Australia Further Reforms Financial Arrangements' Taxation

by Mary Swire, Tax-News.com, Hong Kong

30 June 2010

Australia’s Assistant Treasurer, Nick Sherry, has announced further refinements to the income tax law relating to the taxation of financial arrangements (TOFA), to provide certainty and clarity to the operation of the law.

"The government is making a range of refinements to the TOFA regime that will further lower compliance costs and provide additional certainty to affected taxpayers," Sherry said. "These proposed amendments to the tax law are the result of extensive consultation with industry."

It is proposed, for example, to amend the Income Tax Assessment Act 1997 (ITAA 1997) so that a sufficiently certain gain or loss can be spread over the period to which the gain or loss relates in a broader range of circumstances. There appear to be technical difficulties with the current provisions when applying compounding accruals to a gain or loss in respect of which there is a single financial benefit.

Multicurrency financial arrangements will also be able to be accrued, and the proposed amendments will ensure that the application of the ITAA 1997 to repurchase/securities lending and short sale arrangements results in tax outcomes that are consistent with their economic and commercial substance. Details of both of these proposed amendments are to be developed in consultation with industry and the Australian Taxation Office.

There is a proposal that foreign bank branches may rely on their audited Australian Prudential Regulation Authority reports to satisfy the financial accounting and auditing requirements for the purpose of electing into the TOFA elective methods. Currently, an Australian branch of a foreign bank might have to rely on the foreign bank's audited financial reports.

The amendments will generally apply for income years commencing on or after July 1, 2010. Consultation on the exposure draft legislation relating to them will take place in the near future.

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