Taxation of Financial Arrangements (TOFA) changes deferred
TOFA changes announced in the 2016-17 Federal Budget have been deferred.
The previously announced changes were due to apply to income years commencing on or after 1 January 2018. The Government has deferred the start date to income years commencing on or after the date of Royal Assent of the enabling legislation. The reason for the deferral is to allow additional time for the design of the rules, to ensure that unintended consequences do not arise and that compliance cost savings are achieved.
The 2016-17 Federal Budget announced changes related to four key components:
- A ‘closer link to accounting’ to better align tax and accounting treatments
- Simplified accruals and realisation rules that limit their application to reduce spreading gains and losses, and simplify the calculations
- A new tax hedging regime which is easier to access, encompasses more types of risk management arrangements and removes the direct link to financial accounting
- Simplified rules relating to how foreign currency gains and losses are taxed.
It also confirmed that the Government would continue with previously announced measures that had not yet been legislated, which included:
- Amendments to tax hedging rules to ensure they operate as intended; and extending the range of entities that can use a functional currency (both announced in the 2011-12 Budget)
- Amendments relating to foreign currency regulations to provide technical and compliance cost savings measures (announced in the 2004-05 Mid-Year Economic and Fiscal Outlook).
The purpose of these previously announced TOFA changes were to improve certainty and reduce compliance costs. BDO welcomes the deferral of the start date so that it aligns with the period in which the legislation is actually passed and taxpayers do not have to guess what the law might be. However, it is of grave concern that the Government has not yet legislated these previous announcements, where the whole purpose of the new provisions is to simplify the tax system. This speaks to a lack of resources in the Treasury Department that needs to be addressed.