• General information on average rates

    You can translate foreign currency amounts into Australian currency or an applicable functional currency using:

    • average rates
    • daily rates, or
    • rates consistent with the rates used when preparing an audited financial report.

    Using average rates

    You can translate an amount into Australian currency using an exchange rate that is an average of the exchange rates applicable during a period chosen by you. The period may be less than, but not exceeding, 12 months.

    However, you cannot use an average rate unless it is a reasonable approximation of the exchange rates that would otherwise be applicable if you had used spot rates at the specific translation times provided for by the foreign exchange legislation. You should consider whether the use of an average rate is reasonably likely to approximate the use of spot rates. The examples below provide more detail.

    Where to find average rates

    Average exchange rates are published to our website. You can find exchange rates for selected countries including average monthly and yearly rates released by the Commonwealth Bank of Australia as outlined in Taxation Ruling IT 2498. Alternatively, you can use appropriate exchange rates provided by:

    • a banking institution operating in Australia including, where relevant, the banking institution through which your foreign income is received
    • another reliable external source.

    Keep the rate used and the source of rates with your records.

    You cannot obtain an average rate (or rates) of exchange from an associate, or from yourself, unless otherwise notified by us.

    See also:

    • Foreign exchange rates
    • Taxation Ruling IT 2498 Income Tax - foreign tax credit system - currency translation of foreign income - trading stock and depreciable plant - basis of returning foreign income - capital gains/losses

    When to start using average rates

    The regulations for the use of average rates came into effect from 1 July 2003.

    If you previously prepared your tax returns in anticipation of these regulations you should refer to Administrative treatment of retrospective legislation.

    Similarly, if you have already prepared a tax return using spot rates of exchange, and did not anticipate the regulations, you are entitled to review your position in light of the regulations now in force.

    Translating foreign income derived overseas

    You can use either the spot rate at the time the income is derived or an appropriate average rate. You can't use an end of year rate (the rate applying on the last day of the income year) to translate foreign income that is not actually received in Australia in the same year it is derived.

    Example 1

    Maria is an Australian resident who receives a foreign age pension from Italy. The pension is paid to her fortnightly in Euros. Maria may translate her total assessable Italian pension amounts for the income year by using an average annual exchange rate. She does not have to translate the pension into Australian dollars at the exchange rate prevailing at each time the pension payment is received.

    Example 2

    Veronica receives a fortnightly British age pension paid in pounds sterling. The Australian bank the pension is paid into converts her pension payments into Australian dollars at the time of each payment. Veronica chooses to translate her assessable British pension into Australian dollars using the rate applied by her Australian bank. That is, Veronica adds up the Australian dollar value of her pension as converted by her bank, rather than choosing to use an average annual exchange rate.

    Example 3

    Oz Retail & Sales regularly buys goods from various retailers in Germany for its trading activities. Goods are ordered in Euros from eight regular suppliers, and Oz Retail & Sales makes about six foreign currency payments each month. Payment is due 30 days from the date of shipment. The goods are considered to be trading stock of Oz Retail & Sales.

    In this case, Oz Retail & Sales could use an appropriate average rate of exchange when translating the cost of the acquisition of trading stock for income tax purposes.

    Example 4

    Peter, an accruals-based taxpayer, is a consultant engineer. He provides professional services to clients in Australia as well as New York. Fees for the New York based clients are written in US dollars at the end of each month, and payment is required within 30 days. The fees are around US$80,000 each month. It would be a reasonable approximation for Peter to translate the US dollar amounts into Australian dollars using an exchange rate based on a yearly or monthly average.

    Example 5

    Peter (from example 4 above) had also bought an office building in New York for US$3 million during the income year. In this case, it would not be a reasonable approximation to translate the purchase price of the office building using an average yearly rate.

    Example 6

    John receives fortnightly rent from a rental property he has in the United Kingdom. The rent is deposited into a bank account in the UK. Throughout the year, he pays miscellaneous expenses such as maintenance and minor repairs, and agent's fees, for the property. It would be reasonable for John to choose to use an average rate of exchange for the rental income and deductions when translating these amounts into Australian dollars.

    Example 7

    John (from example 6 above) sells the rental property in the following year. As this is a one-off sale of a large capital asset, it would not be appropriate for John to use an average rate of exchange when translating this amount into Australian currency.

    End of example
      Last modified: 11 Aug 2017QC 18020