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  • Taxation of financial arrangements – regulation reform

    In the 2016-17 Budget, the Government announced that it would reform the taxation of financial arrangements (TOFA) rules for income years commencing on or after 1 January 2018 to reduce the scope, decrease compliance costs and increase certainty. This reform forms part of the Government's Ten Year Enterprise Tax Plan.

    The reform includes four key components:

    • A 'closer link to accounting' which will strengthen and simplify the existing link between tax and accounting in the TOFA rules.
    • Simplified accruals and realisation rules, which will significantly reduce the number of taxpayers in the TOFA rules, reduce the arrangements where spreading of gains and losses is required under TOFA and simplify the required calculations.
    • A new tax hedging regime which is easier to access, encompasses more types of risk management arrangements (including risk management of a portfolio of assets) and removes the direct link to financial accounting.
    • Simplified rules for the taxation of gains and losses on foreign currency to preserve the current tax outcomes but streamline the legislation.

    As part of this reform, the Government will incorporate the policy reflected in the following measures, which were announced previously but not legislated:

    • Taxation of financial arrangements - amendments to tax hedging rules; first announced in the 2011-12 Budget.
    • Functional currency rules - extending the range of entities that can use a functional currency; first announced in the 2011-12 Budget.
    • Taxation of financial arrangements - foreign currency regulations - technical and compliance cost savings amendments; first announced in the Mid-Year Economic and Fiscal Outlook 2004-05External Link.

    Legislation and supporting material

    This reform is not yet law and is subject to the normal parliamentary process.

    More information

    • Further information about TOFA
      Last modified: 19 Apr 2017QC 51803