Tax Counsel Tamera Lang ATIA, Andy Hirst FTIA (Greenwoods & Freehills) and Matt Osmond FTIA (PwC) attended the NTLG Finance & Investment TOFA Working Group meeting on Tuesday 8 March 2011.
The Working Group discussed a variety of technical matters that are on the current “TOFA Issues List”. Discussions of note included:
- Net versus gross reporting on tax returns – the ATO advised that taxpayers must strictly follow s.230-15 to determine the amounts that should be reported on their income tax returns. That is, there should not be a wholesale “netting off” of gains/losses. Netting of amounts should only occur when the Div.230 method of calculating the gain/loss that the taxpayers has adopted allows it. A consequence is that swap gains/losses should generally be reported on a gross basis. The ATO stated that the gross approach is particularly important for income/expenses such as interest, where the compliance/data matching activity will require analysis of gross amounts. A discussion of the challenges this will cause taxpayers and the possible penalties of not complying ensued, and the ATO will finalise its position in the minutes of the meeting.
- Securitisations – the ATO is continuing work on its long-awaited securitisations paper. Avid TOFA followers will recall that this paper has been in progress for over 12 months. The paper will cover a broad range of issues arising under Division 230 and the transitional provisions, including (but not limited to) the existence and scope of the financial arrangements in the transaction, the trust exception in s.230-460(3), the application of s.230-435, the interaction with Division 6 and the rule in item 104(3).
- Requirement to prepare financial reports in accordance with the accounting standards – the group discussed this requirement, particularly in light of the onerous accounting standards which require some 1,550 separate disclosures. It was noted by the private sector members that many taxpayers may not comply with every facet of the accounting standards’ disclosure requirements (e.g. they may not fully comply with the related party or executive remuneration disclosures). The private sector members thought that non-compliance with disclosures that have no impact on the taxpayers’ financial arrangements should not impact on a taxpayers’ ability to adopt elective methods. The ATO agreed to consider the matter following receipt of further information, and discussions will continue at the next Working group meeting.
- Consolidation interactions – the group discussed the complex interaction between TOFA and consolidation. There are a number of consolidation matters on the issues list and the ATO does not (as yet) have firm views on how the provisions operate. It was agreed by all that the policy intent of the law is clear, but drafting flaws will need to be fixed so that the provisions can operate as was intended. A subgroup will be formed to discuss these issues going forward.
Other matters discussed included: issue 810 (meaning of “financial asset” in s.230-455), issue 1045 (possible overlap between s.63E and Div.230), issue 280 (historical rate rollovers) and issue 167 (whether a financial arrangement arises from trade or settlement date). If you are interested in these issues or any other TOFA issues, please contact Tax Policy. Likewise, if you have any TOFA interpretative difficulties that should be raised with the ATO, please contact us.