ATO Interpretative Decision

ATO ID 2004/157

Income Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Can there be more than one retranslation period under Subdivision 775E of the Income Tax Assessment Act 1997 (ITAA 1997) for a qualifying forex account in one income year

Decision

Yes. There can be more than one retranslation period under Subdivision 775E of the ITAA 1997 in one income year for a qualifying forex account.

Facts

On 1 July 2004 an entity elects to have the retranslation rules in Subdivision 775-E of the ITAA 1997 apply to an account that is a Qualifying Forex Account (QFA), as defined at subsection 995-1(1) of the ITAA 1997. For accounting purposes, the entity undertakes retranslation activities on a monthly basis, and wishes to have the tax retranslation periods aligned with the accounting periods. That alignment can be achieved if it is possible to make and withdraw elections on a monthly basis, so that each month could be a retranslation period.

Reasons for Decision

In determining whether an entity can have multiple retranslation periods in a single income year it is necessary to consider the following:

•

Can a retranslation period be for part of an income year?

•

Can an entity revoke and remake an election in relation to the same account or accounts?

Part year retranslation period

A retranslation period may be in respect of part of a year. A taxpayer will have a retranslation period consisting of part of an income year if their choice ceases to have effect during an income year. Subsection 775-270(3) of the ITAA 1997 provides for three events which will cause the taxpayer's choice to cease to have effect:

(a)

if the taxpayer ceases to hold the account; or

(b)

the account ceases to be a QFA; or

(c)

the taxpayer withdraws its choice.

Where any of these events occur, the retranslation period will be for part of an income year.

Paragraph 775-285(1)(b) of the ITAA 1997 defines a retranslation period to be a continuous period consisting of an income year or a particular part of an income year during which a choice to retranslate a QFA was in effect.

Where a retranslation election in relation to one or more QFAs is made and that choice remains in effect for several income years, the retranslation period will cease at the end of each income year and a new retranslation period will commence immediately after the end of the previous period. The opening balance of the new period will be translated using the same exchange rate that is used to translate the closing balance of the previous period (paragraph 775-285(9)(b) of the ITAA 1997).

Withdrawing an election and making a fresh election

Section 775-275 of the ITAA 1997 allows the withdrawal of the retranslation election. Withdrawing an election will immediately terminate a retranslation period and will trigger the operation of forex realisation event 8.

Withdrawing an election does not preclude the taxpayer from making a fresh choice in the future for retranslation treatment in relation to the same account or accounts. Where a taxpayer wishes to translate on a monthly basis, the taxpayer may do so by withdrawing the election that relates to that QFA at the end of each month and then making a fresh election for the following month.

Accordingly, there can be more than one retranslation period in one income year for a qualifying forex account under Subdivision 775E of the ITAA 1997.

Year of income:  Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1997
   subsection 995-1(1)
   Subdivision 775-E
   paragraph 775-270(3)(a)
   paragraph 775-270(3)(b)
   paragraph 775-270(3)(c)
   section 775-275
   section 775-285

Keywords
Retranslation period
Retranslation election
Qualifying forex account

Siebel/TDMS Reference Number:  3897002

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  20 February 2004

ISSN: 1445-2782