• Service: Tax
  • Type: Regulatory update
  • Date: 28/10/2013

Tax Insights

KPMG's analysis of tax issues and developments.

Jenny Wong

Jenny Wong
Director, Tax

+61 2 9335 8661

Top 3 TOFA issues on ATO’s radar 

by Jenny Wong, Australian Tax Centre

Reading Taxation of Financial Arrangements (TOFA) can be as bland as eating tofu. You’d be forgiven for thinking the two words are the same. Yet, in a measure originally intended to simplify compliance by aligning the tax and accounting treatment for financial arrangements, there are plenty of pages of legislation, and amending legislation, to nourish brain cells, despite recurring bouts of amnesia.

What TOFA issues are on the ATO’s radar at the moment?


  • ‘Repairs and maintenance’ legislation. These are essentially technical refinements to the current TOFA provisions (Division 230 ITAA 97) introduced in an amending bill that became law earlier this year to ensure the rules work properly, particularly relating to applying the compounding accruals tax timing method. Even if no TOFA elections are made, the accruals or realisation methods are likely to apply to you at some stage, ensuring you need to pay attention to these amendments. The explanatory memorandum unfortunately is light on practical examples, but thankfully the ATO is now consulting on what examples need to be covered in guidance material. If there are thoughts on examples that should be covered, please let me know.
  • Are your financial reports in accordance with accounting principles? Although you might have prepared financial reports in accordance with some but not all accounting standards, your financial report would not be one you could rely on to apply the TOFA elections (which would have otherwise allowed a direct alignment between tax and accounting in the treatment of financial arrangements). This view is reflected in the ATO’s recent draft tax determination TD 2013/D8. It seems you need to prepare full-blown accounting standard compliant financial reports based on this current view to comply with TOFA.
  • Reporting TOFA gains and losses. Have you completed the TOFA disclosures on the tax returns correctly? The ATO is focussing on this too as incorrect disclosures may result in incorrect PAYG instalment rates being issued. Again query whether the level of compliance required to fill these boxes justifies their integrity concerns. If you have thoughts on this, I would be interested to hear them too.

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