Cross Border Property

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.

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