On 11 January 2013, the Treasury released for comment Exposure Draft legislation and an Explanatory Memorandum dealing with technical changes to the Taxation of Financial Arrangements (TOFA) rules.

The rules became effective from 1 July 2009 and seek to align, to the maximum extent possible, the tax treatment of financial arrangements to their accounting treatment.

The proposed changes will refine and clarify the operation of the TOFA rules and provide additional certainty in their application. Once enacted, the changes will apply retroactively from 1 July 2009.

An important change relevant to foreign banks operating in Australia is that new rules allow the banks to rely on their regulatory reports to access the elective methods.

This is a long-anticipated and very favorable change that will reduce the significant uncertainly existing since the introduction of the rules.

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