The Assistant Treasurer Chris Bowen MP has introduced the Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2008 into Parliament.
TOFA Stages 3 and 4 provides a comprehensive framework for taxing financial arrangements. The measures contain rules that cover tax timing treatments for financial arrangements, including elective tax timing and character hedging rules that are designed to minimise tax timing and character mismatches. The rules permit eligible taxpayers to elect to have financial arrangements taxed on a fair value or retranslation basis, or to rely on their financial reports for taxation purposes. These elections more closely align tax treatment with accounting standards.
Taxpayers to which the measures apply and which do not elect to use these methods will be required to apply the TOFA Stages 3 and 4 accruals and realisation rules.
The TOFA rules:
- will not be applied on a mandatory basis to individual and small business taxpayers, except where significant deferral of tax is involved;
- will apply to:
- approved deposit-taking institutions;
- securitisation vehicles; and
- entities that are required to register under the Financial Services (Collection of Data) Act 2001,
if their aggregated annual turnover is $20 million or more.
Superannuation funds and managed investment schemes will apply the rules if the value of their assets is $100 million or more. Other taxpayers will apply the rules if their turnover is $100 million or more, if the value of their assets is $300 million or more, or if the value of their financial assets is $100 million or more. Taxpayers who are not required to apply the TOFA rules may elect to apply the rules.
The TOFA Stages 3 and 4 measures will apply for income years commencing on or after 1 July 2010. However, taxpayers may elect to have the measures apply for income years commencing on or after 1 July 2009.
