Securities lending arrangements - addressing insolvency issues

In the 2011-12 Budget the government announced that it will amend the tax rules for securities lending arrangements to ensure that the lender under a securities lending arrangement is treated as not having disposed of the lent securities where:

• the borrower does not return the securities, or identical securities, within 12 months due to the borrower's insolvency, and
• no later than 30 days after the resulting default (or within such longer period that the Commissioner of Taxation allows), the lender restores their original position prior to the securities lending arrangement by using the collateral received under the arrangement to purchase identical securities.

The amendments will apply to securities lending arrangements in existence at 1 July 2008 and those arrangements entered on or after that date.

Administrative treatment The ATO will accept tax returns as lodged during the period up until the proposed law change is passed by parliament. Past year assessments will not be reviewed until the outcome of the proposed amendment is known. After the new law is enacted, taxpayers will need to review their positions for prior returns lodged: those taxpayers who anticipated the law correctly do not need to do anything more those taxpayers who did not apply the law in accordance with the changes can seek amendments and if a reduction in liability results, interest on overpayment will be paid if an increase in liability results, no tax shortfall penalties will be applied and any interest accrued will be remitted to the base interest rate up to the date of enactment of the law change. In addition, any interest in excess of the base rate accruing after the date of enactment will be remitted where taxpayers actively seek to amend assessments within a reasonable timeframe after enactment.

More information Refer to Budget Measures 2011-12.