Australia Government Increasing Tax Certainty

April 21, 2010 Taxation in Australia

Government HouseThe Australian Government has announced three new legislative actions that are aimed at increasing the overall tax certainty for select business finance transactions.

On April 19th Nick Sherry, Assistant Treasurer of Australia, issued a press release announcing the extension of the transitional period for Upper Tier 2 instruments. He also revealed that the final approval has been given to new regulations governing select term subordinated notes. The Assistant Treasurer also announced the release of a consultation draft for the Taxation of Financial Arrangements (TOFA) Amendment Bill. Explaining the benefits of the combined changes Nick Sherry said, “This package of actions will provide important certainty including, in particular, to the banking and finance sector as it goes about securing the capital it needs to service Australia’s financing needs.”

For the purposes of taxation in Australia, Upper Tier 2 instruments are regarded as type of capital with debt/equity characteristics, often used to increase the perceived strength of an authorized deposit-taking institution. Previous reforms to Australian taxation legislature altered the treatment of Upper Tier 2 instruments, and held that a transitional period would be instated for holders, so as to appropriately alter institution policies. The transition period, which had expired previously, has now been extended to July 1st, 2010.

The change package also addressed Term Subordinate Notes, which are an instrument whereby the claims of its holders are subordinate to senior debt holders in the winding up of the note’s issuer. Nick Sherry revealed that final approval and registration has been given to new Regulations that clarify the debt/equity treatment of the notes in regards to company taxation. Explaining the need for such changes, the Assistant Treasurer said, “Facilitating the debt tax treatment in these circumstances ensures comparability between Australia’s tax rules and those of other jurisdictions and will maintain Australia’s competitiveness in international financial markets.”

Nick Sherry also announced the release of the TOFA draft legislation. The early details of the bill were originally announced in late 2009. The new legislation delivers many of the same reforms, though with some alterations and amendments. The TOFA legislation, which is aimed at ensuring a higher sense of taxation certainty, is open for industry consultation until May 14th 2010.

Photo by frangipani photograph