31 Taxation of financial arrangements (TOFA)
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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.
The TOFA rules apply to the following entities:
- 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 entity 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.
A trust that does not meet these requirements can elect to have the TOFA rules apply to it.
The aggregated turnover tests may mean that the TOFA rules will apply to trusts that do not meet the thresholds in their own right. Aggregated turnover includes the annual turnover of any entity a trust is connected with, or any affiliate of the trust, including overseas entities. Once the TOFA rules apply to a trust, they will continue to apply to that trust, even if its aggregated turnover, value of assets or value of financial assets subsequently falls below the requisite threshold.
There are a number of elections available to trusts under the TOFA rules. Elections under the TOFA rules are irrevocable, and should be carefully considered before being made.
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 2014–15 income year the trust:
- made an assessable gain or deductible loss under the TOFA rules (unless it was made only because the trust 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 2014–15 income year the trust:
- satisfies 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
- had an assessable gain or deductible loss under the TOFA rules only because the trust held a qualifying security to which the TOFA rules apply.
M Total TOFA gains
Show at M the trust’s total assessable TOFA gains from financial arrangements.
N Total TOFA losses
Show at N the trust's total deductible TOFA losses from financial arrangements.
O TOFA transitional balancing adjustment
Show at O the trust’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 next to O.
Ensure you take into account at M, N and O any amount in relation to 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 trust's TOFA gains from unrealised movements in the value of financial arrangements. This may include TOFA gains shown at:
Last modified: 21 Jan 2016QC 44346
- Other business income at G and H item 5
- Other assessable foreign source income item 23.