• Service: Tax, Corporate Tax
  • Type: Regulatory update
  • Date: 3/06/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Jenny Wong

Jenny Wong
Director, Tax

+61 2 9335 8661

What is the ATO’s view on TOFA compliant financial reports? 

by Jenny Wong, Australian Tax Centre

In the few years since the taxation of financial arrangements (TOFA) regime was implemented, some taxpayers have encountered practical issues in complying with the regime. In order for a taxpayer to follow their accounting treatment in relation to financial arrangements for tax purposes, they must have certain types of financial reports. The same is true if the taxpayer wants to be able to align the tax character and tax timing recognition of the hedge gains and losses with the underlying hedged item.

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.


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