immeasurable blow to anz reputation, page-46

What about tax?

The treatment of Securities Lending arrangements are mainly covered by S26BC of the Income Tax Assessment Act 1936. In simplified terms the Act provides that:

>The sale by the Lender to the Borrower at the beginning of the transaction and the reverse sale by the Borrower to the Lender at the end of the transaction are not regarded as disposals for the purposes of Capital Gains Tax.
This exemption from tax is conditional on the Lender receiving all the benefits of (otherwise) owning the securities.

>The Act provides the mechanism that allows the Lender to receive the financial benefits of ownership by way of dividends, franking credits, capital returns and other corporate actions. The Lender is regarded as having received these benefits of ownership and is taxed accordingly.

>Conversely, the Borrower is regarded as having not received any of the financial benefits of ownership.
The securities loan therefore has no Capital Gains Tax or Income Tax implications in respect of the securities lent and is termed tax neutral.

>The transaction must be reversed within 12 months. If the transaction is not reversed within 12 months, the transaction is regarded as a disposal (sale) by the Lender to the Borrower at the date of the loan, and the exemptions from taxation are not realised.