Tax Counsel Tamera Lang ATIA, Tony Frost FTIA (Greenwoods & Freehills) and Matt Osmond FTIA (PwC) attended the NTLG Finance & Investment Sub-committee TOFA Working Group meeting on Tuesday 31 May 2011.
The Working Group discussed a variety of technical matters that are on the current "TOFA Issues List" (available on the ATO website). Discussions of note included:
- Securitisations (TOFA issue 1040) – the ATO is still in the process of finalising a technical discussion paper on this matter. The Working Group will convene a meeting of its Securitisation Sub-group once the paper has been completed. It was also noted that due the complex trust situations that are considered in a securitisation analysis, the paper may also be reviewed by ATO officers with specialised trust expertise. It is hoped that the paper will be published within the next 6 weeks.
- Impact of TOFA elections on acquired life insurance businesses (TOFA issue 635) – the ATO’s preliminary view is that where an entity that has made a financial reports election and later acquires a new life insurance business, it will not be able to carve-out the new life insurance business notwithstanding the existence of s.230-415(3). The private sector members of the Working Group noted that this interpretation appears to be inconsistent with the policy of the carve-out, and undertook to write a submission to Treasury for an amendment to the law.
- Trade vs settlement date accounting (TOFA issue 167) – the ATO’s preliminary view is that, in the case of an ordinary bond acquired on the secondary market, there will be two financial arrangements relevant to the application of the compounding accruals method in Subdiv.230-B. There will be a financial arrangement in existence from the trade date to the settlement date, and a second financial arrangement from settlement date until the bond is sold or otherwise disposed. The aggregation provision in s.230-55 was thought not to apply. The private sector members of the Working Group pointed out that such an interpretation is unworkable in practice and does not appear to be in accordance with the policy intent of the provision. The ATO undertook to communicate their analysis to Treasury, who will then consider what amendments are required to ensure the provision does not unduly cause compliance difficulties.
The ATO also gave an update on the status of its TOFA compliance plan. TOFA has featured in both the LBI and SME compliance plans, and scoping of specific compliance risks is continuing. The ATO is monitoring the number of transitional elections that have been received and the potential impact that transitional balancing adjustments have on taxable income. The ATO has been surprised to receive a relatively high number of transitional elections from SME and micro-business taxpayers. Monitoring of compliance will continue, including reviewing information disclosed on 2010 and 2001 income tax returns and the development of appropriate risk profiles and filters.