• Delicious




Australia To Proceed With Taxation Of Financial Arrangement Reforms

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

19 May 2008

Australian Treasurer Wayne Swan and Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, Chris Bowen, have announced that the Labor Government plans to proceed with the final stages of the Taxation of Financial Arrangements (TOFA) reforms.

The TOFA Stages 3 and 4 measures, which represent the final stages of the TOFA reforms, will introduce new tax rules for accruals/realisation, fair value, retranslation, reliance on financial reports and hedging. The Treasurer also announced plans to proceed with amendments and regulations relating to TOFA Stages 1 and 2.

The TOFA Stages 3 and 4 measures contain rules that cover tax treatments for certain financial arrangements, which will achieve compliance cost savings by allowing eligible taxpayers to make use of particular aspects of the accounting standards to determine their taxable income from financial arrangements.

The legislation will apply for income years commencing on or after 1st July, 2009.

The elective commencement date of 1st July, 2008 contained in Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2007 (the 2007 TOFA Bill) will not apply.

The TOFA Stages 3 and 4 measures are extensive and complex. A commencement date of 1st July, 2009 is intended to give taxpayers time to plan for the commencement of the measures and to raise issues in consultation with the Treasury.

This period will allow appropriate adjustments to be made, including interactions with other parts of the tax law, prior to the commencement date.

The legislation will be finalised in consultation with interested parties.

Stage 1 of TOFA, the debt/equity tax reform, was legislated in 2001. Stage 2, the foreign currency tax reform, was legislated in 2003.

The 2007 TOFA Bill introduced into Parliament last year contained the TOFA Stages 3 and 4 measures but lapsed when the 2007 Federal election was called.

The government will proceed with measures that clarify the tax treatment of certain Upper Tier 2 and similar capital instruments.

Specifically, regulations will be made to facilitate debt tax treatment for certain Upper Tier 2 and similar capital instruments issued by:

  • Authorised deposit-taking institutions (ADIs) that are banks and their Australian Prudential Regulations Authority (APRA) regulated subsidiaries;
  • ADIs that are non-mutual building societies and their APRA regulated subsidiaries;
  • Any entity that has undertaken to comply with APRA's prudential standards dealing with capital adequacy and any of its subsidiaries covered by the undertaking;
  • A foreign ADI that is a bank and is regulated for prudential purposes by a foreign prudential regulator that has a regulatory role comparable to that of APRA, and under ADI capital requirements comparable to those of APRA.

The government will extend the debt/equity transitional arrangements under the income tax law to 1st July 2008 to ensure that the law preceding the debt/equity tax rules continues to apply for Upper Tier 2 instruments.

Consultation on the draft regulations, which will have effect for returns made on or after 1st July 2001, will be undertaken prior to their finalisation.

The government will proceed with amendments to the foreign currency provisions of the income tax law to extend the scope of a number of compliance cost saving measures in the law, and to make technical amendments to ensure that the provisions operate as intended.

Since their introduction, a number of issues concerning their operation have been raised by industry and professional bodies.

The amendments will address many of the concerns by extending the scope of compliance cost saving measures in the provisions and ensuring that the provisions operate as intended.

The amendments, which will have effect from 1st July 2003, will be developed in consultation with interested parties.

.

 

 






Write a comment