The Minister for Revenue and Assistant Treasurer, Senator Helen Coonan, today welcomed the introduction into Parliament of legislation to reform the taxation laws relating to foreign currency gains and losses.
The New Business Tax System (Taxation of Financial Arrangements) Bill (No. 1) 2003 also removes the taxing point on conversion or exchange of certain financial instruments.
This bill was issued as exposure draft legislation on 17 December 2002 to allow public comment and consultation.
Foreign currency reforms
The measures in this bill represent the second stage of reforms to the taxation of financial arrangements (TOFA) recommended by the Ralph 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.
"The reforms to taxation of foreign currency gains and losses will promote greater certainty and consistency in the taxation of foreign currency gains and losses by removing uncertainties and anomalies in the current law," 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 and providing optional roll-over relief for securities issued under certain finance facility agreements analogous to long term loans," she said.
"In designing this legislation the Government was mindful of the sometimes significant compliance costs associated with the taxation of foreign currency denominated transactions and has provided a number of options designed to reduce these costs without compromising the integrity of the measures."
Senator Coonan said that optional functional currency provisions will provide compliance cost saving benefits for many businesses with significant international operations.
"Alternative options for calculating foreign currency gains and losses on certain foreign currency denominated bank accounts are also provided," Senator Coonan said
"In particular, many small businesses and investors will benefit by an optional method that removes the need to calculate, for income tax purposes, the foreign currency gains and losses from certain foreign currency denominated bank accounts with a total balance not exceeding the foreign currency equivalent of A$250,000," Senator Coonan said.
"The measures will generally apply from 1 July 2003 which is designed to align commencement with the beginning of an income year thereby reducing transitional compliance costs for business."
"Certain financial institutions will be excluded from the new regime to enable better alignment with the commencement date for the foreign currency re-translation reforms announced by the Government. This will ensure these entities do not incur unnecessary compliance costs," Senator Coonan said
Removal of taxing point for convertible or exchangeable traditional securities
"Removing the taxing point on conversion or exchange of certain traditional securities will improve the ability of business to raise new capital using these securities by making them more attractive to investors," Senator Coonan said.
"It means that an investor who holds the security that is converted or exchanged will not be subject to tax until the ultimate sale of the ordinary share acquired from the conversion or exchange. This will prevent potential cash flow difficulties arising where the investor does not have the cash from the conversion or exchange to pay the tax on it".
This measure will apply to traditional securities including relevant interest bearing bonds and debentures issued after 7.30 pm AEST on 14 May 2002.