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Australian TOFA Elections Due Date Fast Approaching

Mary Swire, Tax-News.com, Hong Kong

27 December 2010


Critical deadlines are approaching for taxpayers affected by the Taxation of Financial Arrangements (TOFA) rules outlined in Division 230 of the Income Tax Assessment Act 1997. The rules mainly apply to medium and large business taxpayers.

The application of Division 230 is mandatory for Authorised Deposit-taking Institutions (ADIs), securitization vehicles and financial sector entities, with an aggregated turnover of AUD20 million or more in the previous income year; superannuation entities, managed investment schemes and foreign entities similar to managed investment schemes, if the value of their assets is AUD100 million or more (worked out at the end of the previous income year); other entities (not individuals) who meet any of the following thresholds in the previous income year: aggregated turnover of AUD100 million or more (worked out at the end of the previous income year; assets of AUD300 million or more (worked out at the end of the previous income year); or financial assets of AUD100 million or more (worked out at the end of the previous income year).

Division 230 will also apply to an entity in the income year it comes into existence, if it satisfies any of the above thresholds in that income year. An entity (including any individuals) that does not satisfy the threshold tests listed above can elect to have Division 230 apply to it.

Regardless of the above thresholds, Division 230 will apply to an arrangement held by any entity (including those held by individuals) if it is a qualifying security that will end more than 12 months after the entity starts to hold it.

The threshold tests are one-off tests. Division 230 will continue to apply if an entity satisfies the threshold once, even though their turnover or value of assets may subsequently fall below the relevant threshold. Similarly, an election to come under Division 230 cannot be revoked.

The TOFA rules broadly set out methods for calculating gains and losses on financial arrangements and the times at which gains and losses will be brought to account for income tax purposes.

Financial arrangements that may be subject to TOFA include simple debt interests (eg bank deposits, loan accounts, bonds and bank bills); equity interests (eg shares) in limited circumstances; derivative contracts (eg options, forward and swap agreements); deferred purchase agreements; foreign currency; and hedging arrangements.

The TOFA rules apply for all affected taxpayers in respect of financial arrangements on or after July 1, 2010. However, taxpayers affected by the TOFA rules can make a transitional election to bring in existing financial arrangements. This election must be made and notified to the Commissioner of Taxation no later than January 15, 2011.

Notifications may be made through the Tax Agents’ Portal, Business Portal, mail, fax or the TOFA email address below using the transitional election form.

For detailed information about the TOFA rules and making elections, the ATO has produced a TOFA webcast and other products which are available on the ATO’s TOFA website at www.ato.gov.au/tofa.

TAGS: individuals | tax | investment | business | interest | agreements | currency

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