2188.This section explains, for the purposes of this Chapter, what is meant by producing a guaranteed return from a disposal of a future or option. It is based on paragraph 3 of Schedule 5AA to ICTA.
2189.Subsection (1) gives the basic rule for ascertaining whether a guaranteed return is produced from a disposal of a future or option. A risk of fluctuations in the underlying subject matter (defined at subsection (6)) of the future or option must be eliminated or reduced so that the return on the disposal meets the two conditions in subsections (3) and (4).
2190.Subsection (2) supplements the rule in subsection (1) where there is more than one disposal.
2191.Subsections (3) and (4) provide two conditions that must be met for the basic rule to apply. Broadly, the return on the investment must be predictable and have more similarity to interest than to the risk expected on a future or option.
2192.Subsection (5) extends the circumstances in which risks are treated as eliminated or reduced. A main reason for the choice must be the expectation that the value of an asset of that nature will be liable to only minimum fluctuation.