The Minister for Revenue and Assistant Treasurer, Senator Helen Coonan, today announced the release of exposure draft legislation for public comment in relation to the taxation of foreign currency gains and losses and the removal of the taxing point on conversion or exchange of certain financial instruments. Both measures were announced in the 2002-2003 Budget.
Senator Coonan said the legislation is expected to be introduced into Parliament in the Autumn 2003 Sittings following a public consultation process.
Foreign currency reforms
Taxation measures addressing foreign currency gains and losses are the second stage of reforms to the taxation of financial arrangements (TOFA) recommended by the Ralph report of the Review of Business Taxation. The first stage, dealing with reforms to the borderline between debt and equity for taxation purposes, was implemented in July 2001.
"These reforms remove uncertainties and anomalies in the current law governing the taxation of foreign currency gains and losses," Senator Coonan said.
"They also clarify some aspects of the taxation of foreign currency gains and losses by improving the interaction with the uniform capital allowance and capital gains tax provisions. In addition, the elective functional currency rules will generally reduce compliance costs for businesses which conduct a significant part of their activities in a foreign currency."
As a result of consultations since the announcement of these measures, the Government has decided to defer implementation of the retranslation reforms, which involves valuing foreign currency denominated assets and liabilities in $A at the balance date exchange rate and taxing any resulting foreign currency gains and losses at that point. Retranslation reform will now be implemented with other parts of the TOFA reforms scheduled to be enacted over the next 18 months.
Removal of taxing point on conversion or exchange of certain financial instruments
"Removing the taxing point on conversion or exchange of traditional securities will improve the ability of business to raise new capital using these securities by making such instruments more attractive to investors," Senator Coonan said.
"It means that an investor who holds a security that is converted or exchanged will not be subject to tax until the ultimate sale of the financial instrument acquired from the conversion or exchange. This will prevent potential cash flow difficulties arising where the investor does not have the cash to pay the tax on conversion or exchange," Senator Coonan said.
Interested parties are invited to submit comments on this exposure draft legislation by Friday 24 January 2003. The exposure draft and explanatory material can be viewed on the Treasury's web site (www.treasury.gov.au). Comments can be submitted to Manager, Taxation of Financial Arrangements and Leasing, The Treasury, Langton Crescent, Parkes, ACT 2600 (tofa&leasing@treasury.gov.au).