Download all chapter outlines in
PDF or RTF format
Previous Outline Back to index Next Outline Download Chapter 5 in
PDF or RTF format

Chapter 5: Towards a new policy framework for financial assets and liabilities

A case for reform

The current system for taxing financial arrangements results in uncertainty and incoherence and can impact adversely on before-tax investment choices.

A strategy for reform

Adopting a comprehensive income tax base for financial arrangements would overcome these problems but would introduce its own concerns including cash flow and valuation problems.

The problems with the current system could instead be addressed by:

  • adopting a timing adjustment approach where it is practical;
  • allowing an elective mark-to-market approach; and
  • taxing other assets and liabilities as appropriate, on realisation.
Key policy issues

If the new framework were adopted, what transitional arrangements could apply?

Option 1
New framework could apply to all financial assets and liabilities regardless of when they were entered into.
Option 2
New framework could apply to financial assets and liabilities entered into after commencement, with scope for some flexibility.