On 7 August 2012, Alexis Kokkinos (Pitcher Partners), Paula Houvardas (Ernst & Young), Tony Stolarek (Ernst & Young) and Karen Liew (Institute) participated in a teleconference of the National Tax Liaison Group (NTLG) Finance & Investment Sub-group Taxation of Financial Arrangements (TOFA) Working Group.
In the teleconference, the ATO outlined its compliance approach for the implementation of Schedule 2 of Tax Laws Amendment (Measures No.2) Act 2012 which contains amendments to the TOFA (Division 230) and consolidation interaction provisions. The amendments affect two types of taxpayers:
- head companies with a post-TOFA joining
- head companies that had a pre-TOFA joining and made a transitional election.
Taxpayers are expected to amend their assessments within a reasonable time, and also to lodge future income tax returns taking into account the effect of the amendments. As part of this process, the ATO will assist taxpayers, including through the private binding rulings process, compliance products, as well as the NTLG itself.
Some preliminary work have been conducted by the ATO in identifying the population of taxpayers that are likely to be affected by the amendments – i.e. including pre-TOFA joinings into head companies that made a transitional election, and post-TOFA joinings. Taxpayer data indicates approximately 770 taxpayers are affected by the amendments.
During August 2012, the ATO will send out letters to these taxpayers, informing them of the changes, and requesting that they review their positions.
If the effect of the new law is that taxpayers’ positions require that there be an amendment of a previous assessment, the letter requests that additional information be provided. This information can be seen at Changes to the operation of consolidation and TOFA rules.
Once the ATO receives a request for an amended assessment, it will be processed. The ATO may conduct compliance assurance on the amendment request – as per usual. There will be a small team set up in LB&I which will handle this assurance process.
There may be some taxpayers that may have had a joining, and are in a sense affected by the amendments, but the amendments will not change their tax position (eg joining entity had no liabilities that fluctuate in value and the head company is only affected by the amendments because there was a post-TOFA joining). It is appropriate for such taxpayers to not respond to our letters.
Additionally, there are a number of identified taxpayers (around 90) that will be significantly affected by the amendments. For those taxpayers, the ATO will send out a letter initially with appropriate subsequent follow up.
In the teleconference, the ATO also discussed outstanding consolidation issues affecting the interpretation of Division 230 and provided an update on its Division 230 compliance review pilot.
For further information on the teleconference, please contact the Tax Group.