• Introduction

    What's new?

    Attention

    Warning:

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

    End of attention

    Loss roll-over for merging superannuation funds

    A complying superannuation fund that merges with another complying superannuation fund with five or more members will be able to roll over capital losses and revenue losses, including previously realised losses and losses realised under the merger. This includes arrangements where existing funds merge into a new fund.

    This change takes effect from 24 December 2008 to 30 June 2011.

    Taxation of financial arrangements

    New rules have been introduced, the Taxation of financial arrangements (TOFA) rules, which modernise the tax treatment of gains and losses on financial arrangements. 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.

    When will the TOFA rules affect the fund's tax return?

    The TOFA rules will apply to financial arrangements that an affected fund starts to have in their income year commencing on or after 1 July 2010. However, an affected fund can elect to have the TOFA rules apply early, so that TOFA applies to financial arrangements it starts to have in an income year commencing on or after 1 July 2009.

    This means that the TOFA rules will not affect a fund's taxable income for 2009-10 or how a fund's 2010 income tax return is completed unless it makes an election for the TOFA rules to apply to its financial arrangements early.

    Transitional election for existing financial arrangements

    Although the TOFA rules generally apply only to new financial arrangements, an affected fund can make a further election to have the TOFA rules apply to its existing financial arrangements. Where this election is made the rules will also apply to financial arrangements that were entered into before the time that the TOFA rules first apply and to the fund if those financial arrangements are held at that time.

    A fund must provide a transitional election for existing financial arrangements to the Commissioner by the following dates:

    Income year that the TOFA rules first apply to the fund's financial arrangements

    Date transitional election must be made by:

    2009-2010

    lodgment date of fund's 2009 income tax return

    2010-2011

    lodgment date of fund's 2010 income tax return

    2011-2012

    lodgment date of fund's 2011 income tax return

    * This may apply to taxpayers with a substituted accounting period that have an early balance date.

    Elections under Division 230 are irrevocable, and therefore should be carefully considered before being made. For more information, see Making elections under the TOFA rules.

    Which funds are affected?

    The TOFA rules will apply to a fund for an income year where the value of the fund's assets is $100 million or more at the end of its previous income year or, if it came into existence during the income year, at the end of that income year. However a fund can elect to have the TOFA rules apply to its financial arrangements where it does not meet this requirement. Once the TOFA rules apply to a fund's financial arrangements they will continue to do so in all future periods.

    Even if this threshold is not met nor an election made, the TOFA rules will apply to qualifying securities that have a remaining life of more than 12 months after the fund starts to have them.

    TOFA rules and capital gains tax (CGT)

    Capital gains tax (CGT) will remain the primary code for calculating a fund's gains and losses from financial arrangements that are presently taxed under the CGT regime, provided the TOFA rules do not apply to those financial arrangements. Where a CGT event happens to those types of financial arrangements, the relevant capital gain or loss will continue to be brought to account under the CGT provisions, and not the TOFA rules.

    Find out about:

    Guide to the taxation of financial arrangements (TOFA)

    Extending tax file number withholding to closely-held trusts

    Tax Laws Amendment (2010 Measures No. 2) Bill 2010 was introduced into Parliament on 17 March 2010. This Bill extends the current tax file number (TFN) withholding arrangements to most closely-held trusts, including family trusts. This will ensure that beneficiaries of these trusts include their share of the net income of the trust in their tax returns.

    Beneficiaries may provide their TFN to the trustee of the trust prior to receiving a distribution or becoming presently entitled to income of the trust. Where a beneficiary has provided their TFN, trustees will be required to report the TFN and other beneficiary details to us.

    Where a beneficiary does not provide their TFN, the trustee will be required to withhold an amount from the distribution. This amount will then be remitted to us. When the beneficiary lodges their tax return they will be able to claim a credit for the tax withheld.

    These amendments apply to beneficiaries that are individuals, companies or trusts. This measure will not, however, apply to a complying fund.

    When enacted, the changes will apply to income of a trust for an income year starting on or after 1 July 2010.

    See also:

    New legislation

    Forestry managed investment scheme amendment to the four year holding rule

    Certain deductions that relate to a Forestry managed investment scheme (FMIS) are subject to a four year holding rule. An amendment to this four-year holding rule is currently before Parliament and has not yet been passed. Broadly, the amendment will mean that a deduction is still allowed if a disposal occurs within the four year period due to circumstances that are outside of the fund's control and the fund could not have reasonably foreseen the disposal happening when it acquired the interest.

    Information on this is also provided at U Forestry managed investment scheme deduction.

    Income tax treatment of instalment warrants

    In the 2010-11 Budget the Government announced the intention to amend the income tax treatment of qualifying instalment warrants to provide certainty for investors by treating them as the owner of the underlying asset for income tax purposes. This will have effect from 1 July 2007. At the time of printing these instructions the changes had not become law.

    See also:

    New legislation

    Deductibility to funds of cost of providing terminal medical condition benefits

    In the 2010-11 Budget the Government announced the intention to extend the range of benefits that are deductible by complying superannuation funds and retirement savings account (RSA) providers to include terminal medical condition (TMC) benefits. The measure will have effect from 16 February 2008, the date the TMC condition of release was introduced into the superannuation legislation.

    See also:

    New legislation

    Superannuation - minor amendments

    In the 2010-11 Budget the Government announced the intention to make a number of minor amendments to improve the operation of the superannuation legislation. These changes are intended effect from the 2010-11 income year.

    The amendments will include:

    • permanently allowing a claim for a deduction for eligible contributions to be made to successor superannuation funds
    • increasing the time limit for deductible employer contributions made for former employees
    • clarifying the due date of the shortfall interest charge for the purposes of excess contributions tax
    • allowing the Commissioner to exercise a discretion for the purposes of excess contributions tax before an assessment is issued, and
    • providing new arrangements for public sector defined benefit schemes which fund benefits through 'last minute contributions'.

    See also:

    New legislation

    Capital gains tax - demerger relief for certain demerger groups

    In the 2010-11 Budget the Government announced the intention to amend the capital gains tax (CGT) demerger provisions so that an entity is excluded from being a member of a demerger group if it is a corporation sole or a complying superannuation entity. This proposed amendment will have effect from 7.30 pm (AEST) on 11 May 2010.

    At the time of printing these instructions the changes had not become law. For more information see New legislation.

    Last modified: 29 Jul 2010QC 22855