Taxation of financial arrangements - amendments to tax hedging rules

The government will amend the taxation of financial arrangements (TOFA) tax hedging rules to ensure the rules operate as intended and to provide further certainty and reduce compliance costs for affected taxpayers.

The amendments will apply from the start of the income year in which the TOFA rules start to apply to the particular taxpayer.

The amendments will ensure that for taxpayers who have elected to apply both the TOFA tax hedging rules and the TOFA reliance on financial reports tax timing method, only the effective portion of the gains and losses from hedging financial arrangements will be subject to the TOFA tax hedging treatment.

The amendments will also clarify that gains and losses from hedging financial arrangements that hedge a risk or risks in relation to a firm commitment (as defined in the accounting standards) are brought to account for tax purposes when gains, losses or other amounts in relation to the assets or liabilities arising out of the cessation of the firm commitment are recognised for tax purposes.

On 15 February 2012, Treasury released a discussion paper on improving the operation of the tax hedging provisions.

Submissions will close on 28 March 2012.

More information Refer to: Budget Measures 2011-12 Discussion paper - Improving the operation of the tax hedging provisions.