No.031
Tuesday 10th May, 2005
EXTENSION OF TAX-TIMING HEDGING RULES
The Australian Government has decided to extend the scope of previously announced
tax-timing hedging rules to all taxpayers — in all industries —
with audited financial accounts, the Minister for Revenue and Assistant Treasurer,
Mal Brough, announced today.
The Government had announced plans in the 2002-03 Budget to reform the taxation
of commodity hedging. That measure had been scheduled for inclusion in the Taxation
of Financial Arrangements (TOFA) reforms.
Many entities use hedging as a way to manage risk in their businesses. Tax-timing
hedging rules work to remove tax distortions. These arise in a hedging arrangement
when the hedging instrument is taxed on a different timing basis to the underlying
item, which is the subject of the hedge arrangement. 'Many industry and
professional bodies have recently lodged submissions with the Treasury seeking
the extension of the previously proposed tax-timing hedging rules beyond the
gold and cotton sectors to include all industries,' Mr Brough said.
The case for the extension of the tax-timing hedging rules beyond the gold
and cotton sectors has been strengthened by the adoption of new accounting standards
which impose strict criteria as a pre-condition for hedging treatment in financial
accounts. Because of these strict hedging criteria in the accounting standards,
the additional tax compliance costs incurred by taxpayers who prepare accounts
in accordance with the new standards will now be more manageable if tax-timing
hedging rules are extended beyond gold and cotton sectors to business sectors
more generally.
'The broadened, generally available, tax-timing hedging rules will be
introduced as part of the Stage3 and 4 TOFA tax reforms,' Mr Brough said.
These tax-timing hedging rules will remove uncertainties in the present tax
system, enhance the potential efficiency of risk management and create opportunities
to achieve lower costs.
CANBERRA
10 May 2005