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Thursday, 30 April 1987
Page: 2080

Senator BOLKUS —Has the Minister representing the Treasurer seen reports that some companies are obtaining tax deductibility by designing a security which appears to be a convertible note but which has the substance of deferred equity carrying a fixed dividend? Is this a contrived scheme which provides a massive taxation deduction windfall to the perpetrators of the scheme? What action will the Government take to stop this leakage of government revenue?

Senator WALSH —I am not aware of a scheme such as that outlined by Senator Bolkus existing, but if he has any information about it I am sure that the Treasurer would be very grateful to receive it. Since I am not aware of a specific scheme, I cannot respond. However, I would like to make a few general comments. A convertible note is, before conversion, treated as a debt for tax purposes, which means that whilst the interest payments are tax deductible to the issuer they are also taxable in the hands of the lender. Preference shares, and even converted preference shares, which normally carry fixed dividends, are taxed as equity. This means that dividend payments are not tax deductible to the company and, under imputation, they will not generally be taxed in the hands of the shareholder. If the suggestion in Senator Bolkus's question was that some instrument exists which is, on the one hand, receiving the tax deductibility accorded debt-that is, deductibility to the borrower-and, on the other, the benefits of imputation accorded equity, that is a matter which should be drawn to the attention of the Australian Commissioner for Taxation, the Treasurer would certainly welcome any information about it.