How the rules apply
As provided for in section 230-15, TOFA only applies to gains and losses made from a financial arrangement.
Subsection 230-15(1) states that an entity's assessable income includes a gain made from a financial arrangement.
Subsection 230-15(2) states that an entity can deduct a loss made from a financial arrangement, but only to the extent that it is either:
- made in gaining or producing your assessable income
- necessarily made in carrying on a business for the purpose of gaining or producing assessable income.
TOFA will not include amounts in taxable income where the gains and losses relate to exempt or non-assessable non-exempt income as provided for under section 23030. Gains and losses of a private or domestic nature are also generally excluded from the application of TOFA under section 230-35.
In contrast to section 8-1 (general deductions), subsection 230-15(2) does not include an equivalent exclusion for amounts of a capital nature. As a result, gains and losses under TOFA are considered to be on revenue account (except for gains and losses on certain hedging financial arrangements). This treatment simplifies the law by removing the need to determine the revenue or capital nature of such gains or losses.