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  • Taxation of Financial Arrangements - hedging and foreign exchange deregulation

    The Government will make amendments to the Taxation of Financial Arrangements (TOFA) legislation which will include facilitating access to hedging rules on a portfolio hedging basis. The amendments will also reduce compliance costs and correct unintended outcomes, so that taxpayers are not subject to unrealised taxation on foreign exchange gains and losses unless this is elected.

    The measure will:

    • introduce a practical methodology for calculating the gains and losses from financial transactions that hedge the risk of a portfolio of similar financial arrangements.
    • allow entities to rely on their accounting reports for tax purposes when a hedging arrangement comes to an end, but the financial arrangement hedging the risks associated with the underlying arrangement continues to be held.
    • correct the operation of the qualified forex account (QFA) retranslation election, so that it is confined to a specific QFA.
    • ensure tax consequences from the hedging of a firm commitment are treated in the same way as the cost of the underlying asset.

    These changes will take effect for relevant transactions entered from 1 July 2022.

    Legislation and supporting material

    • Legislation is being developed for this measure.

    More information

      Last modified: 17 Jun 2021QC 65969