Tax Assessment Act 1997 Debtor trust discretionary trusts in the group (either or both) which presently owe UPEs to the creditor companies Creditor company private companies in the group (any or all) which are presently owed UPEs by the debtor trusts Trust X a discretionary trust in the group, which isn't one of the debtor trusts Company Y another private company in the group, which isn't one of the creditor companies the taxpayers means all of the entities covered by this ruling (the debtor trust, the creditor company, Trust X, and Company Y), and the relevant members of the family who control those entities UPE unpaid present entitlement (an amount the trustee appoints to a beneficiary under the terms of a trust while the amount remains unpaid and the beneficiary is entitled to demand payment) >any arrow means a loan/UPE: •         with the blunt end starting at the lender (ie, indicating an asset/receivable for that lender) •         pointing to the borrower (ie, indicating a liability/debt/payable for that borrower) So eg, Company Y Trust X Means: •         Company Y is 'lending' to Trust X •         Company Y has an entitlement to be paid by Trust X (an asset receivable to Company Y from Trust X) •         Trust X has an obligation to pay Company Y (a liability payable by Trust X to Company Y) >Blue arrow UPE >Green arrow loan created by an agreement (original or assigned) >Red arrow deemed loan under section 109T >Red cross UPE/loan/debt has been satisfied/extinguished Step 1 Creditor company and debtor trust agree the UPE is satisfied in exchange for a substitute loan/debt (Loan 1). Step 2 Creditor company and debtor trust enter the First Assignment (with Trust X) to assign Loan 1 to Trust X (creating Loans 2a and 2b). Step 3 Creditor company and Trust X enter the Second Assignment (with Company Y) to assign Loan 2a to Company Y (creating Loans 3a and 3b). Step 4 Trust X transfers assets to Company Y (which allows it to repay Loan 3b). First Assignment The (Step 2) agreement under which: •         the creditor company's entitlement to be paid by the debtor trust (under Loan 1) is assigned to Trust X •         the debtor trust's obligation to pay the creditor company (under Loan 1) is assigned to Trust X. Second Assignment The (Step 3) agreement under which: •         the creditor company's entitlement to be paid by Trust X (under Loan 2a) is assigned to Company Y •         the Trust X's obligation to pay the creditor company (under Loan 2a) is assigned to Company Y. Loan 1 The loan created (at Step 1) between the creditor company and the debtor trust when the UPE is satisfied. Loan 2a The loan from the creditor company to Trust X, created at Step 2 under the First Assignment Loan 2b The loan from Trust X to the debtor trust, created at Step 2 under the First Assignment. Loan 2c Deemed/notional section 109T loan (from the creditor company to the debtor trust) based on Loans 2a and 2b. Loan 3a The loan from the creditor company to Company Y, created at Step 3 under the Second Assignment. Loan 3b The loan from Company Y to Trust X, created at Step 3 under the Second Assignment. Loan 3c Deemed/notional section 109T loan (from the creditor company to Trust X) based on Loans 3a and 3b.

1 Will the commercial debt forgiveness provisions in Division 245 result in any net forgiven amount for the assignment of loans under the First and Second Assignments?

No. Question 2 Will section 109F apply to the assignment of debts under the First and Second Assignments? Answer No. Question 3 Will Division 7A apply to treat any of the loans described in this ruling scheme as dividends? Answer No. Question 4 Will the creditor companies have a capital gain from the First or Second Assignments? Answer No. Question 5 Will the creditor companies have a capital gain when they call on their unpaid present entitlements? Answer No. This ruling applies for the following period: 1 July 20XX to 30 June 20YY The scheme commences on: 1 July 20XX

1.            <This paragraph has been removed for privacy reasons.> 2.            <This paragraph has been removed for privacy reasons.> 3.            The taxpayers' group has UPEs totalling around $XM, owed by the debtor trusts to the creditor companies. <This paragraph has been modified for privacy reasons.> 4.            <This paragraph has been removed for privacy reasons>. 5.            One of the debtor trusts also owes loans to creditor companies totalling $YM. Table 1:UPEs and loans <This table has been removed for privacy reasons> 6.            The taxpayers propose to settle these loans and UPEs through the following steps. •         The creditor companies will call on their UPEs through converting them into loans. •         The First Assignment will occur, whereby Trust X will assume from the debtor trusts the obligation to repay the loans to the creditor companies and Trust X will simultaneously receive a right to be paid these same loan amounts by the debtor trusts.