18 July 2012 6:58am

Tier-two capital instruments that include a loss absorbency clause – as the Australian Prudential Regulation Authority will require from next year – will not be precluded from being classified as debt for tax purposes.

This is the position outlined in a Treasury discussion paper issued yesterday, setting out changes the Government will make to the tax treatment of tier-two instruments under the Basel III capital reforms.

The changes will cover authorised deposit-taking institutions and certain other related entities regulated by APRA, and will take effect from January 1 next...