Foreign exchange (forex) gains and losses

Under the forex measures (Division 775 of the ITAA 1997) and the general translation and functional currency rules (Subdivisions 960-C and 960-D of the ITAA 1997), forex gains and losses are generally brought to account as assessable income or allowable deductions, when realised. The forex measures cover both foreign currency denominated arrangements and, broadly, arrangements to be cash-settled in Australian currency with reference to a currency exchange rate. Forex gains and losses of a private or domestic nature, or in relation to exempt income or non-assessable non-exempt income, are not brought to account under the forex measures.

If a forex gain or loss is brought to account under the forex provisions and under another provision of the tax law (apart from the TOFA rules), it is assessable or deductible only under the forex measures.

Generally, where the TOFA rules apply to the forex gains and losses of a fund, then those gains and losses will be brought to account under the TOFA rules instead of the forex measures.

Additionally, forex gains and losses will generally not be assessable or deductible under the forex measures if they arise from certain acquisitions or disposals of capital assets, including CGT assets and depreciating assets, and the time between the acquisition or disposal and the due date for payment is no more than 12 months. Instead, any forex gain or loss is usually matched with or integrated into the tax treatment of the underlying asset.

The general translation rule requires all tax relevant amounts to be expressed in Australian currency regardless of whether there is an actual conversion of that foreign currency into Australian dollars.

The tax consequences of forex gains or losses on foreign currency assets, rights and obligations that were acquired or assumed before 1 July 2003 are determined under the law as it was before these measures came into effect, unless:

  • the fund has made a transitional election that brings these gains and losses within the forex measures, or
  • there is an extension of an existing loan (for example, an extension by new contract or a variation to an existing contract) that brings the arrangement within these measures.

For more information, see Foreign exchange (Forex).

Last modified: 15 Jul 2016QC 48112