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Taxation of financial arrangements: synthetic and complex arrangements.



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NO.022

TAXATION OF FINANCIAL ARRANGEMENTS - SYNTHETIC AND COMPLEX

ARRANGEMENTS

The Assistant Treasurer, Chris Bowen MP, today alerted taxpayers to the Government's commitment to ensuring the integrity of the income tax law relating to financial arrangements following the recent passage by the Parliament of the Taxation of Financial Arrangements (TOFA) Stages 3 and 4 measures.

TOFA Stages 3 and 4 provides a comprehensive framework for taxing financial arrangements. The measures cover tax timing treatments for financial arrangements, including elective hedging rules that are designed to minimise tax mismatches.

Eligible taxpayers can elect to have financial arrangements taxed on a fair value or retranslation basis, or to rely on their financial reports for taxation purposes. The elections create compliance cost savings by more closely aligning tax treatment with accounting standards.

"The measures, which have been the subject of considerable input from stakeholders, are designed to facilitate investment, financing, price making and risk management decision making by reducing tax distortions and anomalies," Mr Bowen said.

Minister Bowen reiterated the Government's intention to monitor the implementation of this reform of Australia's financial taxation system and to consider the need for any refinements, particularly given the complex nature of many types of arrangements that the measures address.

"Monitoring will include consideration, against the background of Part IVA of the Income Tax Assessment Act 1936, of the need for specific integrity measures to address issues such as synthetic arrangements," Mr Bowen said.

Synthetic arrangements can be engineered to create a legal outcome which differs from their economic substance in a way that undermines the intent of the tax law.

Minister Bowen said that should specific integrity measures be required, the Government would consider the need for them to take effect from the commencement of the TOFA Stages 3 and 4 measures.

Media Release of 26/03/2009

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