• Capital gains and losses on property

    If, at the time that the CGT event happens in relation to the indirect Australian real property interest, the sole or predominant currency in which you keep your accounts is a currency other than Australian currency, you must use the applicable functional currency to work out the amount of any capital gain or capital loss Subsection 960-61(2) of the ITAA 1997 covers this.

    There are two steps to work out a capital gain or capital loss.

    Step 1 translate an amount that is not in the applicable functional currency into the applicable functional currency.

    Step 2 translate the amount of any capital gain or capital loss into Australian currency.

    See also:

    Exchange rates to apply

    Different exchange rates apply to the translation of amounts that are elements in the calculation of capital gain or loss.

    See also:

    The exchange rate to be used when translating amounts will be either the rate at the time the costs are incurred, or the rate at the time of the CGT event.

    Exchange rate applicable at the time the costs are incurred

    Amounts relating to the payments made and costs incurred that form part of the cost base of a CGT asset

    These amounts are translated into your functional currency at the exchange rate applicable at the time the costs are incurred.

    See also:

    • Subsection 960-50(6) of the ITAA 1997 (Item 5 of the table)
    • TR 2007/5 Income tax: functional currency - when is an amount not in the 'applicable functional currency'? paragraphs 110 and 153

    Exchange rate applicable at the time of the CGT event

    Amounts which are relevant for working out the capital gain or capital loss (capital proceeds or market value of other property) on the happening of a CGT event

    These amounts are translated into the applicable functional currency at the exchange rate applicable at the time of the CGT event.

    See also:

    Amount of capital gain or capital loss calculated in the applicable functional currency

    This amount is translated into the Australian currency at the exchange rate applicable at the time of CGT event.

    See also:

    • Subsection 960-50(6) of the ITAA 1997 (Item 5 of the table)
    • TR 2007/5 Income tax: functional currency - when is an amount not in the 'applicable functional currency'?

    CGT and the disposal of property

    This example shows how foreign residents need to use the functional currency rules to calculate capital gains and losses on the disposal of an indirect Australian real property interest.

    Example 6: CGT and the disposal of property

    On 20 March 2006, Foreign Co (incorporated in Singapore) acquired all 120,000,000 issued shares in Aus Property Co for A$2.20 per share.

    On 21 April 2006, Foreign Co incurred incidental costs amounting to A$850,000.

    On 15 September 2009, Foreign Co disposed all its shares in Aus Co for A$3.50 per share. Foreign Co used Singapore dollars to keep their accounts at the time of disposal.

    The shares in Aus Co are indirect Australian real property interests and the exchange rate was:

    • $S1.1922 at the time of acquisition
    • $S1.1934 at the time the incidental costs were incurred
    • $S1.2538 at the time of disposal.

    The capital gain or capital loss on disposal of those shares is calculated as follows:

    Step 1 Work out the capital proceeds from the CGT event

    Proceeds on disposal

    15/9/2009 120,000,000 x A$3.50 = A$420,000,000

    Translate into applicable functional currency

    15/9/2009 A$420,000,000 x S$1.2538 = S$526,596,000

    Total capital proceeds S$526,596,000

    This step is covered in the following provisions of the ITAA 1997:

    • Item 6(a) ss.960-80(1) Para 960-80(4)(a)
    • ss.960-80(6) Item 5 ss.960-50(6).

    Step 2 Work out the cost base of the CGT asset

    1st element – money paid to acquire the shares

    20/3/2006 120,000,000 x A$2.20 = A$264,000,000

    Translate into applicable functional currency

    20/3/2006 A$264,000,000 @ S$1.1922 = S$314,740,800

    2nd element – incidental costs of acquiring the shares

    21/4/2006 A$850,000

    Translate into applicable functional currency

    21/4/2006 A$850,000 x S$1.1934 = S$1,014,390

    Total cost base (1st and 2nd elements) S$315,755,190

    This step is covered in the following provisions of the ITAA 1997:

    Item 6(a) ss.960-80(1) Para 960-80(4)(a)

    ss.960-80(6)

    Item 5 ss.960-50(6)

    Step 3 Calculate capital gain

    Subtract cost base from capital proceeds

    S$526,596,000 – S$315,755,190 = S$210,840,810

    Capital gain in applicable functional currency S$210,840,810

    This step is covered in the following provisions of the ITAA 1997

    • Item 6(b) ss.960-80(1)
    • Para 960-80(4)(b).

    Step 4 Convert into Australian currency

    Translate amount of capital gain into Australian currency

    15/9/2009 S$210,840,810 = A$168,161,437

    S$1.2538

    Capital gain in Australian currency is A$168,161,437

    This step is covered in the following provisions of the ITAA 1997:

    • Item 6(b) ss.960-80(1)
    • Item 5 ss.960-50(6).
    End of example
      Last modified: 01 Mar 2016QC 17626