Australia To Review Islamic Finance Tax Laws

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

28 April 2010

The Australian Board of Taxation (BoT) is to undertake a comprehensive review of the country's tax laws to ensure that, wherever possible, they do not inhibit the expansion of Islamic finance, banking and insurance products.

The Assistant Treasurer, Nick Sherry, announced the review at a business event in the United Arab Emirates jointly organised by the Australian Business Group of Abu Dhabi and the Australian Business Council of Dubai, with the support of the Abu Dhabi Chamber of Commerce and Industry and attended by key figures from the business, finance and banking community across the Gulf Region.

"Islamic finance is a rapidly growing part of the global financial system and Australia is in an excellent position to capitalize on that growth,” he said, “but we have to identify if our tax system doesn't unnecessarily prevent that from happening. (This) announcement is the first step in ensuring that we get the settings right."

The report of the Australian Financial Centre Forum (also known as the Johnson Report), which was released by the government in January this year, recommended that the BoT undertake such a review "in order to ensure that Islamic finance products have parity with conventional products, having regards to their economic substance."

"Accessing this major source of capital, could assist Australian businesses to diversify their funding base in the future," the Minister for Financial Services, Corporate Law and Superannuation, Chris Bowen said.

"Australia has made major inroads into integrating an economic substance approach into our tax laws, particularly with the latest legislative reforms to the taxation of financial arrangements progressed by the government, which are squarely based on assessing the economic substance of a transaction rather than its legal form," said the Assistant Treasurer.

"The Board of Taxation review will take this work to the next level by examining the Australian tax laws to make sure the wholesale market for Islamic instruments is not being hampered," he added. "I would like to be clear, this is not about special treatment or concessions for Islamic finance or its providers, but about ensuring that our system doesn't unfairly disadvantage or preclude such instruments and, in doing so, deprive Australia of capital, jobs and growth."

The detailed terms of reference of the review, including the dates for reporting to government, are to be released in the near future.

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