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Thursday, 20 September 2007
Page: 6

Mr DUTTON (Minister for Revenue and Assistant Treasurer) (9:21 AM) —I move:

That this bill be now read a second time.

The Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2007 introduces a comprehensive framework for the taxation of financial arrangements (TOFA). The objectives of the bill are to reduce tax induced distortions to investment and financing, to facilitate efficient risk management, and to reduce compliance and administration costs.

The bill will reduce tax distortions by generally ignoring the distinction between capital and revenue in tax law, and taxing financial arrangements on their economic substance rather than their legal form.

In order to align the tax treatment of economically similar financial arrangements, many financial arrangements will be taxed on an accruals basis.

The bill will facilitate efficient risk management by allowing for the alignment of character and tax timing of hedging arrangements, increasing the post-tax efficiency and effectiveness of hedging.

The bill will also reduce compliance and administration costs of Australian businesses by permitting closer alignment between tax and accounting outcomes on an elective basis, and reducing the complexity of accruals calculations. The bill contains a number of elections which allow eligible taxpayers to use results from their financial reports for tax purposes.

The provisions in the bill will apply on a mandatory basis to taxpayers with substantial economic resources and sophisticated financial systems.

Approved deposit-taking institutions, securitisation vehicles or financial entities must follow the new rules if their aggregated annual turnover is $20 million or more.

Taxpayers with an aggregated annual turnover of $100 million or more must comply with the rules. Other taxpayers may choose to apply the new rules.

Full details of the amendments are contained in the explanatory memorandum.

Debate (on motion by Mr Edwards) adjourned.