The Howard Government today released draft legislation containing proposals for the tax-timing treatment of financial arrangements.
In announcing the release of the draft legislation, Assistant Treasurer Mal Brough said the proposed reforms would improve a complex area of taxation law and offer significant cost savings to business.
The draft legislation represents the Howard Government's proposals for the final stages of reforms of the taxation of financial arrangements (TOFA stages 3 and 4).
"The proposed reforms represent a major milestone in improving this complex area of law and would place Australia at the forefront of the income tax treatment of modern financial arrangements," Mr Brough said.
"Extensive consultation with industry and professional bodies over several years, as well as obtaining expert advice on the financial accounting treatment of financial arrangements under new accounting standards, has led to the development of the draft legislation."
While the draft legislation reflects, where possible, financial accounting concepts contained in the new accounting standards, offering significant compliance cost savings compared to the current tax treatment, Mr Brough said he is aware that some industry groups would prefer to see the final legislation based on a direct link to accounting standards.
The draft legislation contains rules that cover tax-timing treatments for financial arrangements, including tax-timing hedging rules that are designed to minimise tax-timing mismatches. Details about the treatment of synthetic financial arrangements, the commencement date and transitional issues, and interactions with the rest of the income tax law are being developed.
Mr Brough said draft legislation had been designed and drafted using the "coherent principles" approach to tax design and will modernise the taxation law's treatment of financial arrangements.
The TOFA reforms broadly give effect to recommendations contained in Chapter 9 of A Tax System Redesigned (the Ralph Report). Stage 1 of TOFA (debt/equity tax reform) was legislated in 2001 in Division 974 of the Income Tax Assessment Act 1997. Stage 2 (foreign currency tax reform) was legislation in 2003 in Division 775 of the Income Tax Assessment Act 1997.
Mr Brough said he welcomed comments on the draft legislation, particularly in relation to the scope of the proposed rules, the coherent principles approach to drafting the proposals and any compliance costs associated with the proposals.
The draft legislation and the accompanying explanatory material can be found on the Treasury website at tofa.treasury.gov.au.
Interested parties are invited to submit comments on the draft legislation by 1 March 2006. Comments can be submitted by email to tofa@treasury.gov.au or to:
The Manager
Taxation of Financial Arrangements Unit
Business Tax Division
The Treasury
Langton Crescent
Parkes ACT 2600
It is intended that all comments not marked "Confidential" will be treated as public and placed on the Treasury's website. Therefore any submissions which are made on a confidential basis should be clearly marked as such.
Treasury officials will conduct further consultation with taxpayer and industry representatives prior to the development of final legislation.