ARTICLE · 11 NOVEMBER 2012

Treasury proposes income tax relief for Tier 2 instruments

Clayton Utz

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From 2013, eligible Tier 2 instruments issued by ADIs will not be precluded from being treated as debt for tax purposes.

AustraliaTax

Louise McCoach

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Key Points:

The draft regulations would mean eligible Tier 2 instruments issued by ADIs on or after 1 January 2013 are not precluded from being treated as debt for tax purposes.

The Australian Government announced proposals in July to amend tax legislation to ensure that from the commencement of the Basel III capital reforms in Australia on 1 January 2013, eligible Tier 2 instruments issued by authorised deposit-taking institutions (ADIs) on or after that date are not precluded from being treated as debt for tax purposes. On 31 October 2012, the Commonwealth Government released draft tax regulations to implement these amendments for comment.

The draft regulations are directed at all Tier 2 instruments which, under Basel III, will be required to contain "bail-in provisions" from 1 January 2013. A bail-in provision is a mechanism under which regulatory capital instruments (such as Tier 2 instruments) are required to be written off or converted into ordinary

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