Government Acts to Provide Certainty on Taxation of Financial Arrangements
12 January 2010
The Assistant Treasurer 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.
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.
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