Australia Amends Tax Treatment Of Rights Issues

by Mary Swire, Tax-News.com, Hong Kong

28 June 2007

As part of the Australian government’s ongoing commitment to reducing compliance costs, Peter Dutton, Minister for Revenue and Assistant Treasurer, has announced amendments to the income tax law to restore the long-standing taxation treatment of rights issues.

“Shareholders issued with rights by companies seeking to raise capital will not have an income tax liability at the time of issue. Instead, the long-standing position to treat rights issues on capital account will be maintained,” Dutton explained on Tuesday.

He added that some consequential amendments will be made to the capital gains tax rules to ensure that rights issued by companies are treated consistently.

“These amendments will provide certainty for taxpayers by restoring the taxation treatment of rights issues that existed before the decision of the High Court of Australia in Commissioner of Taxation v McNeil [2007] HCA 5”, Dutton explained, adding:

“The bring-forward of a tax liability under McNeil’s case would impose unnecessary compliance costs on companies and their shareholders.”

The amendments will apply from the 2001-02 income year. This will prevent any adverse application of the McNeil case to companies and their shareholders.

The government is due to launch a consultation on the development of legislation to implement the changes.

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