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Taxation of financial arrangements

We focus on entities that are subject to TOFA to ensure that they apply the TOFA rules correctly.

Last updated 21 May 2024

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
  • failing to consider if a contractual financing arrangement is an equity interest in terms of the debt and equity interest rules
  • improper characterisation of a financial benefit as sufficiently certain for the purposes of the TOFA accruals methods.