Miscellaneous Taxation Ruling

MT 2012

Bank account debits tax : foreign currency bank accounts

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FOI status:

FACTS

This office recently had occasion to consider the operation of the bank account debits tax in a situation where a bank account holder maintained a joint Australian dollar and foreign currency (i.e. non Australian dollar) account.

2. The features of the joint account are:-

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although described as a joint account, the account is in fact operated as two accounts under the one number, i.e. the Australian dollar and foreign currency transactions are maintained separately;

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individual bank statements are issued for the Australian dollar and the foreign currency accounts;

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bank charges are made to the foreign currency account in the currency concerned and are separate to the charges in respect of the Australian dollar account;

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transfers of funds from the foreign currency account are made by means of written request or by telex advice;

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unlike the Australian dollar account, cheque books are not issued for the foreign currency account.

3. Section 3(1) of the Bank Account Debits Tax Administration Act defines the words "account" and "cheque" as follows :-

"account" means an account kept with a bank, being an account to which payments by the bank in respect of cheques drawn on the bank by the account holder, or by any one or more of the account holders, may be debited;

"cheque" in relation to an account, means an order in writing drawn on a bank by or on behalf of the account holder, or any one or more of the account holders, requiring the bank to pay on demand a sum certain in money to, or to the order of, a specified person or persons, or to bearer.

RULING

4. Each bank account held by a person in a nominated currency is treated as a separate account for the purposes of the Act. The tax, however, only applies to a bank account if debits to the account may be made in respect of cheques drawn on the bank.

5. The transfer of funds out of the foreign currency accounts are exclusively by written request or telex advice and lack any of the essential elements of the "cheque" definition e.g. the requirement for the bank to "pay on demand". Where foreign currency accounts are not accounts on which cheques may be drawn they are not subject to bank account debits tax.

6. Should a cheque drawing facility be made available for a foreign currency account debits other than "excluded debits" or "exempt debits", to the account will be taxable. For the purposes of calculating the amount of tax payable, the taxable debits are to be expressed in Australian dollars at the rate of exchange applicable at the date of the debit.

COMMISSIONER OF TAXATION
18 September 1985

References

ATO references:
NO 83/7417
BO REF: SYD 22/B/BDT.1/1 Pt2 19 September 1984

Date of effect:
Immediate

Subject References:
FOREIGN CURRENCY
BANK ACCOUNTS

Legislative References:
BANK ACCOUNT DEBITS TAX ADMINISTRATION ACT 1982 SECTION 3