The Assistant Treasurer, Senator Rod Kemp, and the Minister for Financial Services and Regulation, Mr Joe Hockey, today announced four measures to enhance Australia's development as a centre for financial services in the Asia-Pacific region.
The first measure will remove a possible impediment to Australian companies issuing debentures that are exempt from Interest Withholding Tax (IWT) in Australia and help to further integrate the domestic and offshore corporate debt markets.
The Government will amend section 128F of the Income Tax Assessment Act 1936 to remove onshore associates from the associates tests in that section. Onshore associates are Australian residents or non-residents carrying on business at or through a permanent establishment in Australia.
This change will mean that the section 128F exemption from IWT will not be lost if an onshore associate buys debentures of a related Australian issuing company.
The Ministers also announced that the Government would remove from the associates tests in section 128F offshore associates who are acting in the capacity of a clearing house, paying agent, custodian or funds manager. These entities do not normally hold debentures for their own benefit.
These amendments will apply with effect from today.
Another measure will remove an anomaly that has hindered Australian companies raising finance offshore through issues of certain types of debentures. The Ministers said that the Government has decided to amend the income tax law to clarify the relationship between sections 128AA and 128F of the Income Tax Assessment Act 1936.
The amendment will exempt from IWT deemed interest under section 128AA in circumstances where that interest would have been exempt under section 128F if the section 128AA qualifying security had been held to maturity by a non-resident. The amendment applies to transfers on or after today of section 128AA qualifying securities.
The Ministers also announced that the Government had decided to exempt from IWT interest on nostro accounts held by financial institutions with foreign banks. The Ministers said that the compliance costs imposed on financial institutions by the present taxation arrangements are very high in relation to the small amount of tax collected.
Exempting interest on these nostro accounts from IWT liability will facilitate the intermediation by Australian financial institutions between non-residents. Appropriate safeguards will be set in place to ensure the exemption is not abused.
The amendment will apply to interest paid or credited on nostro accounts held by financial institutions with foreign banks on or after today.
The Ministers said that the announced changes highlight the Howard Government's commitment to developing Australia as a centre for financial services in the Asia-Pacific region.
The Ministers thanked AXISS Australia, industry and their representatives for their advice and assistance on these matters.
Senator the Hon Rod Kemp
Assistant Treasurer
The Hon Joe Hockey MP
Minister for Financial Services and Regulation