How could the newly appointed service providers to bring assets held by the departing custodian into line with TOFA? “Historically, when assets were transferred between custodians, the ‘losing’ custodian could basically participate in the novation and then say ‘my responsibility finishes tonight’. TOFA makes that more complex – you need historical information on a portfolio’s valuation to be able to predict forward information…You [also] need to understand cashflows in relation to a purchase, as those cashflows affect future cashflows in relation to accruals.” The potential for large grey areas to emerge during a transfer of assets was recognised early on by Paul Toepfer, the head of fund operations at State Street Australia. “One of the issues being looked at is dealing with approximations where historical data is not available. Estimations require assumptions, but how will this be communicated to the ATO?” Toepfer asked last year.

The answer, according to DST’s Rhind, will only really become clear after June 30 this year. Rhind is philosophical about the impact of TOFA on the funds management industry. He acknowledges that compliance with TOFA has been a costly exercise – costs that will ultimately be borne by investors – but he points to some downstream benefits. “It is true to say that the TOFA legislation was really aimed at investment banking and corporate finance, where deals are done in a way that’s not as tightly regulated as funds management. “But there are still many comparative advantages and intangible benefits to be gained from becoming TOFA-compliant, particularly for those who got in early. A big intangible benefit I see is the scrutiny it has placed on data quality in relation to reports.

TOFA has forced it to become more stringent than it was, and ultimately it will reduce the need for costly and time-consuming re-works in the lead-up to tax reporting time,” he says. “TOFA has helped place the quality gateways much earlier on in the process.” With TOFA now live, the industry barely drew a postimplementation breath before the next challenge emerged on its horizon – a proposed new regime for the taxation of Managed Investment Trusts went ex-submissions last November, but will subject to government consultation with the industry in the early part of this year.

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