At its essence, TOFA attempts to systematically align the tax treatment of financial arrangements towards their economic substance rather than their legal form.
This paper examines:
- how do the economic substance provisions work in practice?
- when does the economic substance approach not apply in practice, i.e. what might be the limits of this economic substance approach?
Issues considered include:
- economic substance under accounting principles
- interactions with other parts of the Act that impose non-economic substance-based approaches
- impact of tax character on substance-based analyses
- deliberate design features in Div 230 that move away from economic substance
- consideration of the synthetic disposal and non-disposal rules.