ATO Interpretative Decision
ATO ID 2003/621 (Withdrawn)
Income Tax
Capital Gains Tax: foreign currency converted into Australian currency at time of the transactionFOI status: may be released
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This ATOID is withdrawn because the ATO view on this matter is now included in the Guide to capital gains tax 2005-06 (page 20).This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Can a capital gain or capital loss arising from a CGT event in Division 104 of the Income Tax Assessment Act 1997 (ITAA 1997) be worked out in a foreign currency and converted to Australian currency at the time of the event if a transaction relevant to the event involved a foreign currency?
Decision
No. A capital gain or capital loss cannot be worked out in a foreign currency and converted to Australian currency.
Section 103-20 of the ITAA 1997 requires a foreign currency conversion to be made for each transaction relevant to the calculation of a capital gain or capital loss at the time of the transaction (for example, on the acquisition, improvement or disposal of a CGT asset). The provision does not permit a single conversion of the resulting gain or loss.
Facts
An Australian resident acquired shares in a Hong Kong company in the 1999-2000 income year.
Each share cost Hong Kong Dollars (HKD) 100. As at the acquisition date, this converted to Australian Dollars (AUD) 20.
The shares were disposed of in the 2002-03 income year.
The sale proceeds for each share were HKD150. As at the sale date, this converted to AUD28.30.
Reasons for Decision
Section 103-20 of the ITAA 1997 says that if a transaction or event involving an amount of money or the market value of other property is to be taken into account under the capital gains tax provisions in Part 3-1 or 3-3 of the ITAA 1997, and the money or value is in a foreign currency, the amount or value is converted into the equivalent amount of Australian currency at the time of the transaction or event.
This means foreign currency must be converted to Australian currency at the time of each transaction or event. That is, amounts relevant to the calculation of a capital gain or capital loss (such as an amount included in an element of the cost base of an asset and capital proceeds) must be expressed in Australian currency before making the final gain or loss calculation.
Therefore, the taxpayer does not calculate their capital gain in Hong Kong dollars and then convert it to Australian dollars (that is, HKD50 ÷ 5.3 = AUD9.40). Rather, they must calculate their capital gain by converting their acquisition cost and capital proceeds into Australian dollars at the acquisition and sale times respectively. Accordingly, a capital gain of AUD8.30 (that is, AUD28.30 - AUD20) will arise at the time of the disposal of each share.
Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
section 103-20
Other References:
The New Business Tax System (Taxation of Financial Arrangements) Act (No. 1) 2003
Keywords
Capital gains tax
Capital gains
Capital losses
CGT capital proceeds
CGT cost base
ISSN: 1445-2782
| Date: | Version: | |
| 19 June 2003 | Original statement | |
| You are here | 3 November 2006 | Archived |