A substituted accounting period (SAP) is a period for an income year approved by the Commissioner that has a balancing date different to the normal income year of 30 June. A taxpayer is an 'early balancer' operating on a SAP if the last day of their income year is before 30 June.
New forex gains and losses measures have been introduced, which generally bring to account foreign currency gains and losses as assessable income or allowable deductions on a realisation basis. There are also new rules that determine the appropriate exchange rate that applies to convert foreign income to Australian dollars.
Generally, the forex rules will apply prospectively to the realisation of assets, rights and obligations acquired or assumed on, or after, the commencement date. The commencement date is usually the first day of the 2003-2004 income year, and for most taxpayers this will be 1 July 2003. However, there is an exception for taxpayers that are early balancers operating on a substituted accounting period (SAP).
If a taxpayer is operating on a SAP and the first day of its 2003-2004 income year is earlier than 1 July 2003, the relevant commencement date is the first day of the 2004-2005 income year. Up until this time, the early balancing SAP taxpayer will determine the tax consequences of gains or losses on foreign currency denominated assets, rights and obligations that existed before the beginning of its 2004-2005 income year under the law as it applied before these measures were introduced.
Example scenario
ABC Pty Ltd is an early balancer that has a substituted accounting period (SAP) that operates from 1 January to 31 December. It sells trading stock to overseas buyers in a foreign currency. As the beginning of its 2003-2004 income year is 1 January 2003, the new forex measures will not apply to its foreign currency dealings until 1 January 2004. As an early balancer, this is the first day of ABC Pty Ltd's 2004-2005 income year. Therefore, the applicable commencement date of the new forex measures for ABC Pty Ltd will be 1 January 2004.
This applies equally to conversion of its foreign sourced income to Australian dollars. The new conversion rules will not apply to ABC Pty Ltd until 1 January 2004.
Access other foreign exchange (forex) documents.
Ring the Tax Office Business Tax Reform Infoline on:
- 13 24 78 - Individuals and businesses
- 13 72 86 - Tax agents
Last Modified: Wednesday, 15 June 2005