ATO Interpretative Decision

ATO ID 2004/472

Income Tax

Foreign Exchange (Forex): timing of translation of foreign income that is non-assessable non-exempt income into Australian currency
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).

Status of this decision: Decision Current

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Where an Australian resident taxpayer derives ordinary income denominated in a foreign currency that is non-assessable non-exempt (NANE) income, when must that NANE income be translated into Australian currency (Australian dollars) under section 960-50 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

The taxpayer must translate the NANE income into Australian dollars at the exchange rate prevailing at the earlier of when the NANE income is derived or received.

Facts

An Australian resident taxpayer derives ordinary income that is denominated in a foreign currency from various sources overseas. That income is also NANE income. The taxpayer accounts for income and deductions on an accruals basis.

Reasons for Decision

As an Australian resident, the taxpayer is assessable on its ordinary income derived from all sources (subsection 6-5(2) of the ITAA 1997). The foreign income derived is income according to ordinary concepts, and is thus ordinary income (subsection 6-5(1) of the ITAA 1997). The Australian resident's income falls within the list of NANE income categories in section 11-55 of the ITAA 1997. Thus the income is ordinary income that is non-assessable non-exempt income (section 6-23 of the ITAA 1997).

Subsection 960-50(1) and paragraph 960-50(2)(a) of the ITAA 1997 requires amounts of ordinary income denominated in a foreign currency to be translated into Australian dollars. Item 6 of subsection 960-50(6) requires ordinary income to be translated into Australian dollars at the exchange rate prevailing at the earlier of when the amount is received or when it is derived.

As the taxpayer accounts for income on an accruals basis, the taxpayer is required to translate the NANE income into Australian dollars at the exchange rate prevailing at the time it is derived, unless it receives the income prior to this time. If the NANE income is received prior to being derived, it is to be translated into Australian dollars at the exchange rate prevailing at the time it is received.

Note: This income must be reported in the income tax return of the taxpayer, even though it is NANE income for Australian tax purposes.

Note: This ATOID does not take into account regulations which in some circumstances give taxpayers a choice to use an average exchange rate when translating foreign currency amounts into Australian dollars.

Date of decision: 31 May 2004

Year of income: Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1997
   section 6-5
   section 6-23
   section 11-55
   section 960-50

Keywords
Foreign currency translation
Foreign exchange gains and losses

Siebel/TDMS Reference Number: 4052751

Business Line: Public Groups and International

Date of publication: 11 June 2004

ISSN: 1445-2782

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