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06 Jun 11 Gains and losses from hedging financial arrangements - regulations amended

The Income Tax Assessment Regulations 1997 have been amended to give taxpayers additional time to comply with a certain aspect of the tax hedge record keeping requirements that relates to the tax allocation of gains and losses from hedging financial arrangements: Income Tax Assessment Amendment Regulations 2011 (No 4) (SLI 2011 No 80; made 2 June 2011; registered 3 June 2011).

The Tax Laws Amendment (Taxation of Financial Arrangements) Act 2009 amended the ITAA 1997 by inserting new Division 230, which contains rules for taxation of gains and losses from certain financial arrangements held by certain taxpayers. Division 230 commenced on 26 March 2009 and applies for income years commencing on or after 1 July 2010 or, where a taxpayer makes an election to apply Division 230 early, for income years commencing on or after 1 July 2009.

Division 230 includes four elective methods under which taxpayers may elect to bring gains and losses from their financial arrangements to account for income tax purposes, subject to their meeting relevant requirements. One of these methods is the hedging financial arrangements method (the tax hedging method) in Subdivision 230-E of the Act.

Broadly, a hedging financial arrangement is a financial arrangement that is used for the purpose of hedging a risk in relation to a hedged item in accordance with the tax hedging method.

Subdivision 230-E of the Act includes rules and requirements for the making of a valid hedging election. The Subdivision also requires a specified record to be made or put in place at, or soon after, the start of the hedging relationship unless regulations provide otherwise (s 230?355(3)).

The required record must cover a number of matters, as set out in s 230-355(1) of the Act. This includes the basis for allocating gains and losses from hedging financial arrangements for income tax purposes. Under the amending Regulations, it is this aspect of the record that must be made or put in place by the later of:

  • at, or soon after, the start of the hedging relationship, and
  • 30 June 2011.

The amendments apply in relation to income years commencing on or after 1 July 2009.