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Budget 2010: Change to benchmark interest rate for capital protected borrowings.



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NO.091

CHANGE TO BENCHMARK INTEREST RATE FOR CAPITAL PROTECTED BORROWINGS

Investors in capital protected borrowings will be the big winners of a $28 million initiative to adjust the benchmark interest rate on these borrowings from tonight.

"The new benchmark interest rate from tonight will be the Reserve Bank indicator rate for standard variable housing loans plus 100 basis points," the Assistant Treasurer, Senator Nick Sherry, said.

"The adjusted benchmark interest rate better reflects the additional credit risk borne by lenders for the cost of capital protection that is paid on a deferred basis."

"Lifting the benchmark interest rate by 100 basis points will allow borrowers to allocate a smaller proportion of the expenses on the borrowings on costs for capital protection, which is not deductible if on a capital account. "

The measure will apply to capital protected borrowings entered into from 7:30 pm (AEST) 13 May 2008.

The Government will also extend the transitional arrangements for capital protected borrowings entered into at or before 7:30 pm (AEST) 13 May 2008 from the previously announced 13 May 2013 to 30 June 2013.

This extension will reduce compliance costs for affected taxpayers in the 2012-13 income year.

The measure has an ongoing cost to revenue that is estimated to be $28 million over the forward estimates period.

The Government has released the draft legislation that gives effect to these changes for consultation on technical details.

The consultation period for the exposure draft Bill closes on 11 June 2010 and copies of all relevant materials are available at www.treasury.gov.au.

CANBERRA 11 May 2010