Taxation of financial arrangements

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.

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.

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).

Once the TOFA rules apply to a partnership, they will continue to apply to that partnership, 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 partnerships under the TOFA rules. Elections under the TOFA rules are irrevocable, and should be carefully considered before being made. For more information, go to Taxation of financial arrangements (TOFA).

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 2013–14 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 2013–14 income year the partnership:

• 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, or
• 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.
   

M – Total TOFA gains

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

N – Total TOFA losses

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

O – TOFA transitional balancing adjustment

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.

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.