House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. Phillip Lynch, M.P.)

LOAN (DROUGHT BONDS) AMENDMENT BILL 1976

The purpose of this Bill has been referred to in the introductory pages of this memorandum.

Clause 1: Short title

This clause provides for the short title and citation of the Act.

Clause 2: Commencement

The Act is to come into operation on the day on which it receives the Royal Assent.

Clause 3: Conversion of stock

Clause 3 provides for an additional section -section 27A - to be inserted in the Loan (Drought Bonds) Act 1969 which, together with clause 12 of the Loan (Income Equalization Deposits) Bill, will provide for the conversion of drought bonds into income equalization deposits.

Sub-clause (1) of the proposed section 27A provides that a parcel of drought bonds shall be deemed to have been redeemed on the date on which application is made for conversion of the parcel into an income equalization deposit. In terms of legislation implementing the scheme, the "conversion" will be achieved by bonds being deemed to have been redeemed and an income equalization deposit being deemed to have been made. The second part of this procedure, the deeming of deposits being made, is encompassed in sub-clause 12(3) of the Loan (Income Equalization Deposits) Bill. Under sub-clause 12(1) of that Bill, a parcel of drought bonds may be converted into an income equalization deposit only to the extent of any unrecouped income tax deductions in respect of the parcel.

Paragraph (a) of sub-clause (1) provides that interest on bonds converted will continue to the end of the month in which the conversion application is made. A complementary clause, 12(4), of the Loan (Income Equalization Deposits) Bill, provides that interest on "conversion deposits" does not commence until the first day of the month following the date on which conversion application is made.

In conjunction, the abovementioned provisions ensure that there is continuity of interest. All series of drought bonds were issued on terms and conditions which included a term that accrued interest on redemption would be paid up to the end of the last completed month. In the absence of these provisions a bondholder could ensure continuity of interest only by applying for conversion on the first day of a month.

In addition, these provisions conform with existing procedures for payment of interest on drought bonds.

Paragraph (b) provides for the "conversion redemption" to be effected without any liability to make any payment in respect of the deemed redemption of bonds other than the payment of accrued interest. In the absence of such a provision, redemption could only be effected by repayment of principal. This clause is necessary because the procedures for conversion under the Loan (Drought Bonds) Act involve the deeming of parcels of bonds to be redeemed.

Sub-clause (2) specifies the accounting arrangements which will apply where drought bonds are converted into income equalization deposits pursuant to an application by the stockholder.