TLAB No. 2 includes proposed changes to the definition of interest for the purposes of the interest withholding tax provisions in Division 11A of the Income Tax Assessment Act 1936.
The proposed changes to the definition of interest will have the effect of substantially broadening the category of payments which will be subject to interest withholding tax. A major concern with the proposed changes is the real potential for interest withholding tax to apply to payments made under financing and hedging transactions which currently do not fall within the definition of interest for withholding tax purposes, especially where such transactions are entered into by many Australian businesses for bona fide commercial reasons and are not designed to avoid the withholding tax provisions.