Australia's Board of Taxation has issued a discussion paper on the taxation treatment of Islamic financial products in Australia. Recognising the importance of Australians having access to Islamic financial products, the Australian government had asked the Board to identify impediments in the Australian tax laws, at both State and Commonwealth levels, which might currently prevent or discourage access.

In determining the policy response the discussion paper examines the development of Islamic financial products in other jurisdictions, including the United Kingdom. The Board has been asked to make recommendations for Commonwealth laws and findings for State laws that will ensure that Islamic financial products are taxed in the same way as conventional financial products to which they are economically equivalent. The purpose of the discussion paper is to determine whether Islamic financial products can be worked into the existing Australian taxation framework or whether new provisions directed specifically at Islamic financial products will need to be developed. The Board is at the early stages of the consultation process.

At this stage, the general approach of the discussion paper is that Islamic financial products can fall within some of Australia's existing taxation framework, including the taxation of financial arrangements (TOFA) rules, and other income tax rules (such as the debt/equity rules) as those rules consider the substance of the product in question. Other taxation rules which focus more on the form of the product may require some adaptation as they can lead to differing results for Islamic financial products and conventional financial products. The Board notes some examples of these issues which arise with Australia's capital gains tax, goods and services tax, interest withholding tax, and State imposed stamp duty provisions, which may be an impediment to Islamic financial products in Australia.