Income Tax Assessment Amendment Regulations 2011 (No. 4)

Administered by Department of the Treasury

Legislation au F2011L00942 Regulations Not in force Legislative Instrument

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Explanatory Statement

Select Legislative Instrument 2011 No. 80

[Issued by authority of the Assistant Treasurer]

Income Tax Assessment Act 1997

Income Tax Assessment Amendment Regulations 2011 (No. 4)

Section 909-1 of the Income Tax Assessment Act 1997 (the Act) provides, in part, that the Governor-General may make Regulations prescribing matters required or permitted by the Act to be prescribed, or which are necessary to be prescribed for carrying out or giving effect to the Act.

The Regulations amend the Income Tax Assessment Regulations 1997 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.

The Regulations apply for hedging financial arrangements created, acquired or applied on or after the start of the first income year in which a financial arrangement hedging election (hedging election) commences to apply.

The Tax Laws Amendment (Taxation of Financial Arrangements) Act 2009 amended the Act 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 of the Act 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 them 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 (subsection 230‑355(3) of the Act).

The required record must cover a number of matters, as set out in subsection 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 Regulations, it is this aspect of the record that 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 purpose of the Regulations is to give taxpayers who have made a hedging election additional time to comply with this tax allocation record keeping requirement. This facilitates the transition into the hedging election.

Details of the Regulations are set out in the Attachment.

The Regulations are taken to have commenced on 26 March 2009. The Regulations apply in relation to income years commencing on or after 1 July 2009. The retrospective operation of the Regulations do not adversely affect the rights of a person, or impose liabilities on a person, in respect of anything done or omitted to be done before the date of registration.

There was targeted consultation with the Commissioner of Taxation’s National Tax Liaison Group - TOFA working group in developing the Regulations.

The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.

The Act specifies no conditions that need to be satisfied before the power to make the Regulations may be exercised.

This Minute recommends that Regulations be made in the form proposed.

Authority: Section 909-1 of the Income Tax Assessment Act 1997

Attachment

Details of the Income Tax Assessment Amendment Regulations 2011 (No. 4)

Regulation 1 – Name of Regulations

This regulation provides that the title of the Regulations is the Income Tax Assessment Amendment Regulations 2011 (No. 4).

Regulation 2 – Commencement

This regulation provides that the Regulations are taken to have commenced on 26 March 2009.

Regulation 3 – Amendment of Income Tax Assessment Regulations 1997

This regulation provides that the Income Tax Assessment Regulations 1997 (the Principal Regulations) are amended as set out in Schedule 1.

Regulation 4 – Transitional

This regulation provides that the amendment made by Schedule 1 applies in relation to income years commencing on or after 1 July 2009.

Schedule 1 – Amendment

[Item 1] - Regulation 230-355.01

Item 1 inserts new headings to identify those parts of the Principal Regulations that relate to Division 230 of the Act.

Item 1 also inserts new regulation 230-355.01. The regulation provides that the record described in paragraph 230-355(1)(c) of the Act must be made or in place by the later of:

• at, or soon after, the time, the hedging financial arrangement is created, acquired or applied; and

• 30 June 2011.

The record refers to the terms of determinations made under section 230-360 of the Act.

Section 230-360 covers how a gain or loss from a hedging financial arrangement is allocated for income tax purposes. The new regulation has the effect, in certain situations, of allowing additional time to comply with this aspect of the tax hedge record keeping requirements.

Overview

The Income Tax Assessment Amendment Regulations 2011 (No. 4) were enacted to provide relief to taxpayers regarding the record-keeping requirements for tax allocations of gains and losses from hedging financial arrangements, as stipulated in the Income Tax Assessment Act 1997. These Regulations were introduced by the Commonwealth Parliament to address the transitional challenges taxpayers faced in complying with the new tax hedge record-keeping requirements that came into effect with the introduction of Division 230 by the Tax Laws Amendment (Taxation of Financial Arrangements) Act 2009. The policy objective was to facilitate a smoother transition for taxpayers into the new tax regime by extending the compliance deadline for certain record-keeping obligations related to the hedging method. The Regulations were developed following consultation with the Commissioner of Taxation’s National Tax Liaison Group - TOFA working group and are deemed to have commenced on 26 March 2009, applying to income years beginning on or after 1 July 2009.

Scope and Application

The Income Tax Assessment Amendment Regulations 2011 (No. 4) pertain to taxpayers who have made a hedging election under Division 230 of the Income Tax Assessment Act 1997. This Act was amended by the Tax Laws Amendment (Taxation of Financial Arrangements) Act 2009, which introduced new rules for the taxation of gains and losses from certain financial arrangements held by specific taxpayers. The Regulations apply to hedging financial arrangements created, acquired or applied on or after the start of the first income year in which the hedging election commences to apply. They provide additional time for taxpayers to comply with the tax allocation of gains and losses from hedging financial arrangements, extending the deadline to 30 June 2011. These Regulations are a legislative instrument under the Legislative Instruments Act 2003 and are designed to facilitate the transition into the hedging election without adversely affecting any pre-existing rights or liabilities of taxpayers.

Key Provisions

The Income Tax Assessment Amendment Regulations 2011 (No. 4) primarily amend the Income Tax Assessment Regulations 1997 to extend the compliance deadline for certain record-keeping requirements related to tax hedging. Specifically, Section 230-355(3) of the Income Tax Assessment Act 1997 mandates that a specified record must be in place at the start of a hedging relationship, detailing the basis for allocating gains and losses from hedging financial arrangements. Regulation 230-355.01, introduced by the amending Regulations, extends the deadline for creating or placing this record to the later of the commencement of the hedging relationship or 30 June 2011. This extension applies to hedging financial arrangements created, acquired, or applied on or after the first income year in which a hedging election takes effect. These Regulations impose obligations on taxpayers who have made a hedging election under Subdivision 230-E of the Act. They must ensure that the specified tax hedge record is established by 30 June 2011, which provides additional time to comply with the tax allocation requirements for gains and losses from hedging financial arrangements. The Regulations clarify and facilitate compliance with these requirements, particularly for taxpayers who may have been transitioning to the new tax hedging method. There are no explicit offences, penalties, or civil/criminal consequences outlined in the amending Regulations themselves. However, non-compliance with the Income Tax Assessment Act 1997 or the Income Tax Assessment Regulations 1997 could result in penalties under the general provisions of the Act. For example, failure to maintain the required records or provide accurate information could lead to penalties for non-compliance, including fines and interest on unpaid tax. The specific penalties would depend on the nature and extent of the non-compliance and would be determined according to the general penalty provisions within the Income Tax Assessment Act 1997.

Area of Law: Taxation Law
Instrument: Regulation
Concepts: Definitions & Interpretation; Transitional Provisions; Compliance Obligations

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