Explanatory Memorandum
(Circulated by the authority of the Treasurer, the Hon Wayne Swan MP)General outline and financial impact
Taxation of financial arrangements
This Bill amends the Income Tax Assessment Act 1997 by inserting Division 230. Division 230 defines 'financial arrangement' and sets out the methods under which gains and losses from financial arrangements will be brought to account for tax purposes. These methods - accruals, realisation, fair value, retranslation, hedging and financial reports - determine the tax-timing treatments of all financial arrangements covered by Division 230. This Bill establishes criteria that determine how different financial arrangements are assigned to, and treated under, the different tax-timing methods. The Bill also effectively removes the capital/revenue distinction for most financial arrangements by treating the gains and losses on revenue account, except where specific rules apply.
Date of effect : These amendments will apply to income years commencing on or after 1 July 2010, unless a taxpayer elects to apply the amendments to income years commencing on or after 1 July 2009.
Proposal announced : This proposal was announced in the then Treasurer's Press Release No. 074 of 11 November 1999, the then Minister for Revenue and Assistant Treasurer's Press Release No. 002 of 5 August 2004 and the Treasurer's Media Releases No. 53 and No. 54 of 13 May 2008. Other announcements accompanied the release of exposure drafts of this legislation - the then Minister for Revenue and Assistant Treasurer's Press Release No. 107 of 16 December 2005, the then Minister for Revenue and Assistant Treasurer's Press Release No. 001 of 3 January 2007 and the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs' Media Release No. 082 of 1 October 2008.
Financial impact : The revenue impact of this measure is unquantifiable.
Compliance cost impact : Division 230 will lower ongoing compliance costs by providing greater coherency, clarity and certainty, using financial accounting concepts from relevant financial accounting standards, basing tax treatments on functional purposes, and removing uncertainties about relevant tax-timing treatments.
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