Pursuant to sub-item 103(1) of Schedule 1 to the TOFA Act, TOFA applies to financial arrangements an entity starts to have in its first income year commencing on or after 1 July 2010.
Early-start election
Under sub-item 103(2) of Schedule 1 to the TOFA Act, an entity could have elected to apply TOFA to financial arrangements it starts to have in its first income year commencing on or after 1 July 2009 (an early-start election).
The early-start election had to be made on or before the first due date for lodgment of the entity's tax return on or after 1 July 2009.
The time for making this election has now ended.
See Item 103 of Schedule 1 to the TOFA Act.
Existing financial arrangements election
Pursuant to sub-item 104(3) of Schedule 1 to the TOFA Act, an entity could have elected to apply TOFA to all financial arrangements it started to have before the first income year to which TOFA applied, and which it continued to have at the start of that income year (an existing financial arrangements election).
Where an existing financial arrangements election has been made, TOFA will apply to all of the entity's existing financial arrangements. An entity cannot selectively apply this election to certain financial arrangements.
An exception applies for certain existing financial arrangements that arose from a disposal of property (for example, trade receivables). TOFA will not apply to these existing financial arrangements even if an existing financial arrangements election has been made.
The existing financial arrangements election must have been made and notified to us on or before the first lodgment date of the entity's tax return that occurred on or after the start of the first year TOFA applied to the entity.
The time for making this election has now ended.
See Item 104 of Schedule 1 to the TOFA Act.
Transitional balancing adjustment
If an existing financial arrangements election was made, a transitional balancing adjustment was required to be calculated in accordance with the method statement in sub-item 104(13) of Schedule 1 to the TOFA Act.
Broadly, in calculating the transitional balancing adjustment, an entity compares:
- actual amounts that have been included in assessable income or allowed as a deduction
- amounts that would have been included in assessable income and allowable as deductions if TOFA had applied to those existing financial arrangements.
The difference is an assessable or deductible amount that is spread equally over the first income year in which TOFA applies, and the 3 subsequent income years.
An entity was able to use a short-form method in accordance with sub-items 104(14) and 104(15) of Schedule 1 to the TOFA Act where it met all the following criteria:
- the entity made a reliance on financial reports election under Subdivision 230-F.
- the entity included a deferred tax asset (DTA) or deferred tax liability (DTL) in its financial statements for the year immediately prior to the first income year to which TOFA applies.
- those amounts were recognised in accordance with AASB 112 Income Taxes, and DTAs and DTLs in relation to financial arrangements can be separately identified.
An entity was not able to rely on the short-form method where the relevant criteria had not been met.
See Sub-items 104(13).