A Guide to the Law of Securitisation in Australia - Clayton Utz

Note that paragraphs (a)(iii) and (b) are equivalents – one relatesto equity interests and the other to debt securities (whether ornot in writing). In practical terms, they both require a dedicationof the relevant income stream to meet the obligations under theinterests or securities, so that the derivation test is satisfied, butpermit an insubstantial amount of other income (ie. from anysource) to flow to investors. (Contrast them to paragraphs (a)(i)and (ii) where the derivation of the relevant income stream is notmentioned, presumably because the focus is on a pass-througharrangement).The concept of a “pool of mortgages” is central to both as itdetermines the source of the substantial income stream. It isdefined as:“A pool or collection of assets:(a) that is comprised solely of mortgages, or(b) that is comprised substantially or, if the regulations prescribethe extent, to the prescribed extent, of mortgages or ofmoney paid pursuant to mortgages (whether or not thatmoney has been invested in prescribed property) or of money(whether or not that money has been invested in prescribedproperty) if the primary investment policy is to invest inmortgages, but that may also contain either or both of thefollowing:(i) prescribed property,(ii) any other property that forms part of the pool or collection ofassets for the purpose of issuing or making a mortgagebackedsecurity in relation to the pool of mortgages.”“Mortgages” includes mortgages of all kinds of land (whereverlocated), both residential and non-residential, freehold andleasehold.Thus it remains the case under the Duties Act that theconcessions in sections 282 and 283 are principally aimed atsponsoring the securitisation of mortgages. Prima facie, assetbackedsecurities, such as those relating to credit card and leasereceivables, are not entitled to the benefit of the mortgagebackedsecurity concessions and duty may be payable on severalstages of their securitisation process. How much duty is payable(if any) will, of course, depend on the structure adopted.It is significant that the term “prescribed property” is used bothin the “pool of mortgages” definition and in the “mortgagebackedsecurity” definition itself (see paragraph (c)). The use inparagraph (c) of the definition of “mortgage-backed security” hasthe effect of broadening the definition beyond its naturalmeaning. An instrument will still qualify as a mortgage backedsecurity even though there are no supporting mortgages,provided the underlying pool is comprised of other “prescribedproperty”. In the case of paragraph (c)(ii), the income must bederived substantially from prescribed property, so that aninsubstantial part of the income can be derived from othersources. (Contrast paragraph (c)(i) which lacks this flexibility inrelation to the source of income.)“Prescribed property” means any of the following:“(a) cash,(b) bonds, debentures, stock or Treasury Bills of theCommonwealth or the Government of New South Wales orthe Government or Administration of another State orTerritory,(c) debentures or stock of any public statutory body constitutedunder the law of the Commonwealth or New South Wales oranother State or Territory,(d) notes or other securities of the Commonwealth or theGovernment of New South Wales or the Government orAdministration of another State or Territory,(e) deposits with, or the acquisition of certificates of deposits orany other security issued by, a bank or building society(whether expressed in Australian currency or otherwise),(f) bills of exchange, promissory notes or other negotiableinstruments accepted, drawn or endorsed by a bank (whetherexpressed in Australian currency or otherwise),(g) a guaranteed investment contract (expressed in Australiancurrency) of a type approved by the Chief Commissioner,(h) mortgage-backed securities, mortgage backed certificateswithin the meaning of Part 1B of the Trustee Act 1958 ofVictoria or marketable securities that are secondarymortgage market securities under section 29(1) of theMortgages (Secondary Market) Act 1984 of Queensland.”4.9 Relief in other StatesThere are equivalent, although not identical, mortgage-backedsecurity exemptions in Queensland, Victoria and Tasmania.Queensland has introduced asset backed securitisation relief,back-dated to 1 March 2002 (see the Revenue LegislationAmendment Act 2002). Perhaps the best feature of this relief isthat it overcomes transfer duty on a defined class of “financialassets”.27