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A question of attribution problems with the hedging election under TOFA


Under Subdiv 230-E of the Income Tax Assessment Act 1997 (Cth), a taxpayer may elect to apply hedging treatment to holdings of financial arrangements which are in a designated hedging relationship for accounting purposes. The election also covers other situations, including hedges of currency risks in relation to anticipated dividends from overseas subsidiaries.

This article examines the character-matching aspects of the hedging election, the effect of which is to match the character of the gain or loss attributable to the hedging financial arrangement with the character of the underlying hedged item. By way of an extended worked example, the article provides a close examination of the issues raised by a hedging transaction, applying the core taxation of financial arrangements (TOFA) rules and the hedging election. In the author’s view, there is a need to resolve some of the issues exposed by the example, both by legislative amendment and finalisation of the Commissioner’s views.

Author profile:

Mark is a Partner in KPMG’s Corporate Tax Division and Legal Practitioner Director of KPMG Tax Lawyers Pty Limited. Mark specialises in taxation of capital raisings and mergers & acquisitions. Mark joined KPMG after working for 15 years with another Big Four accounting firm and four years as a solicitor. Mark has written numerous technical papers in the areas of corporate restructures and the taxation of debt and equity. He was educated at St John’s College, Cambridge and has a honours degree in law from Monash University, Victoria.
Current at 9 February 2009 Current at 14 May 2009 Click here to expand/collapse more articles by Mark POOLE.


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