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Category Archives: Debt equity
Tax adviser liability – Nodding client is no excuse
The High Court in New Zealand in Jones v WHK Sherwin Chan & Walshe HC Wellington [2011] NZHC has awarded $4.29m against a taxpayer’s former accountants (SCW) for failing to advise on the implications of the CFC rules when restructuring the business of their client. See Bob Jones wins $ 4m over bad tax advice. Briefly, an Australian based company, Pamiers Pty Ltd lent money to a New Zealand based company Robert Jones Holdings Ltd (RJHL), both controlled by the … Continue reading
Did the Tax Act save us from GFC
Did the Tax Act in Australia play a significant role in shielding us from the ravages of the GFC now plaguing most countries in the world? Going by the current debate in the United States it may well have. You may even put It down, in good measure, to the balance in Australia between tax treatment of debt and equity, notably the rules for recognizing debt and equity in companies. Unlike here, in the U.S, corporate earnings are taxed at … Continue reading
Banks, bonds and approaching Basel III
It was reported in the Australian Financial Review of 6 June 2011 that hybrid capital instruments can be used for capital purposes provided they contain a trigger point at which they convert into ordinary shares. The trigger point would be when the bank’s common equity tier 1 ratio falls below 5.125 percent. This is welcome news when comparing the position prevailing abroad where contingent convertible bonds (“CoCo’s”) are widely used. These bonds automatically convert to ordinary shares in the issuer … Continue reading
Posted in Debt equity, Deductions, Uncategorized
Tagged Basel, Basel III, hybrid instruments
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Budget 2011-Out of the shadow of Division 974
The government has indicated that it will be amending the integrity rule in Division 974 that deems an interest from an arrangement that funds a return through connected entities to be an equity interest under certain circumstances. The example in s 974-80 illustrates this situation: “Companies A,B1,B2 and B3 are connected entities. B1 operates a trust and issues an interest in the trust to H with the return on the interest being contingent on the economic performance of A. The … Continue reading
Contingent convertible bonds (CoCo’s)- Debt or equity under Div 974
Two recent events are clear signals of easing the impact of the approaching Basel III implementation imposing higher capital adequacy requirement for banking and other financial institutions: the release of the exposure draft on ‘covered bonds’ and the making of the Income Tax Assessment Amendment Regulations 2011(No 2). The tax implications of the two are critical for issuers and holders of bonds in financial institutions. The first allows banks to issue bonds under which holders can either look for recompense … Continue reading
