Amendments to the operation of the Taxation of Financial Arrangement (TOFA) rules for consolidated groups

In addition to the changes the government has announced to the income tax law affecting consolidation, the government will also make changes to the operation of the taxation of financial arrangements (TOFA) rules for consolidated groups.

These changes will ensure that, for consolidated groups, the TOFA stages 3 and 4 provisions operate as intended and that the tax treatment of financial arrangements that are liabilities is appropriate.

The changes also address the technical issues raised by industry as part of the post-enactment consultation on the TOFA stages 3 and 4 regime and ease the transition of consolidated groups into the regime.

The changes will apply from the start of the TOFA stages 3 and 4 regime.

This proposal is not yet law.

Media release

Refer to Media release No. 159 issued on 25 November 2011 by the Assistant Treasurer.

Administrative treatment The ATO will accept tax returns as lodged during the period up until the proposed law change is passed by parliament. Past-year assessments will not be reviewed until the outcome of the proposed amendment is known. However, we may gather information to assist in managing the risk. After the new law is enacted, taxpayers will, where applicable, need to review their positions back to the first income year to which TOFA applied (the income year starting on or after 1 July 2009 on an elective basis, or 1 July 2010 on a mandatory basis); Proposal to amend the law to ensure TOFA/consolidation interaction provisions operate as intended Those taxpayers whose claims are in accordance with the new law do not need to do anything more. Those taxpayers who applied the existing law and overclaimed will need to seek amendments. No tax shortfall penalties will apply and any interest attributable to the shortfall will be remitted to nil up to the date of enactment of the law change. In addition, any interest accruing after the date of enactment will be remitted for taxpayers who actively seek to amend their assessments or revise their activity statements within a reasonable time after the enactment of the law change. Proposal to amend the law to ensure appropriate treatment of financial arrangements that are liabilities upon joining Those taxpayers whose claims are in accordance with the new law do not need to do anything more. Those taxpayers who applied the existing law and overclaimed will need to seek amendments. No tax shortfall penalties will apply and any interest attributable to the shortfall will be remitted to nil up to the date of enactment of the law change. In addition, any interest accruing after the date of enactment will be remitted for taxpayers who actively seek to amend their assessments or revise their activity statements within a reasonable time after the enactment of the law change. Proposal to amend the law to ensure TOFA transitional balancing adjustment provisions operate as intended Those taxpayers whose claims are in accordance with the new law do not need to do anything more. Those taxpayers who applied the existing law and underclaimed can seek amendments and, if a reduction in liability results, interest on overpayment will be paid. Those taxpayers who applied the existing law and overclaimed will need to seek amendments. No tax shortfall penalties will apply and any interest attributable to the shortfall will be remitted to nil up to the date of enactment of the law change. In addition, any interest accruing after the date of enactment will be remitted for taxpayers who actively seek to amend their assessments or revise their activity statements within a reasonable time after the enactment of the law change. Those taxpayers who chose to anticipate the new law but find that this does not accord with the changes will need to seek amendments. If an increase in liability results, no tax shortfall penalties will apply and any interest accrued in respect of the amendment will be remitted to the base interest rate up to the date of enactment of the new legislative measure. In addition, the interest in excess of the base rate accruing after the date of enactment will be remitted for taxpayers who actively seek to appropriately amend their returns or revise their activity statements within a reasonable time after the enactment of the new law. If a reduction in liability results, appropriate interest on any overpayment will be paid.