The Government will ensure that, on commencement of the Basel III capital reforms, certain capital instruments issued by authorised deposit taking institutions (ADIs) can be treated as debt for income tax purposes.
This change will apply to certain Tier 2 regulatory capital instruments issued by ADIs and certain other related entities regulated by the APRA.
Under the Basel III capital reforms such instruments will have to be written off or converted into ordinary shares if APRA decides that the ADI would otherwise become non viable. If the current tax law applied to the instruments, they would likely be treated as equity for income tax purposes, and their funding costs would not be tax deductible.
Date of effect: This measure will apply from 1 January 2013.
Source: Budget Paper No 2 [p 23]
[WTB 19, 8/5]