The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Mal Brough

Mal Brough

Minister for Revenue and Assistant Treasurer

18 July 2004 - 26 January 2006

Media Release of 13/10/2005


Tuesday 25 October, 2005


The Government will make new income tax regulations to clarify the tax treatment of certain term subordinated notes under the debt/equity rules.

The regulations will ensure that 'solvency clauses' do not preclude the notes from being debt for tax purposes. The solvency clauses allow the issuer to defer payment if the payment would cause insolvency. They are commonly found in Lower Tier 2 term subordinated notes issued by Authorised Deposit-Taking Institutions (ADIs). However, the regulations will apply to all issuers.

The Government will also amend the income tax law to further extend the debt/equity transitional provisions applying to Upper Tier 2 instruments. The extension until 1 July 2007 will allow further time for consultation and development of an Upper Tier 2 regulation that was previously announced by the Government.

The Upper Tier 2 regulation will apply to certain Upper Tier 2 and similar instruments issued by banks and non-mutual building societies (which are ADIs) or their subsidiaries. It will also apply to entities that have undertaken to comply with the ADI capital adequacy requirements issued by the Australian Prudential Regulatory Authority (APRA).

The final form of the regulations will be developed in consultation with key stakeholders.

Media Contact: Alexander Drake - (02) 6277 7360