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  • Changes to the operation of the Consolidation and TOFA rules

    The government has amended the operation of the rules governing the interaction between the tax consolidation regime and the taxation of financial arrangement (TOFA) rules.

    The changes alter the application of the consolidation and TOFA rules for tax consolidated groups, including:

    • the tax treatment of financial arrangements upon joining
    • the application of the TOFA transitional balancing adjustment provisions in respect of financial arrangements that were acquired from a joining entity.

    The changes, contained in Schedule 2 of Tax Laws Amendment (2012 Measures No. 2) Act 2012, received royal assent on 29 June 2012. They apply retrospectively from 26 March 2009, the commencement date of the TOFA rules.

    Who does this affect?

    You may be affected by these changes if:

    • you are a head company of a tax consolidated group
    • the TOFA rules apply to you
    • one or both of the following are satisfied
      • you had an entity join the tax consolidated group before the TOFA rules started to apply to you and made a transitional election to apply the TOFA rules to your existing financial arrangements
      • you had an entity join the tax consolidated group after the TOFA rules started to apply to you.
       

    What must you do if affected?

    If you are affected by these changes, you should review your position and consider whether any assessment in relation to a previous year needs to be amended.

    If your assessments are not in accordance with the new law, you will need to seek amendments.

    Information on requesting an amendment

    For general information on how to request an amendment, including what information should be provided, refer to Guide to correcting mistakes and disputing decisions.

    To assist us to understand amendments requests, you should provide the following information:

    • for amendments in respect of a pre-TOFA joining
      • a list of the financial arrangements whose transitional balancing adjustment and/or gains or losses worked out under Division 230 of the Income Tax Assessment Act 1997 (ITAA 1997) are altered by the changes
      • the name of the entity that joined the consolidated group with those financial arrangements
      • the transitional balancing adjustment gain or loss in respect of those financial arrangements before the changes and after those changes
      • the amount of the gain or loss made under Division 230 in respect of those financial arrangements before the changes and after those changes for each income year that you are requesting an amendment
       
    • for amendments in respect of a post-TOFA joining
      • a list of the financial arrangements whose gains or losses worked out under Division 230 of the ITAA 1997 are altered by the changes
      • the name of the entity that joined the consolidated group with those financial arrangements
      • the amount of the gain or loss made under Division 230 in respect of those financial arrangements before the changes and after those changes for each income year that you are requesting an amendment.
       

    Tax shortfall penalties and interest

    If you lodged a tax return in accordance with the law prior to these changes and a tax shortfall arises as a result of an amendment made because of these changes:

    • no tax shortfall penalties will apply
    • any interest attributable to the shortfall, up to the date of enactment of the law change, will be remitted. In addition, any interest accruing after the date of enactment will be remitted to you if you actively seek to amend your returns within a reasonable time after 29 June 2012.

    If you lodged a tax return on the basis of anticipated changes to the law, see PS LA 2007/11 for the ATO administrative treatment of shortfall penalties and interest attributable to the shortfall.

    If your tax liability is reduced following an amended assessment, we may owe you an amount of interest. Refer to PS LA 2011/23 for the circumstances in which interest is payable by us.

    Legislation and supporting material

    Media release

    Media release No. 159External Link issued on 25 November 2011 by the former Assistant Treasurer.

    Further assistance

    If you are impacted by these changes and would like further assistance, email tofa@ato.gov.au

    Last modified: 27 Jan 2016QC 26345