Package of measures to provide greater tax certainty for business finance

The Assistant Treasurer, Senator Nick Sherry, today announced three actions that together will provide a greater degree of certainty in relation to the tax treatment of key business finance transactions.

Today the Rudd Government has extended the debt/equity transitional period for Upper Tier 2 instruments to 1 July 2010, had the final regulations facilitating the debt tax treatment of certain term subordinated notes made and registered, and released for consultation draft legislation to refine the Taxation of Financial Arrangements (TOFA) to further boost clarity around the taxation treatment of financial arrangements.

"This package of actions will provide important certainty including, in particular, to the banking and finance sector as it goes about securing the capital it needs to service Australia's financing needs," said the Assistant Treasurer.

"These changes all follow extensive consultation and I am grateful to industry bodies and tax professionals for their advice and input."

The Income Tax Assessment Act 1997 created a regime for the classification of financial instruments as either 'debt' or 'equity' for various income tax purposes. The classification is important as debt treatment can give rise to deductibility of interest expenses, whereas equity treatment does not.

Upper Tier 2 extension

Upper Tier 2 instruments are a type of capital that is essentially permanent in nature, but often features both debt and equity characteristics. Such instruments can contribute to the overall strength of an authorised deposit-taking institution (ADI).

Reforms to the debt/equity tax rules included a transitional measure to enable issuers sufficient time to amend their instruments to come within the terms of a final set of Upper Tier 2 regulations which have been the subject of extensive consultation and which will provide issuers with greater certainty as to the tax treatment of certain Upper Tier 2 instruments, facilitating their tax deductibility.

The transitional period, which has since expired, will now be extended to 1 July 2010.

"I have agreed to an additional extension of the transitional period to enable a final round of consultation with key stakeholders on technical aspects before finalisation of the regulations," said the Assistant Treasurer.

Term Subordinated Notes

Term subordinated notes are instruments where the claims of holders are subordinated to, or have a lower priority than, the claims of senior debtholders in a winding up of an issuer of the notes. These notes can be used to contribute to the capital adequacy of ADIs for the purposes of prudential standards.

Today we have confirmed the final approval and registration of detailed Regulations that will allow debt tax treatment of certain term subordinated notes by ensuring that certain clauses relating to solvency and capital adequacy do not preclude those notes being considered as debt interests for the purposes of the debt/equity rules. These types of clauses are commonly found in term subordinated notes.

The Regulations facilitating the debt tax treatment of certain term subordinated notes provide certainty as to the tax treatment of such instruments.

"Facilitating the debt tax treatment in these circumstances ensures comparability between Australia's tax rules and those of other jurisdictions and will maintain Australia's competitiveness in international financial markets," the Assistant Treasurer said.

The Regulations apply to payments made under the relevant notes on or after 1 July 2001 and further information on the requirements to be met for notes to fall within the Regulations is set out in Attachment A.

TOFA Amendment Bill

The Assistant Treasurer released the details of a package of TOFA reforms in late 2009.

Today's draft legislation delivers on the majority of these important reforms, with the full package of reforms set out in detail in Attachment B.

"The reforms will result in a financial taxation system that will better reflect the economic and commercial substance of financial arrangements," Said the Assistant Treasurer.

"Financial arrangements include a range of financial instruments which are used widely by companies and financial institutions, but also individuals – so they form a critical part of our economy."

"These refinements ensure the clear policy intent of the TOFA reforms is delivered and our financial taxation system works as intended and at global best practice standards."

The consultation period for the exposure draft TOFA Bill closes on 14 May 2010 and copies of all relevant materials are available on the TOFA consultation website tofa.treasury.gov.au.

Attachment A

Requirements for Term Subordinated Notes to Fall Within The Regulations

To come within the scope of the Regulations, a term subordinated note must have the following features:

the term of the note is not more than 30 years, and there is no unconditional right to extend the term beyond that period;
the return on the note is cumulative, that is, if a payment is not made when payable the obligation to pay it continues (although interest does not have to accrue on the deferred payment); and
the note does not meet the requirements of a Tier 1 capital instrument for the purposes of prudential standards that deal with capital adequacy .

Attachment B

Details of Measures Contained In Draft TOFA Legislation

Proposed amendment	Explanation
Anti-overlap rule for tax exempt asset financing and capital gains tax (CGT) Proposal: Ensure that the tax exempt asset financing provisions have priority over the CGT provisions.	A consequential amendment was made that replaced an existing anti-overlap rule with a new anti-overlap rule that deals with Division 230 financial arrangements only. The replaced anti-overlap rule gave priority to Division 250 (dealing with tax exempt asset financing) over the CGT provisions. Its removal created a potential for overlap between the tax exempt asset financing provisions and the CGT provisions. Accordingly, the previous anti-overlap rule is to be reinstated.
Deductibility of dividends on debt interests Proposal: Amend Division 230 to clarify that a dividend paid on a share that is a debt interest may be deductible under Division 230, consistent with the corresponding deductibility provision (section 25-85) in the debt/equity provisions.	In accordance with section 25-85, dividends paid on shares that are classified as debt interests may be deductible. Division 230 contains a similar rule but there is uncertainty as to whether it fully overcomes the impediments to deductibility in the way that section 25-85 does. This amendment is to remove this uncertainty.
Part of financial benefit sufficiently certain Proposal: Amend Division 230 to make it clear that for the purposes of the accruals methodology it is only that part of the financial benefit which is, at the relevant time, fixed or determinable with reasonable accuracy that is to be treated as 'sufficiently certain'.	The whole of a financial benefit is treated as 'sufficiently certain' if only part of it meets this criterion. This could overstate the extent of accruals. Accordingly, Division 230 is to be amended so only that part of the financial benefit which is, at the relevant time, fixed or determinable with reasonable accuracy is to be treated as 'sufficiently certain'.
Pro-rata attribution of gain or loss may be reasonable for accruals Proposal: Amend Division 230 to clarify that a pro-rata basis for attribution is not necessarily unreasonable.	When the accruals tax timing method is applied using the 'effective interest method', and the taxpayer's income year and financial reporting year are different, Division 230 allows the results from more than one audited financial report that covers the income year to be attributed to that income year, provided that a reasonable methodology is used. As currently drafted, a pro-rata attribution is considered not to be reasonable. However, a pro-rata basis for attribution of an accruals methodology is not necessarily unreasonable. An amendment will be made to clarify this.
Pro-rata attribution of portfolio fees not necessarily unreasonable Proposal: Amend Division 230 to clarify that a pro-rata basis for attribution of portfolio fees is not necessarily unreasonable.	An amendment will clarify that a pro-rata basis for attribution of portfolio fees is not necessarily unreasonable.
Extend assets test to unregulated superannuation funds Proposal: Modify the assets threshold test that applies to regulated superannuation funds so that it also applies to unregulated superannuation funds on the same basis.	The current threshold assets test for superannuation entities may not include non-regulated superannuation funds, which will result in different thresholds applying for regulated funds ($100 million) and unregulated funds ($300 million). Accordingly, this amendment ensures that the assets threshold test applies to regulated and non-regulated funds on the same basis.
Interests in partnerships and trusts subject to fair value or financial reports elections are Division 230 financial arrangements Proposal: Ensure that an interest in a partnership or trust that is otherwise excluded from Division 230 is subject to Division 230 if a fair value or financial reports election is made in respect of the interest.	In accordance with subsection 230-460(3), specified interests in partnerships and trusts are not subject to Division 230 and thus are not 'Division 230 financial arrangements'. Subsection 230-460(4) is a carve-out to the subsection 230-460(3) exception that allows the fair value election or the election to rely on financial reports to apply to an otherwise excluded interest in a partnership or trust. However, for either election to apply, the financial arrangement has to be a 'Division 230 financial arrangement'. The carve-out to the exception cannot apply as the interest is not a 'Division 230 financial arrangement'. This amendment ensures that where such an interest is subject to a fair value or financial reports election, the interest is a 'Division 230 financial arrangement' and not subject to the exception. This will enable Division 230 to apply to those interests.
Guarantees and indemnities subject to fair value or financial reports elections are Division 230 financial arrangements Proposal: Ensure that a guarantee or indemnity that is excluded from Division 230 is subject to Division 230 if a fair value or financial reports election is made in respect of it.	This amendment ensures that where a guarantee or indemnity is subject to a fair value or financial reports election, the interest is a 'Division 230 financial arrangement' and not excluded from the operation of Division 230. This will enable Division 230 to apply as intended.
Extend meaning of 'accounting standard' in Division 230 Proposal: Modify the references to 'accounting standard' so that they extend to accounting standards formulated or made by the Australian Accounting Standards Board (AASB). This will extend the term to include standards which are not made for the purpose of the Corporations Act 2001.	For the purposes of Division 230, the term 'accounting standard', takes its meaning from the Corporations Act 2001. The Corporations Act 2001 limits accounting standards to those the AASB makes for the purposes of that Act. However, the Australian Securities and Investments Commission Act 2001 provides for the AASB to formulate accounting standards for 'other purposes'. As these standards do not fall within the definition of 'accounting standard', an amendment is to be made to extend the scope of the definition in Division 230.
Extend meaning of 'auditing standard' in Division 230 Proposal: Modify the references to 'auditing standard' in Division 230 so that they encompass auditing standards formulated or made by the Auditing and Assurance Standards Board (AUASB).	The definition of 'auditing standard' in subsection 995-1(1) of the ITAA 1997 only includes auditing standards that are made under section 336 of the Corporations Act 2001. Similarly to the reason above, the definition of 'auditing standards' will be extended. In this case, the extension is to auditing standards formulated or made by the AUASB.
PAYG Division 250 interaction Proposal: Amend the TAA 1953 to reinsert a provision to ensure that net assessable gains from Subdivision 250-E of the ITAA 1997 are treated as instalment income.	A provision of the TAA 1953 dealing with the instalment income in relation to arrangements under Division 250 of the ITAA 1997 (which is about tax exempt asset financing) was repealed on the basis that the accruals provisions of Division 250 would be replaced by those of Division 230. However, this provision should not have been repealed as this replacement was not made.
Scope of 'cash settlable' financial arrangement: debt interests Proposal: Amend Division 230 to specifically treat a 'debt interest', as defined in the debt/equity measures, as a 'financial arrangement' (within the section 230-45 definition of this term).	Interests that are 'debt interests' for the purposes of the debt/equity measures should be financial arrangements. However, it is arguable that some debt interests are not 'cash settlable' and therefore are not financial arrangements. Accordingly, an amendment is to be made to extend the definition of a financial arrangement to include a debt interest. A consequential amendment is to be made to delete subsection 230-530(2) as this provision will be redundant because a non-equity share is a debt interest.
Scope of 'cash settable' financial arrangement: monetary value Proposal: Amend the definition of 'cash settlable' so that the monetary value aspect (in paragraph 230-45(3)(c)) applies where the amount of money or money equivalent is not, in the hands of the holder who has the relevant asset, subject to a substantial risk of loss.	Broadly, a financial benefit is considered to be money-like where it is convertible to money or money equivalent, it is liquid and its value in monetary terms cannot vary up or down. An amendment is to be made to ensure that a financial benefit is considered money-like where the value to the holder of the relevant asset cannot vary down to a substantial extent.
Pre-existing financial arrangements that are part of a portfolio of financial arrangements Proposal: Amend the TOFA transitional provisions to ensure appropriate interactions between the transitional provisions and the portfolio method for accruing fees, discounts and premiums.	There are a number of issues regarding the interaction between the transitional provisions and the portfolio method for accruing fees, discounts and premiums which mean that the transitional provisions may not apply in relation to arrangements that are subject to this method in the same way that they apply to other methods.
Hedging: Events involving multiple items Proposal: Amend Division 230 to clarify the operation of the hedging financial arrangements Subdivision where an entity ceases to have one or more, but not all, hedged items. Clarification is to be by way of attribution rules that ensure that appropriate gains and losses are brought to account when this occurs.	There is uncertainty about the operation of the hedging financial arrangements Subdivision where an entity ceases to have one or more, but not all, hedged items whose risks a hedging financial arrangement is hedging.
Net income of a transferor trust disregards Division 230 Proposal: Amend the transferor trust measures to put it beyond doubt that the net income of a transferor trust disregards Division 230.	Division 230 should be disregarded in calculating the net income of a foreign trust estate for the purposes of the deemed present entitlement rules. An amendment is to clarify that the net income of a transferor trust disregards Division 230.
Clarification of gain or loss Proposal: Amend the foreign currency retranslation provisions to make it clear that the wording of the provisions is consistent with the relevant accounting standards.	Amendments will be made to the foreign currency retranslation provisions to make them consistent with the accounting standards so that a taxpayer will recognise a gain when there is a gain amount in a profit or loss statement. A similar amendment will also be made so that the taxpayer recognises a loss when there is a loss amount in a profit or loss statement.
Hedged item recorded in own financial reports Proposal: Amend Division 230 to ensure that a hedging financial arrangement can exist where an arrangement that hedges a risk in relation to foreign currency is recorded as a hedging instrument in an entity's own financial reports.	Currently, a hedging financial arrangement cannot exist where an arrangement that hedges a risk in relation to foreign currency is recorded as a hedging instrument in an entity's own accounts. Division 230 will be amended to ensure a hedging financial arrangement can exist where an arrangement that hedges a risk in relation to foreign currency is recorded as a hedging instrument in an entity's own financial reports.
Hedging financial arrangement hedging risks in relation to multiple hedged items Proposal: Amend Division 230 to clarify that a hedging financial arrangement can hedge risks in relation to multiple hedged items.	This proposed amendment will clarify the operation of the existing law. It will remove doubt about whether risks in relation to multiple hedged items can be hedged by a hedging financial arrangement.
Asterisking Amendments to correct asterisking.	The word 'cease' is not defined in section 995-1. The asterisks in front of 'cease' are to be removed in: paragraph 230-70(1)(b); paragraph 230-75(1)(b); subparagraph 230-130(5)(b)(ii); paragraph 230-110(1)(c); and subsection 230-435(5). The term 'foreign currency' is defined; an asterisk should be inserted in front of 'foreign currency' in subparagraph 230-335(1)(c)(ii) and subsections 230-530(1) and 230-115(8). The asterisked reference in paragraph 230-520(1)(b) should be to direct value shift, not value shift.
Provisions incorrectly amended or repealed Amendments to correct provisions that were wrongly amended or repealed.	Amendments made to subsections 230-275(1) and (2) were intended to be made to subsection 230-380(1). The text in subsections 230-275(1) and (2) should replace subsection 230-380(1) and the original text in subsections 230-275(1) and (2) should be restored. Restore paragraph (aa) of the definition of 'special accrual amount' while retaining the new definition of 'special accrual amount'.
Typographical errors Amendments to correct typographical errors in the Taxation of Financial Arrangements Act 2009.	The sequence of the words 'financial' and 'hedging' in section 230-340 should be reversed. The heading of section 230-340 should read: 'Generally whole arrangement must be hedging financial arrangement'. The reference in paragraph 775-295(1)(c) should be made to paragraph 230-255(2)(a), not paragraph 230-255(1)(a). The reference in paragraph 775-305(1)(b) should be made to paragraph 230-255(2)(a), not paragraph 230-255(1)(a).
Incorrect references Amendments to fix incorrect references.	Subsection 230-520(2) should not refer to paragraph (1)(d). The 'realisation event' definition did not apply to the repealed value shifting provisions. Paragraph 230-520(1)(d) should not refer to Division 723. That Division is about a type of value shifting that was not dealt with under the repealed provisions.

Proposed amendment

Explanation

Anti-overlap rule for tax exempt asset financing and capital gains tax (CGT)

Proposal: Ensure that the tax exempt asset financing provisions have priority over the CGT provisions.

A consequential amendment was made that replaced an existing anti-overlap rule with a new anti-overlap rule that deals with Division 230 financial arrangements only. The replaced anti-overlap rule gave priority to Division 250 (dealing with tax exempt asset financing) over the CGT provisions. Its removal created a potential for overlap between the tax exempt asset financing provisions and the CGT provisions. Accordingly, the previous anti-overlap rule is to be reinstated.

Deductibility of dividends on debt interests

Proposal: Amend Division 230 to clarify that a dividend paid on a share that is a debt interest may be deductible under Division 230, consistent with the corresponding deductibility provision (section 25-85) in the debt/equity provisions.

In accordance with section 25-85, dividends paid on shares that are classified as debt interests may be deductible. Division 230 contains a similar rule but there is uncertainty as to whether it fully overcomes the impediments to deductibility in the way that section 25-85 does. This amendment is to remove this uncertainty.

Part of financial benefit sufficiently certain

Proposal: Amend Division 230 to make it clear that for the purposes of the accruals methodology it is only that part of the financial benefit which is, at the relevant time, fixed or determinable with reasonable accuracy that is to be treated as 'sufficiently certain'.

The whole of a financial benefit is treated as 'sufficiently certain' if only part of it meets this criterion. This could overstate the extent of accruals. Accordingly, Division 230 is to be amended so only that part of the financial benefit which is, at the relevant time, fixed or determinable with reasonable accuracy is to be treated as 'sufficiently certain'.

Pro-rata attribution of gain or loss may be reasonable for accruals

Proposal: Amend Division 230 to clarify that a pro-rata basis for attribution is not necessarily unreasonable.

When the accruals tax timing method is applied using the 'effective interest method', and the taxpayer's income year and financial reporting year are different, Division 230 allows the results from more than one audited financial report that covers the income year to be attributed to that income year, provided that a reasonable methodology is used. As currently drafted, a pro-rata attribution is considered not to be reasonable. However, a pro-rata basis for attribution of an accruals methodology is not necessarily unreasonable. An amendment will be made to clarify this.

Pro-rata attribution of portfolio fees not necessarily unreasonable

Proposal: Amend Division 230 to clarify that a pro-rata basis for attribution of portfolio fees is not necessarily unreasonable.

An amendment will clarify that a pro-rata basis for attribution of portfolio fees is not necessarily unreasonable.

Extend assets test to unregulated superannuation funds

Proposal: Modify the assets threshold test that applies to regulated superannuation funds so that it also applies to unregulated superannuation funds on the same basis.

The current threshold assets test for superannuation entities may not include non-regulated superannuation funds, which will result in different thresholds applying for regulated funds ($100 million) and unregulated funds ($300 million). Accordingly, this amendment ensures that the assets threshold test applies to regulated and non-regulated funds on the same basis.

Interests in partnerships and trusts subject to fair value or financial reports elections are Division 230 financial arrangements

Proposal: Ensure that an interest in a partnership or trust that is otherwise excluded from Division 230 is subject to Division 230 if a fair value or financial reports election is made in respect of the interest.

In accordance with subsection 230-460(3), specified interests in partnerships and trusts are not subject to Division 230 and thus are not 'Division 230 financial arrangements'. Subsection 230-460(4) is a carve-out to the subsection 230-460(3) exception that allows the fair value election or the election to rely on financial reports to apply to an otherwise excluded interest in a partnership or trust. However, for either election to apply, the financial arrangement has to be a 'Division 230 financial arrangement'. The carve-out to the exception cannot apply as the interest is not a 'Division 230 financial arrangement'.

This amendment ensures that where such an interest is subject to a fair value or financial reports election, the interest is a 'Division 230 financial arrangement' and not subject to the exception. This will enable Division 230 to apply to those interests.

Guarantees and indemnities subject to fair value or financial reports elections are Division 230 financial arrangements

Proposal: Ensure that a guarantee or indemnity that is excluded from Division 230 is subject to Division 230 if a fair value or financial reports election is made in respect of it.

This amendment ensures that where a guarantee or indemnity is subject to a fair value or financial reports election, the interest is a 'Division 230 financial arrangement' and not excluded from the operation of Division 230. This will enable Division 230 to apply as intended.

Extend meaning of 'accounting standard' in Division 230

Proposal: Modify the references to 'accounting standard' so that they extend to accounting standards formulated or made by the Australian Accounting Standards Board (AASB). This will extend the term to include standards which are not made for the purpose of the Corporations Act 2001.

For the purposes of Division 230, the term 'accounting standard', takes its meaning from the Corporations Act 2001. The Corporations Act 2001 limits accounting standards to those the AASB makes for the purposes of that Act. However, the Australian Securities and Investments Commission Act 2001 provides for the AASB to formulate accounting standards for 'other purposes'. As these standards do not fall within the definition of 'accounting standard', an amendment is to be made to extend the scope of the definition in Division 230.

Extend meaning of 'auditing standard' in Division 230

Proposal: Modify the references to 'auditing standard' in Division 230 so that they encompass auditing standards formulated or made by the Auditing and Assurance Standards Board (AUASB).

The definition of 'auditing standard' in subsection 995-1(1) of the ITAA 1997 only includes auditing standards that are made under section 336 of the Corporations Act 2001. Similarly to the reason above, the definition of 'auditing standards' will be extended. In this case, the extension is to auditing standards formulated or made by the AUASB.

PAYG Division 250 interaction

Proposal: Amend the TAA 1953 to reinsert a provision to ensure that net assessable gains from Subdivision 250-E of the ITAA 1997 are treated as instalment income.

A provision of the TAA 1953 dealing with the instalment income in relation to arrangements under Division 250 of the ITAA 1997 (which is about tax exempt asset financing) was repealed on the basis that the accruals provisions of Division 250 would be replaced by those of Division 230. However, this provision should not have been repealed as this replacement was not made.

Scope of 'cash settlable' financial arrangement: debt interests

Proposal: Amend Division 230 to specifically treat a 'debt interest', as defined in the debt/equity measures, as a 'financial arrangement' (within the section 230-45 definition of this term).

Interests that are 'debt interests' for the purposes of the debt/equity measures should be financial arrangements. However, it is arguable that some debt interests are not 'cash settlable' and therefore are not financial arrangements. Accordingly, an amendment is to be made to extend the definition of a financial arrangement to include a debt interest. A consequential amendment is to be made to delete subsection 230-530(2) as this provision will be redundant because a non-equity share is a debt interest.

Scope of 'cash settable' financial arrangement: monetary value

Proposal: Amend the definition of 'cash settlable' so that the monetary value aspect (in paragraph 230-45(3)(c)) applies where the amount of money or money equivalent is not, in the hands of the holder who has the relevant asset, subject to a substantial risk of loss.

Broadly, a financial benefit is considered to be money-like where it is convertible to money or money equivalent, it is liquid and its value in monetary terms cannot vary up or down. An amendment is to be made to ensure that a financial benefit is considered money-like where the value to the holder of the relevant asset cannot vary down to a substantial extent.

Pre-existing financial arrangements that are part of a portfolio of financial arrangements

Proposal: Amend the TOFA transitional provisions to ensure appropriate interactions between the transitional provisions and the portfolio method for accruing fees, discounts and premiums.

There are a number of issues regarding the interaction between the transitional provisions and the portfolio method for accruing fees, discounts and premiums which mean that the transitional provisions may not apply in relation to arrangements that are subject to this method in the same way that they apply to other methods.

Hedging: Events involving multiple items

Proposal: Amend Division 230 to clarify the operation of the hedging financial arrangements Subdivision where an entity ceases to have one or more, but not all, hedged items. Clarification is to be by way of attribution rules that ensure that appropriate gains and losses are brought to account when this occurs.

There is uncertainty about the operation of the hedging financial arrangements Subdivision where an entity ceases to have one or more, but not all, hedged items whose risks a hedging financial arrangement is hedging.

Net income of a transferor trust disregards Division 230

Proposal: Amend the transferor trust measures to put it beyond doubt that the net income of a transferor trust disregards Division 230.

Division 230 should be disregarded in calculating the net income of a foreign trust estate for the purposes of the deemed present entitlement rules. An amendment is to clarify that the net income of a transferor trust disregards Division 230.

Clarification of gain or loss

Proposal: Amend the foreign currency retranslation provisions to make it clear that the wording of the provisions is consistent with the relevant accounting standards.

Amendments will be made to the foreign currency retranslation provisions to make them consistent with the accounting standards so that a taxpayer will recognise a gain when there is a gain amount in a profit or loss statement. A similar amendment will also be made so that the taxpayer recognises a loss when there is a loss amount in a profit or loss statement.

Hedged item recorded in own financial reports

Proposal: Amend Division 230 to ensure that a hedging financial arrangement can exist where an arrangement that hedges a risk in relation to foreign currency is recorded as a hedging instrument in an entity's own financial reports.

Currently, a hedging financial arrangement cannot exist where an arrangement that hedges a risk in relation to foreign currency is recorded as a hedging instrument in an entity's own accounts. Division 230 will be amended to ensure a hedging financial arrangement can exist where an arrangement that hedges a risk in relation to foreign currency is recorded as a hedging instrument in an entity's own financial reports.

Hedging financial arrangement hedging risks in relation to multiple hedged items

Proposal: Amend Division 230 to clarify that a hedging financial arrangement can hedge risks in relation to multiple hedged items.

This proposed amendment will clarify the operation of the existing law. It will remove doubt about whether risks in relation to multiple hedged items can be hedged by a hedging financial arrangement.

Asterisking

Amendments to correct asterisking.

The word 'cease' is not defined in section 995-1. The asterisks in front of 'cease' are to be removed in: paragraph 230-70(1)(b); paragraph 230-75(1)(b); subparagraph 230-130(5)(b)(ii); paragraph 230-110(1)(c); and subsection 230-435(5).

The term 'foreign currency' is defined; an asterisk should be inserted in front of 'foreign currency' in subparagraph 230-335(1)(c)(ii) and subsections 230-530(1) and 230-115(8).

The asterisked reference in paragraph 230-520(1)(b) should be to *direct value shift, not *value shift.

Provisions incorrectly amended or repealed

Amendments to correct provisions that were wrongly amended or repealed.

Amendments made to subsections 230-275(1) and (2) were intended to be made to subsection 230-380(1). The text in subsections 230-275(1) and (2) should replace subsection 230-380(1) and the original text in subsections 230-275(1) and (2) should be restored. Restore paragraph (aa) of the definition of 'special accrual amount' while retaining the new definition of 'special accrual amount'.

Typographical errors

Amendments to correct typographical errors in the Taxation of Financial Arrangements Act 2009.

The sequence of the words 'financial' and 'hedging' in section 230-340 should be reversed. The heading of section 230-340 should read: 'Generally whole arrangement must be hedging financial arrangement'.

The reference in paragraph 775-295(1)(c) should be made to paragraph 230-255(2)(a), not paragraph 230-255(1)(a). The reference in paragraph 775-305(1)(b) should be made to paragraph 230-255(2)(a), not paragraph 230-255(1)(a).

Incorrect references

Amendments to fix incorrect references.

Subsection 230-520(2) should not refer to paragraph (1)(d). The 'realisation event' definition did not apply to the repealed value shifting provisions.

Paragraph 230-520(1)(d) should not refer to Division 723. That Division is about a type of value shifting that was not dealt with under the repealed provisions.

Legislative references herein are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise indicated. The TOFA provisions are primarily in Division 230 of the ITAA 1997.

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