The definition of a hybrid debt instrument will be amended to exclude instruments subject to subordination arrangements.

The proposed amendment aims to exclude interest-bearing arrangements from the definition of hybrid debt instruments as contained in s8F of the Act, if these instruments become subject to a subordinary agreement. It is interesting to note that a distinction is made between instruments which are subordinated from the outset and subordination arrangements concluded after the issuance of the instrument. It also remains to be seen whether the exclusion will be a retrospective exclusion. The holders of these instruments might therefore remain subject to income tax regardless of the company’s ability to service its interest expense, while the company is still able to benefit from a potential income tax deduction for the interest.