On 28 May 2014, the Australian Taxation Office (ATO) issued taxation determination TD 2014/12 which provides that a financial report must be prepared in accordance with those accounting standards and authoritative pronouncements of the Australian Accounting Standards Board (AASB) which are relevant to financial arrangements and are capable of being applied in respect of the affairs of the entity whose financial position and performance is being reported. This is the case regardless of whether those accounting principles mandatorily apply to the entity or the financial report.
This means, for example, an entity preparing special purpose financial reports can apply a TOFA tax timing election method, provided they apply all the accounting principles relevant to the disclosure, recognition, measurement and presentation of financial arrangements that are relevant of the affairs of the entity.
The financial report does not need to be prepared in accordance with accounting principles which are not relevant to financial arrangements or which are not capable of being applied in respect of the affairs of the entity whose financial position and performance is being reported.
The final ATO guidance is a change in tune from the draft TD (TD 2013/D8), which previously provided that the only financial reports acceptable for TOFA purposes was one that had to apply the accounting standards in its entirety, whether relevant to financial arrangements or not.
The final guidance should provide practical relief for taxpayers seeking to rely on their accounting treatment for tax purposes in respect of financial arrangements.