Item 31 - Taxation of financial arrangements (Trust Returns)

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.

Which entities are affected?

The TOFA rules apply to the following entities:

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 entity 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.

A trust that does not meet these requirements can elect to have the TOFA rules apply to it.

Which financial arrangements will the TOFA rules apply to?

The TOFA rules apply to all financial arrangements that the affected trust starts to have during income years commencing on or after 1 July 2010. In addition, a trust may have elected to have the TOFA rules apply to its financial arrangements for income years commencing on or after 1 July 2009.

Trusts may have also separately made a transitional election to apply the TOFA rules to their existing financial arrangements.

The aggregated turnover tests may mean that the TOFA rules will apply to trusts that do not meet the thresholds in their own right. Aggregated turnover includes the annual turnover of any entity a trust is connected with, or any affiliate of the trust (including overseas entities).

Working out the trust's total assessable TOFA gains and TOFA deductible losses.

Ensure when calculating the next three labels M and N you take into account any amount in relation to a TOFA financial arrangement that you have shown at labels such as:

Net income or loss from business item 5 label S
Partnerships and trusts item 8 labels A, Z, S, B, R or T
Interest deductions item 9 label G
Gross interest item 11 label J
Unfranked dividend amount item 12 label K
Other Australian income item 14 label O
Other deductions item 18 label Q
Gross other assessable foreign source income item 23 label B.

You should only take into account an amount once at one of M or N.

Label M - Total TOFA gains

Show at M the trust's total TOFA gains from financial arrangements. Include TOFA gains you show at:

S Net income or loss from business item 5
J Gross interest item 11
K Unfranked amount item 12
O Other Australian income item 14
B Gross other assessable foreign source income item 23.

Label N - Total TOFA losses

Show at N the trust's total TOFA losses from financial arrangements. Include TOFA losses you show at:

S Net income or loss from business item 5
G Interest deductions G item 9
Q Other deductions item 18
V Net other assessable foreign source income item 23.

CCH References

23-000 Taxation of financial arrangements - TOFA

23-035 Taxation of gains and losses on financial arrangements