Bills Digest No. 119 2001-02
Financial Corporations (Transfer of Assets and Liabilities)
Amendment Bill 2002
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Endnotes
Contact Officer & Copyright Details
Passage History
Financial Corporations (Transfer of
Assets and Liabilities) Amendment Bill 2002
Date Introduced: 12 March 2002
House: Senate
Portfolio: Treasury
Commencement: The legislation will be taken
to have commenced on 1 July 2001
Purpose
To amend the
Financial Corporations (Transfer of Assets and Liabilities) Act
1993 (the Transfer Act) to allow more time for subsidiaries of
foreign banks to convert to a branch structure and remain eligible
for concessional tax treatment.
The Transfer Act modifies the application of a
number of the provisions of the Income Tax Assessment Act
1936 (ITAA) as they apply to the transfer of assets and
liabilities from locally incorporated subsidiaries of foreign banks
to newly established branches of the parent foreign bank. The
Transfer Act seeks to place the branch of the foreign bank in the
same position as the subsidiary that has transferred the assets. In
particular it modifies the ITAA to:
-
- defer the imposition of taxation in relation to the transfer of
assets and liabilities until the asset or liability is subsequently
disposed of by the receiving corporation
-
- make the capital gains roll over provisions applicable to the
transfer of assets to which the Transfer Act applies
-
- allow the provisions relating to transfer of net capital losses
to apply to transfers under the Transfer Act
-
- exempt the transfer of trading stock under the Transfer Act
from tax
-
- allow for transfers of bad debts
-
- allow for exemption from interest withholding tax in certain
circumstances, and
-
- allow for the transfer of losses.(1)
Foreign Bank
Branches
When the Hawke Government allowed the entry of
foreign banks in 1985 it required them to be established as locally
incorporated subsidiaries rather than as branches of the parent
bank. In 1991, the House of Representatives Standing Committee on
Finance and Public Administration recommended that subject to
meeting certain matters, including prudential requirements, foreign
banks should be allowed to operate in Australia as
branches.(2) The prime benefit of such a move was said
to be the possibility of increased competition in the banking
industry. The Committee stated:
By having a broader capital base and improved
fund raising capabilities, it is evident that a branch of a foreign
bank would be in a far better position than a foreign bank
subsidiary to compete against the incumbent domestic
banks.(3)
In 1992 the previous Government decided to allow
foreign banks to operate as wholesale banks in the form of a
branch.
Following this decision, foreign banks had to
determine whether they wanted to change the structure of their
operations in Australia by converting subsidiaries to branches. The
Transfer Act is intended to facilitate the reorganisation of
business by bestowing concessional tax treatment on the transfer of
assets and liabilities from a subsidiary to a foreign corporation
that is an eligible foreign ADI or the holding company of an
eligible foreign ADI or a newly established local ADI
.(4)
An eligible foreign ADI is a foreign corporation
that:
-
- has been authorised under the Banking Act 1959 to
conduct banking business in Australia, and
-
- received its authority before 22 December 1993 or obtained an
authority pursuant to an application made before 1 July
2001.(5)
A newly established ADI is a Australian company
that was granted its banking authority:
-
- between the 18 June 1993 and the 22 December 1993, or
-
- obtained an authority pursuant to an application made before
1 July 2001.(6)
Paragraph 7(6)(c) of the Transfer Act provides,
inter alia, that the Act only applies in relation to the
transfer of an asset or liability that occurs before 1 July
2004.
The Case for
Amendment
As at February 2002, there were 12 foreign
subsidiary banks operating in Australia.(7) The
Government introduced this Bill to extend the deadline for
concessional tax treatment.(8) It has stated that the
extension is appropriate given that when the eligibility period
expired on 1 July 2001 there was uncertainty in the industry about
changes to the thin capitalisation rules and the consolidation
regime which made it difficult for foreign banks to determine the
appropriate structure of their operations.(9)
New thin capitalisation rules were introduced by
the New Business Tax System (Thin Capitalisation) Act
2001. This legislation sets out the circumstances under which
a deduction for interest payments which would otherwise be
allowable will be reduced as an entity does not have sufficient
equity compared to its debt levels. The rules apply to entities
which operate both in Australia and overseas and are designed to
prevent excessive claims relating to the Australian business of a
multi-national operator. The legislation was introduced on 28 June
2001 and did not pass until 27 September.(10)
The consolidation regime will allow corporate
groups to lodge a single tax return and be treated for taxation
purposes as a single entity. While the Treasurer has stated that
the consolidation regime will commence July 1 2002, no legislation
to facilitate the change has yet been introduced to Parliament. It
is likely that foreign banks will continue to be uncertain about
their appropriate structure until the consolidation legislation is
finalised.
In order to extend the application of the
concessional tax treatment items 1 and 2 amend the
definitions of eligible foreign ADI and newly established local ADI
to include entities that are granted a banking authority pursuant
to an application made before 1 July 2003.
Item 3 extends the deadline for
any subsequent transfer of assets and liabilities from 30 June 2004
to 30 June 2006.
-
- Chris Field, Financial Corporations (Transfer of Assets and
Liabilities (Amendment) Bill 1993,
Bills Digest
- House of Representatives Standing Committee on Finance and
Public Administration, A Pocket Full of Change: Banking and
Deregulation, November 1991, Recommendation 10.46.
- ibid., p. 159.
- Section 6 of Financial Corporations (Transfer of Assets and
Liabilities) Act 1993.
- Section 3.
- ibid.
- There were 24 branches of foreign banks. A list of these banks
is available on the APRA website: http://www.apra.gov.au/ADI/ADIList.cfm#FSB.
- The Minister foreshadowed this legislation last August see: The
Hon. Joe Hockey MP, Foreign Bank Tax Deadline Extended , Press
Release, 22 August 2001.
- Senator, the Hon. Ian Campbell, Second Reading Speech,
Senate Hansard, 12 March 2002,
p. 531.
- More information on thin capitalisation can be found in
Bills Digest No.16
2001-02.
Mark Tapley
10 April 2002
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
© Commonwealth of Australia 2002
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