The Assistant Treasurer, Senator Nick Sherry, today has moved to confirm the intention of the Taxation of Financial Arrangements (TOFA) transitional balancing adjustment provisions, as the January 15 deadline approaches for many taxpayers to decide whether to apply the TOFA Stages 3 and 4 rules to their pre‑existing financial arrangements.
"I'm acting to provide certainty about the intent of the TOFA transitional balancing adjustment provisions for taxpayers ahead of the January 15 deadline," the Assistant Treasurer said.
"An opinion has recently come to my attention that the transitional balancing adjustment provision could produce a permanent difference between the taxpayer's financial accounting profit/loss and the TOFA gain/loss from the relevant financial arrangement."
"This result is unintended and the Government will consider whether it is necessary to amend the income tax law to clarify the intention that there is no such permanent difference."
"The aim is to ensure there is no unintended advantage or detriment if a taxpayer elects to bring their pre-existing financial arrangements into the TOFA rules when relying on their financial reports."
"Any legislative change would have effect from the commencement of the TOFA rules," the Assistant Treasurer said.
"The transitional balancing adjustment provisions reduce compliance costs by relieving taxpayers of the burden of having to meet two sets of income tax rules for financial arrangements," the Assistant Treasurer said.
"It allows taxpayers to transition financial arrangements held under the old tax system to the modern system, equitably."
The progressive revamping of the taxation of financial arrangements such as bonds, derivatives, promissory notes, swaps, forwards and options, began in 2001.
TOFA Stages 3 and 4 received Royal Assent in March 2009, with provision for transitional balancing adjustments for taxpayers who elect to have the TOFA rules apply to their pre‑existing financial arrangements.
The primary method of transitioning into TOFA Stages 3 and 4 requires the taxpayer to calculate, for their pre‑existing financial arrangements, the difference between the pre‑TOFA and post‑TOFA tax outcomes and spread it, as a transitional balancing adjustment in taxable income, over four years.
An alternative method uses balances in the taxpayer's financial statements to approximate the transitional balancing adjustment under the primary method.