This foreign exchange (forex) information relates to certain foreign currency denominated bank accounts. It describes the general application of foreign currency tax laws to those accounts, and answers some frequently asked questions.
A foreign currency denominated bank account (forex account) can be a forex deposit account or a forex loan account (including a forex credit card account).
The foreign currency tax laws (forex measures) relevant to this information are contained in Division 775 and Subdivision 960-C of the Income Tax Assessment Act 1997 (ITAA 1997). The forex measures have broad application to transactions denominated in foreign currency.
The forex measures set out rules for expressing the Australian currency values of amounts that are denominated in foreign currency, and explain how to calculate gains and losses that are attributable to currency exchange rate fluctuations. The measures treat many of those gains and losses as assessable income or allowable deductions.
Under the forex measures:
- assessable gains are referred to as 'forex realisation gains'
- deductible losses are referred to as 'forex realisation losses', and
- forex realisation gains and losses only arise when 'forex realisation events' happen.
The forex measures apply generally to the realisation of assets, rights, and parts of rights acquired, and obligations and parts of obligations assumed, on or after the 'applicable commencement date'. Bank accounts are rights or obligations. For example, if you have a savings account, you have a right (a 'chose in action') that relates to the money deposited in the account. If you have a loan account, you have an obligation to repay.
The forex measures apply to all taxpayers except for, broadly speaking, taxpayers that are banks or similar financial institutions. However, if you hold a forex account with a bank (such as a savings or loan account in foreign currency) you will usually have to consider the application of these laws in calculating your assessable income and allowable deductions.
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The '$250,000 balance election' is an important choice that may be helpful to taxpayers who do not have large forex account balances. If you satisfy all requirements for making this election, and remain eligible to rely on it, you can disregard certain gains and losses that you would otherwise have to return.
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Last Modified: Wednesday, 26 October 2005