The Federal Government has released revised exposure draft legislation, which outlines the final stages of reforms for the tax treatment of financial arrangements.
The Minister for Revenue and Assistant Treasurer, Peter Dutton, said the legislation brings with it a number of changes and proposals that will introduce new tax timing rules regarding fair value, retranslation and hedging.
The changes include an amended approach to financial arrangements and additional hedging rules, which will facilitate a high level of matching between the tax treatment of the gain or loss on a hedging arrangement and the tax treatment of the gain or loss on the underlying transaction.
Dutton said the additional hedging rules will have substantial benefits for the industry in terms of improved risk management and lower business costs. He added that the Government will monitor the implementation of the rules to ensure they are not exploited.
“The Government believes that these substantial reforms to the taxation of financial arrangements will reduce uncertainties and distortions. The reforms will lead to lower costs for financial activities conducted by businesses and result in improved competitiveness and greater efficiency in the general operation of Australia’s financial markets,” he said.
Dutton said the release of the revised exposure draft legislation was developed with industry consultation following the release of the first exposure draft in December 2005.
The first stage of the taxation reform (debt/equity tax reform) was legislated in 2001 in Division 974 of the Income Tax Assessment Act 1997. Stage 2 (foreign currency tax reform) was legislated in 2003 in Division 775 and Subdivisions 960-C and 960-D of the Income Tax Assessment Act 1997.
