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  • Interaction of TOFA and the consolidation regime

    We have outlined our compliance approach in relation to two of the issues on the interaction of TOFA and the consolidation regime which were raised in the former National Tax Liaison Group (NTLG) TOFA Working Group.

    Issues 940 and 950 were first raised in March 2011 and have been discussed at number of NTLG TOFA Working Group and Finance and Investment Sub-committee meetings since then.

    See also:

    • NTLG TOFA issue 940 Subsection 701-55(5A) and pre-1July 2010 financial arrangements  
    • NTLG TOFA issue 950 Subsection 715-375(2) and pre-1 July 2010 financial arrangements

    Our compliance approach

    We have received advice which explains that, while both Subsection 701-55(5A) and Subsection 715-375(2) can be interpreted to achieve their clear policy intent, it is by no means certain that a court would arrive at the same conclusion.

    We have decided to accept this advice and will administer our active compliance program on the basis of both asset and liability sides operating as intended (issues 940 and 950 respectively).

    Members of the former NTLG Working Group and Finance and Investment Sub-committee were advised in the TOFA consultation of 20 December 2013, that we consider the operation of both provisions should be tested in the courts. We are seeking a single test case in which the operation of both provisions is at issue, as it is desirable that both provisions are considered by the court.

    We consider that, while the two provisions are not identically worded, they are both aimed at achieving the same policy goal: the appropriate recognition of TOFA assets and liabilities in a joining case, and that their interpretation is, at least to some extent, ‘codependent’.

    Consequently, in our view, both provisions achieve their policy aim. This is not a situation where one provision, say Subsection 701-55(5A) achieves its policy aim but the other, section 715-375, does not.

    This approach will inform the arguments put in any litigation.

    In line with this approach, we will not take compliance action on this issue where a taxpayer lodges their returns on the basis that both provisions achieve their policy aim.

    See also:

    • Consultation completed – refer to ‘Taxation of Financial Arrangements (TOFA) – application of recent amendments to the TOFA rule’
    Last modified: 27 Jan 2016QC 39772