Last month, the Australian Taxation Office (ATO) released Taxation Determination 2013/D8 which formalised their view that special purpose financial statements are not able to be used for the TOFA elective methods. ATO activity enforcing this view has already commenced as part of the TOFA questionnaire rollout.
Under the TOFA rules, an entity can only elect to use one or more elective methods where it prepares a financial report which is prepared in accordance with accounting principles. The ATO’s view is that special purpose financial statements do not meet this requirement.
The reason given for such accounts falling short of the eligibility requirements is that special purpose financial statements are not required to comply with the full disclosure requirements in Australian Accounting Standards Board (AASB) 7. It seems like an odd justification given special purpose accounts are still required to comply with the full measurement standards in AASB 139 (and therefore should not affect the amount of gain/loss recognised in the accounts).
By contrast, the ATO accepts that reduced disclosure accounts prepared under AASB 1053 meets the TOFA eligibility requirements.
In thinking about whether this may impact you:
- it is not just financial entities that this impacts – it can impact those entities who have made the hedging election or FX retranslation election, and potentially those seeking to rely on the use of the effective interest rate method in their accounts as a proxy for the compounding accruals method
- consider any special purpose vehicles that may have made TOFA elections to achieve book and tax matching
- if special purpose accounts have been prepared and TOFA elections have been made, consider whether reduced disclosure accounts should be prepared instead.