Income securities hit a tax snag
Income securities, which exploded onto the market in 1999, have received a knock back from the tax office which says the securities should not be treated as debt for income tax purposes.
About $6 billion was raised by the likes of AMP, Woolworths and the National Australia Bank, when the income securities were released within a few months of each other in 1999.
The Australian Tax Office yesterday issued two draft rulings on the treatment of income securities.
"The broad effect of the rulings is to not treat income securities as debt for tax purposes," the ATO said in a statement.
Income securities are listed hybrid securities issued by banks and other corporations which pay interest and raise permanent capital in what is claimed to be a tax-effective form.
"That is, they are claimed to be treated as debt for tax purposes, but may be considered to be equity for accounting and regulatory purposes," the ATO said.
The Tax Office said payments made by issuers of income securities were not deductible because they were capital in nature.
"Unlike interest payments on debt, the payments made on income securities represent the cost of securing and retaining permanent capital."
In some cases, the payments may be effectively an application of income derived rather than an expense incurred in deriving that income, it said.
Recommended for you
The Reserve Bank of Australia (RBA) has lowered rates to a level not seen since mid-2023.
Financial Services Minister Stephen Jones has shared further details on the second tranche of the Delivering Better Financial Outcomes reforms including modernising best interests duty and reforming Statements of Advice.
The Federal Court has found a company director guilty of operating unregistered managed investment schemes and carrying on a financial services business without holding an AFSL.
The Governance Institute has said ASIC’s governance arrangements are no longer “fit for purpose” in a time when financial markets are quickly innovating and cyber crime becomes a threat.
