ATO Interpretative Decision
ATO ID 2004/856
Income Tax
Deduction for fees incurred to obtain currency exchange ratesFOI status: may be released
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
If a taxpayer is charged a fee for the provision of a rate of exchange used to translate the value of their foreign income, is this fee deductible under section 25-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. Reasonable fees charged for the provision of a rate of exchange used to translate the value of a taxpayer's foreign income for tax purposes are deductible under section 25-5 of the ITAA 1997.
Facts
The taxpayer derives foreign income. The Tax Office does not provide information on currency exchange rates in the particular currency the taxpayer's foreign income is denominated in.
The taxpayer obtains reasonable exchange rates from an independent external source that commonly quotes foreign exchange rates, for the purpose of translating their foreign income into Australian dollars in accordance with Subdivision 960-C of the ITAA 1997. The taxpayer is charged a small fee from the exchange rate provider for the provision of such rates.
Reasons for Decision
Section 25-5 of the ITAA 1997 provides that certain tax-related expenses are deductible.
Paragraphs 25-5(1)(a) and 25-5(1)(b) of the ITAA 1997 respectively provide that a taxpayer can deduct expenditures they incur to the extent that the expenditure is for managing tax affairs or for complying with an obligation imposed on them by a Commonwealth law, insofar as that obligation relates to the tax affairs of an entity. The expenditure may relate to a past, present or future year of income of the entity.
Section 25-5 of the ITAA 1997 does not specify what constitutes managing tax affairs. However, it is considered that managing tax affairs includes activities required to prepare income tax returns (see ATO Interpretative Decision ATO ID 2003/955).
Just as the cost of acquiring valuations required to comply with tax obligations or otherwise relating to the management of tax affairs will be deductible under section 25-5 of the ITAA 1997 (see Taxation Determinations TD 93/92; TD 2003/10 and TD 2003/11), so too will the cost of acquiring exchange rates required to translate foreign amounts into Australian dollars for taxation purposes.
Therefore, any reasonable fees the taxpayer incurs to obtain exchange rates required to translate their foreign currency denominated income to Australian dollars in accordance with the requirements of Subdivision 960-C of the ITAA 1997 will be deductible under section 25-5 of the ITAA 1997, at the time such fees are incurred.
Date of decision: 22 October 2004Year of income: Year ended 30 June 2004
Legislative References:
Income Tax Assessment Act 1997
Subdivision 960-C
section 25-5
paragraph 25-5(1)(a)
paragraph 25-5(1)(b)
Related Public Rulings (including Determinations)
Taxation Determination TD 93/92
Taxation Determination TD 2003/10
Taxation Determination TD 2003/11
ATO ID 2003/955
Keywords
Deductions & expenses
Foreign currency translation
Foreign exchange rates
Tax related expenses
Date reviewed: 5 September 2017
ISSN: 1445-2782