Income Tax Assessment Amendment Regulation 2012 (No.   )1
Select Legislative Instrument 2012 No.   
I, QUENTIN BRYCE, Governor-General of the Commonwealth of Australia, acting with the advice of the Federal Executive Council, make the following regulation under the Income Tax Assessment Act 1997.
Dated	2012

Governor-General
By Her Excellency’s Command
[DRAFT ONLY – NOT FOR SIGNATURE]
Assistant Treasurer

1	Name of regulation
		This regulation is the Income Tax Assessment Amendment Regulation 2012 (No.   ).
2	Commencement
		This regulation commences on 1 January 2013.
3	Amendment of Income Tax Assessment Regulations 1997
		Schedule 1 amends the Income Tax Assessment Regulations 1997.

Schedule 1	Amendment
(section 3)
[1]	Regulation 974-135D, heading
substitute
974-135D	Term cumulative subordinated note with insolvency or capital adequacy conditions
[2]	Regulation 974-135E, heading
substitute
974-135E	Perpetual cumulative subordinated note with profitability, insolvency or negative earnings conditions
[3]	After regulation 974-135E
insert
974-135F	Term subordinated note with non-viability condition
	(1)	This regulation applies to an obligation to pay the principal or interest on a relevant term subordinated note at a particular time on or after 1 January 2013.
	(2)	For paragraphs 974-135 (8) (a) and (b) of the Act, the fact that the obligation is subject to a non-viability condition does not in itself prevent the obligation from being a non-contingent obligation.
	(3)	In this regulation, a term subordinated note is relevant if:
	(a)	it is issued by an entity regulated for prudential purposes by APRA; and
	(b)	when it is issued:
	(i)	it does not constitute or meet the requirements of a Tier 1 capital instrument; and
	(ii)	it does not form part of the Tier 1 capital of the issuer of the note, and the reason for it not doing so is not that the instrument is in excess of the Tier 1 capital required for the purposes of prudential standards that deal with capital adequacy; and
	(c)	it has a term of no more than 30 years, and it does not include an unconditional right to extend the term of the note beyond a total term of 30 years; and
	(d)	it is subject to a condition that, unless a non-viability trigger event occurs, any payment of the principal or interest beyond the date on which it would otherwise be payable must accumulate (with or without compounding); and
	(e)	it does not give the issuer of the note an unconditional right to decline to provide a financial benefit that is equal in nominal value to the issue price of the note to settle the obligations under the note.
Note for subparagraph (b) (ii)   Whether the note forms part of the Tier 1 capital of the issuer is determined under the prudential standards that apply to the issuer.
	(4)	In this regulation, a condition applying to the obligation is a non-viability condition if the condition has the effect that the issuer of the note is obliged to write off the note or convert the note into ordinary shares of the issuer or the parent entity of the issuer if a non-viability trigger event occurs. 
	(5)	In this regulation, a non-viability trigger event, in relation to a note, is any of the following:
	(a)	APRA or a comparable foreign regulator issues a notice, in writing, to the issuer of the note stating that conversion or write-off of capital instruments issued by the issuer is necessary because, without it, APRA or the foreign regulator considers that the issuer will become non-viable;
	(b)	APRA or a comparable foreign regulator determines, in writing given to the issuer, that without an injection of capital, or equivalent support, from the government the issuer will become non-viable.

Note
1.	All legislative instruments and compilations are registered on the Federal Register of Legislative Instruments kept under the Legislative Instruments Act 2003. See www.comlaw.gov.au.