On August 29 2001, the Australian government announced several amendments to its interest withholding tax (IWT) exemption regime which are intended to enhance Australia's development as a centre for financial services in the Asia-Pacific region.
Firstly, Section 128F Income Tax Assessment Act 1936 will be amended to remove onshore associates from the associates tests in that section. This change will mean that the IWT exemption will not be lost if an onshore associate buys debentures from a related Australian issuing company. An onshore associate includes Australian residents and non-residents carrying on business at or through a permanent establishment in Australia.
Secondly, offshore associates will be removed from the associates tests in s128F where they are acting in the capacity of a clearing house, paying agent, custodian or funds manager because these entities normally do not hold debentures for their own benefit.
Thirdly, deemed interest under s128AA will be exempt from IWT, which deals with transfers of qualifying securities for an amount exceeding issue price. The exemption will be available in circumstances where that interest would have been exempt under s128F, if the s128AA qualifying security had been held to maturity by a non-resident.
Finally, interest on nostro accounts held by Australian financial institutions with foreign banks will be exempt from IWT.
The above measures are expected to remove possible impediments to Australian companies issuing debentures exempt from Australian IWT and help further integrate the Australian and offshore corporate debt markets.
All measures, when introduced, will be effective from August 29 2001.