Today the Government is releasing the Board of Taxation’s review into aspects of the tax integrity rules that distinguish debt finance from equity.
Specifically, the report recommends reforms to the related scheme provisions and the equity override provision in the tax rules for debt and equity.
The current rules are uncertain and have created significant practical difficulties.
This was noted by the previous government in 2011 when it announced its intention to amend the rules. The amendment was not made and it is one of the 96 announced but unenacted measures the Government inherited.
In deciding to proceed with the measure, the Government asked the Board of Taxation to consider the design of the amendment as part of a post-implementation review of the debt and equity tax rules the Board was undertaking.
The Board of Taxation conducted an extensive consultation process and has provided advice on how to address the uncertainty and compliance costs that result from the current rules, while still preserving the integrity of the debt equity tax rules.
The Government will consult on exposure draft legislation to implement the Board of Taxation’s recommended approach in the coming months.
Improving these rules will reduce regulatory costs for business, and will support the investment that is necessary for productivity growth, improved competitiveness and new employment opportunities.
The new rules will operate with prospective effect, and taxpayers who self-assessed in accordance with the 2011 announcement will be protected.