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  • Taxation of financial arrangements

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    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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    31 Taxation of financial arrangements (TOFA)

    The key provisions of the TOFA rules are found in Division 230 of the ITAA 1997, which generally provides for:

    • methods of taking into account gains and losses from financial arrangements, being accruals and realisation, fair value, foreign exchange retranslation, hedging, reliance on financial reports and balancing adjustment, and
    • the time at which the gains and losses from financial arrangements will be brought to account.

    Which entities are affected?

    The TOFA rules apply to the following partnerships:

    • authorised deposit-taking institutions, securitisation vehicles and financial sector entities with an aggregated annual turnover of $20 million or more
    • managed investment schemes, or entities with a similar status under foreign law relating to corporate regulation with assets of $100 million or more
    • any other partnership which satisfies one or more of the following:
      • an aggregated turnover of $100 million or more
      • assets of $300 million or more
      • financial assets of $100 million or more.
       

    An entity that does not meet these requirements can elect to have the TOFA rules apply to it.

    Which financial arrangements will the TOFA rules apply to?

    The TOFA rules apply to all financial arrangements that the affected partnership starts to have during income years commencing on or after 1 July 2010. In addition, a partnership may have elected to have the TOFA rules apply to its financial arrangements for income years commencing on or after 1 July 2009.

    Partnerships may have also separately made a transitional election to apply the TOFA rules to their existing financial arrangements.

    The aggregated turnover tests may mean that the TOFA rules will apply to partnerships that do not meet the thresholds in their own right. Aggregated turnover includes the annual turnover of any entity a partnership is connected with, or any affiliate of the partnership (including overseas entities).

    L - Did you make a gain, loss or transitional balancing adjustment from a financial arrangement subject to the TOFA rules?

    Print X in the appropriate box at L.

    Print X in the Yes box only if during the 2011-12 income year the partnership:

    • made an assessable gain or deductible loss under the TOFA rules(unless it was made only because the partnership held a qualifying security), or
    • had an assessable or deductible amount from a transitional balancing adjustment as a result of making the transitional election for existing financial arrangements.

    Print X in the No box if during the 2011-12 income year the partnership:

    • satisifies both of the following
      • did not make an assessable gain or deductible loss under the TOFA rules, and
      • did not have an assessable or deductible amount from a transitional balancing adjustment as a result of making the transitional election for existing financial arrangements, or
       
    • had an assessable gain or deductible loss under the TOFA rules only because the partnership held a qualifying security to which the TOFA rules apply.
    Further information

    For more information, see Guide to the taxation of financial arrangements (TOFA) rules.

    End of further information

    M – Total TOFA gains

    N – Total TOFA losses

    O – TOFA transitional balancing adjustment

    Show at M the partnership's total assessable TOFA gains from financial arrangements.

    Show at N the partnership's total deductible TOFA losses from financial arrangements.

    Show at O the partnership's transitional balancing adjustment amount for the income year as a result of making the transitional election for existing financial arrangements.

    If the transitional balancing adjustment is a deductible amount, print L in the box at the right of O.

    Working out the partnership's total assessable TOFA gains, deductible TOFA losses, and TOFA transitional balancing adjustment.

    Ensure you take into account at M, N and O any amount for a TOFA financial arrangement that you have shown at labels such as:

    • S 'Net income or loss from business' item 5
    • A, Z, S, B, R or T 'Partnerships and trusts' item 8
    • G 'Interest deductions' item 9
    • J 'Gross interest' item 11
    • K 'Unfranked dividend amount' item 12
    • O 'Other Australian income' item 14
    • Q 'Other deductions' item 18
    • B 'Gross other assessable foreign source income' item 23.

    You should only take into account an amount once at one of M, N and O.

    P - TOFA gains from unrealised movements in the value of financial arrangements

    Show at P the partnership's TOFA gains from unrealised movements in the value of financial arrangements. This may include TOFA gains shown at:

    • 'Other business income' at G and H item 5
    • 'Other assessable foreign source income' item 23.
    Last modified: 12 Feb 2019QC 25837