Tax recommendations for Asset Backed Financing in Australia

The Australian Federal Government in its Budget at the start of May pledged to “enhance access to asset backed financing” by updating current tax laws.

The move is widely seen as assisting the development of Islamic financing in Australia, allowing Australian borrowers to access a new financial market to fund projects.

The Board of Taxation’s report on Islamic financing released on the same day as the budget noted “access to diverse sources of offshore capital is important in the context of Australia being a net capital importer. The Board recognises that Islamic finance may provide a further finance option to help meet this demand, particularly for infrastructure projects in Australia”.

Law firm Norton Rose Fulbright, which contributed submissions to the Board proposing taxation reform released a note highlighting the recommendations of the board.

Summary of Recommendations

The recommendations cover updates to tax laws as well as recommendations to develop guidance to provide tax neutrality to Islamic financing structures including Murabaha, Ijara and Sukuk