PAYG instalments for TOFA entities
PAYG instalments for TOFA entities
This fact sheet provides information about how the taxation of financial arrangements (TOFA) pay as you go (PAYG) instalment income rules affect:
- TOFA entities (other than individuals) that calculate PAYG instalment income using the income times rate option
- beneficiaries of a trust, where that trust is a TOFA entity
- partners in a partnership, where that partnership is a TOFA entity.
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TOFA entities are entities that meet the TOFA thresholds or have chosen to use the TOFA rules. For more information about the TOFA rules, visit our website at www.ato.gov.au/tofa
Individuals will only use the TOFA method for calculating instalment income when working out their proportion of a relevant partnership's or trust's instalment income.
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The TOFA methods for calculating instalment income are as follows:
TOFA entities that are companies, trusts and partnerships
Ordinary income you earned from business or investment activities, excluding any TOFA gains
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TOFA gains less TOFA losses (positive amount only; if the result is negative then use zero)
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TOFA entities that are superannuation funds
Ordinary income and statutory income you earned from the super fund's activities, excluding any TOFA gains
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TOFA gains less TOFA losses (positive amount only; if the result is negative then use zero)
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TOFA entities
TOFA entities that calculate PAYG instalment income using the income times rate option will start to use the TOFA method for calculating instalment income when both of the following apply:
- we give the TOFA entity a new PAYG instalment rate in the first instalment quarter of an income year
- the income tax return used by us to give the TOFA entity a new rate met both of the following requirements
- included TOFA gains and TOFA losses
- was for the 2011 income year or a later income year - for a TOFA entity that has an early-balancing substituted accounting period (SAP), it will be the 2012 income year or a later income year.
Therefore, TOFA entities with:
- a 30 June balance date or late-balancing SAP - generally start to use the TOFA method for calculating instalment income from the first instalment quarter in their 2013 income tax year
- an early-balancing SAP - generally start to use the TOFA method for calculating instalment income from the first instalment quarter in their 2014 income tax year.
Example 1: TOFA entity with a 30 June balance date
Austin Co. made TOFA gains and TOFA losses from their financial arrangements during their income year ending 30 June 2011 (their 2011 income tax year). Austin Co. lodged its 2011 income tax return, which included these TOFA gains and TOFA losses, on 15 January 2012.
For the instalment quarters ending 31 March 2012 and 30 June 2012 (the remaining instalment quarters in their 2012 income tax year following the lodgment of their 2011 income tax return), Austin Co. will not use the TOFA method for calculating instalment income. This is because the conditions for using the TOFA method have not yet been met.
Austin Co. can only use the TOFA method for calculating instalment income after we issue them a new PAYG instalment rate during the first instalment quarter of their 2013 income tax year (the instalment quarter that runs from 1 July 2012 - 30 September 2012). Austin Co. will use the TOFA method for calculating instalment income in that instalment period and all future instalment periods.
Example 2: TOFA entity with a 31 December early-balancing SAP
Mike Co. made TOFA gains and TOFA losses from their financial arrangements during their income tax year ending 31 December 2011 (their 2012 income tax year). Mike Co. lodged its 2012 income tax return, which included these TOFA gains and TOFA losses, on 15 July 2012.
For the instalment quarters ending 30 September 2012 and 31 December 2012 (the remaining instalment quarters in their 2013 income tax year following the lodgment of their 2012 income tax return) Mike Co. will not use the TOFA method for calculating instalment income. This is because the conditions for using the TOFA method have not yet been met.
Mike Co. can only use the TOFA method for calculating instalment income after we issue them a new PAYG instalment rate during the first instalment quarter of their 2014 income tax year (the instalment quarter that runs from 1 January 2012 - 31 March 2012). Mike Co. will use the TOFA method for calculating instalment income in that instalment period and all future instalment periods.
Partners in a partnership and beneficiaries of a trust
Partnerships and trusts can be TOFA entities.
Partners in a partnership and beneficiaries of a trust, where the relevant partnership or trust is a TOFA entity, must use the TOFA method for calculating instalment income from the partnership or trust. This is regardless of whether or not the partner or beneficiary is itself a TOFA entity.
These partners and beneficiaries will start to use the TOFA method for calculating their proportion of the partnership's or trust's instalment income in instalment quarters which start on or after 29 November 2011 (when the new rules were enacted), where the last completed income year of the partnership or trust was both of the following:
- an income year which starts on or after 1 July 2010
- an income year where the TOFA rules applied to the partnership's or trust's financial arrangements.
Example 3: Trust with 30 June balance date
XYZ Trust's first TOFA year is the income year ending 30 June 2011.
The trustee of XYZ Trust provides the beneficiaries of XYZ Trust with the instalment income information to work out their instalment amount from the trust in each instalment quarter.
The trustee of XYZ Trust will start to calculate the instalment income of the trust using the TOFA method for calculating instalment income in the instalment quarter starting 1 January 2012 and ending 31 March 2012 (the third instalment quarter in the 2012 income year) and in all future instalment quarters. This is because it is the beneficiaries' first instalment quarter, which starts on or after 29 November 2011, and the TOFA rules applied to the trust's financial arrangements in the income year ending 30 June 2011.
How do you calculate a beneficiary's or partner's proportion of a TOFA entity's instalment income?
There is a special formula for working out the proportion of instalment income for a partner in a partnership or a beneficiary in a trust, where the relevant partnership or trust is a TOFA entity.
Use the following formula to work out what proportion of the partnership's or trust's instalment income to include in your own instalment income for the current period:
Formula:
A x C
B
A is the partner's or beneficiary's assessable income from the partnership or trust for the last income year. This amount is shown on the partnership's or trust's return at item 65.
B is the partnership's or trust's instalment income for the last income year. This is generally the partnership's or trust's gross ordinary income, excluding any TOFA amounts, plus its net TOFA gains. This is worked out in four steps:
- item 5 Total business income
- item 8 Distribution from partnerships (items A and B only) and Distribution from trusts (items Z and R only)
- item 9 Gross rent (item F only)
- item 10 Forestry managed investment scheme income
- item 11 Gross interest (item J only)
- item 12 Dividends received (items K and L only)
- item 14 Other Australian income
- item 23 Other assessable foreign source income (item B only).
Step 2: Subtract from the result of step 1, the total of the amounts shown on the partnership's or trust's return at the following labels:
- item 31M Total TOFA gains
- item 31O TOFA transitional balancing adjustment.
Step 3: Subtract item 31N Total TOFA losses from item 31M Total TOFA gains (if the result is a negative amount, then use zero as the result of step 3).
Step 4: Add the result of step 2 to the result of step 3.
You can use the partnership's or trust's tax return for the most recent year you have an assessment for to find the information you need to use the formula. These amounts need updating only when a later partnership or trust return is lodged, usually once a year, or when the most recent partnership or trust tax return is amended.
C is the partnership's or trust's instalment income for the current period. The partnership's or trust's records for each instalment period will include this information. The TOFA method for calculating instalment income will be used to work out this amount.
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If you are a partner in more than one partnership or a beneficiary in more than one trust, you need to include an amount for each partnership or trust.
References to item numbers above relate to those in 2011 tax returns.
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How do you apply to use the TOFA method for calculating instalment income early?
TOFA entities can choose to start using the TOFA method for calculating instalment income one year early.
The election will only apply if we are satisfied that it is reasonable to do so having regard to the objects of the PAYG instalment provisions.
If you want to use the TOFA method for calculating instalment income early, you must write to us during the first quarter of an income year and do both of the following:
- advise that you want to use the TOFA method for PAYG instalments early
- provide 'sufficient information' to allow us to calculate a PAYG new instalment rate.
Sufficient information includes all the information we need to work out a new PAYG instalment rate. This information relates to your last income tax assessment.
What information is needed if your last income tax return did not include TOFA gains and TOFA losses?
If the last income tax return you have an assessment for was an income year before the TOFA rules applied to your financial arrangements, then you must recalculate your income and deductions for the income year as if the TOFA rules applied to your financial arrangements in that income year. That is, you must work out what your TOFA gains, TOFA losses and other income and deductions would have been had the TOFA rules applied to your financial arrangements in that income year.
Once you have worked this out, you must provide these amounts at the relevant labels of a paper-based income tax return:
- TOFA gains and TOFA losses
- all other income and deductions labels to allow us to calculate what your taxable income would have been if the TOFA rules applied to you in that income year.
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If the income tax return you are using is a Company tax return 2010, you will also need to separately disclose the total of all your TOFA gains and the total of all your TOFA losses - this information was not requested in the Company tax return 2010.
There are additional disclosures for TOFA entities that include a life insurance business. For more information, you can email tofa@ato.gov.au
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What information is needed if your last income tax return included TOFA gains and TOFA losses?
If the TOFA entity is a company and the last income tax return you lodged was:
- for 2011 or later - no additional information is needed
- for 2010 - provide the total of all TOFA gains and the total of all TOFA losses in that income year - this information was not requested in the Company tax return 2010.
Other TOFA entities do not need to provide additional information.
When must you write to us by?
To give us time to work out if it would be reasonable for you to use the TOFA method early, you must write to us least 28 days before the end of the first instalment period in your income tax year.
Send your request to use the TOFA method for PAYG instalments early, together with sufficient information to allow us to work out your new instalment rate:
Australian Taxation Office
Attention: TOFA Implementation Team, LB&I
GPO Box 9977
MELBOURNE VIC 3001
- by fax to (02) 6151 2430.
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For more information about TOFA, you can:
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Last Modified: Friday, 3 February 2012
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