The taxation of financial arrangements (TOFA) rules in Division 230 of the ITAA 1936 are often complex and errors can arise.
TOFA issues that attract our attention include:
- exceeding a TOFA threshold, but not applying the TOFA rules
- not reporting TOFA gains and losses correctly on the tax return, which may lead to an incorrect PAYG instalment rate being issued
- failing to bring to account accrued but unrealised gains on debt-like securities such as discounted bonds – this rule applies to all taxpayers and is not limited to those subject to the TOFA rules
- failing to use market values for transfers of financial arrangements between related parties
- improper characterisation of a financial benefit as sufficiently certain for the purposes of the TOFA accruals methods.