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ATO Interpretative Decision

ATO ID 2006/104

Income Tax

Foreign exchange (forex) gains and losses: operation of Division 775 where the head company of a consolidated group is an ADI
FOI status: may be released
  • This ATO ID does not take account of the effect of Tax Laws Amendment (Taxation of Financial Arrangements) Act 2009 that implements Stages 3 and 4 of the reforms to the taxation of financial arrangements (TOFA 3 and 4).

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is a consolidated group exempt from the operation of Division 775 of the Income Tax Assessment Act 1997 (ITAA 1997) where the head company of the consolidated group is an ADI (authorised deposit-taking institution)?

Decision

Yes. Division 775 of the ITAA 1997 will not apply to a consolidated group where the head company of the consolidated group is an ADI.

Facts

The taxpayer is an ADI as defined in subsection 995-1(1) of the ITAA 1997 and the head company of a consolidated group.

Reasons for Decision

Generally Division 775 of the ITAA 1997 applies to forex realisation gains and losses made by taxpayers in relation to transactions entered into after 1 July 2003. However, section 775-170 of the ITAA 1997 exempts forex realisation gains and losses made by ADIs from the operation of Division 775 of the ITAA 1997.

Under the consolidation regime, when a consolidated group is formed, the group is treated as a single entity for income tax purposes under section 701-1 of the ITAA 1997. This means that, on joining a consolidated group, the subsidiary members lose their individual income tax identities and are treated as parts of the head company of the consolidated group (rather than as separate entities) for the purposes of determining the head company's income tax liability or loss.

Where a consolidated group exists and the head company is an ADI, the exemption under section 775-170 of the ITAA 1997 applies to that taxpayer.

In this case, the head company is the taxpayer for considering the application of the exemption. Accordingly, Division 775 of the ITAA 1997 will not apply to the consolidated group as the head company is an ADI.

Date of decision:  29 March 2006

Year of income:  Year ended 30 September 2006

Legislative References:
Income Tax Assessment Act 1997
   Division 775
   section 701-1
   section 775-170
   subsection 995-1(1)

Related ATO Interpretative Decisions
ATO ID 2006/106

Keywords
Consolidated group
Consolidation
Financial institutions
Foreign exchange gains and losses
Single entity
Single entity rule

Siebel/TDMS Reference Number:  4927877

Business Line:  Finance and Investment Centre of Expertise

Date of publication:  13 April 2006

ISSN: 1445-2782


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