Reforms to taxation of financial arrangements will impact on cross border property transactions
Entities in the international property investment sector will be significantly impacted by the proposed Tax Laws Amendment (Taxation of Financial Arrangements) Bill 2007 (the "Bill"). The Bill was introduced to provide a uniform framework for the taxation of financial arrangements. The term "financial arrangement" will encompass income and capital hedging instruments, which are commonly used by property funds to manage their foreign exchange and interest rate exposures.
The object of the Bill is to more closely align the tax and commercial (i.e. accounting) treatment of gains/losses from financial arrangements and to minimise compliance costs. It seeks to do this by incorporating concepts from the accounting standards into the framework and providing flexibility in relation to the calculation of taxable gains or losses from financial arrangements.
The new rules apply from income years commencing on or after 1 July 2009 (i.e. the 2010 income year for entities with a 30 June year-end). However, taxpayers can elect for the rules to apply to them from 1 July 2008.
It is expected that property funds will consider early adoption of the proposed rules. A detailed article has been published by Daren Yeoh in the International Review Magazine. Please contact the author if you require a copy of the article.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
