We outline the key implications for the Banking sector announced in the 2017 Federal Budget.
The anticipated measures designed to strengthen oversight of the banking sector and promote greater competition have been overshadowed by the announcement of a levy on the non-retail liabilities of the major banks.
Payable at an annual rate of 0.06 percent on a bank’s liabilities, the levy will target wholesale and interbank activity by excluding from the tax base deposits of less than $250,000 by individuals and other entities that are protected by the Financial Claims Scheme.
The ability of the major banks to indirectly pass the cost of the levy onto retail customers will be restricted by an ACCC residential mortgage pricing inquiry to take place through 30 June 2018, requiring the affected banks to explain changes in interest rates, fees and charges over this period.
Applicable only to the major banks with liabilities of more than $100 billion, the government has explicitly noted the impact the levy will have on levelling the playing field for the smaller banks and credit unions and promoting competition.
The levy will be deductible for income tax purposes.
The OECD hybrid mismatch rules will apply to a bank’s regulatory capital. Additional Tier 1 capital (AT1) will not be frankable where returns are deductible in another jurisdiction. Where the funds are not wholly used in the offshore operations, the franking account of the issuer will be debited as if the returns were franked. This is necessary to prevent ‘unfrankable capital’ being used in the Australian operations.
Arrangements issued before Budget Night will be grandfathered up to their first call date (typically 5 years from the issue date). Otherwise, the measure will apply to returns paid on or after the later of 1 January 2018 or 6 months after Royal Assent, which aligns the start date with the broader hybrid mismatch rules.
In a further blow to the banks, the government has not aligned Australia’s tax treatment of AT1 with most other major jurisdictions which treat AT1 as deductible for tax purposes, which would have enhanced financial system stability by enabling banks to diversify their funding sources away from the domestic retail market.
The government will resuscitate the previously abandoned First Home Saver Account scheme, but this time using superannuation rather than a bank issued product. Couples will be able to contribute up to $60,000 to superannuation that can then be withdrawn to purchase a new home.
As part of the government’s agenda to address housing affordability it has announced a measure that will allow a Managed Investment Trust (MIT) to acquire, construct or redevelop property provided the MIT derives at least 80 percent of its assessable income from affordable housing. The remaining 20 percent of the MIT’s income can come from existing eligible MIT investments. Other requirements or restrictions associated with the measure include:
The government has extended its 2016-17 Budget measure designed to ensure ASIC’s regulatory costs are recovered from those entities that create the need for regulation. That levy will cover costs associated with:
Bitcoin will be treated as money for goods and services tax purposes from 1 July 2017 to avoid the double taxation that might otherwise arise.