1 October 2008

Taxation of Financial Arrangements (TOFA) Stages 3 and 4

The Assistant Treasurer Chris Bowen MP today announced the release of an exposure draft bill and related explanatory material dealing with Taxation of Financial Arrangements (TOFA) Stages 3 and 4. 

“Since the 2007 TOFA Bill lapsed due to the 2007 federal election, the draft legislation has undergone a number of technical amendments, including the addition of consolidation interaction rules,” Mr Bowen said. 

“The exposure draft material also includes integrity rules to address value shifting and non-arm’s length dealings in relation to financial arrangements.”

The TOFA Stages 3 and 4 reforms will modernise the taxation of financial arrangements through new and more coherent tax timing rules, relating to:  

  • accruals/realisation
  • fair value
  • retranslation
  • use of financial reports, and;
  • hedging. 

“These measures would assist Australia in becoming an international financial centre,” Mr Bowen said.

The TOFA Stages 3 and 4 measures contain elective tax-timing and character hedging rules that are designed to minimise tax timing and character mismatches and thereby to facilitate the efficient management of risk. 

“The tax-timing rules also permit eligible taxpayers to elect to have financial arrangements taxed on a fair value or retranslation basis, or elect to rely on their financial reports for taxation purposes,” Mr Bowen said.

“These elections, which are subject to appropriate safeguards and are designed to minimise tax deferral, create compliance cost savings by allowing these taxpayers to make use of particular aspects of the accounting standards to determine their taxable income from financial arrangements.”

Taxpayers to which the measure applies who do not make these elections will be required to apply the TOFA Stages 3 and 4 accruals and realisation rules.

Submissions are due by 17 October 2008 and may be emailed to tofa@treasury.gov.au or mailed to:

The Manager
Finance and Strategy Unit
Business Tax Division
The Treasury
Langton Crescent
Parkes ACT 2600

The TOFA Stages 3 and 4 exposure draft bill and related explanatory material can be found at tofa.treasury.gov.au.