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Edited version of private ruling

Authorisation Number: 1011552125955

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Ruling

Subject: Foreign exchange realisation loss

Question

Are you entitled to carry forward your foreign exchange realisation loss made on converting your loan from country Q dollars to Australian dollars to offset against income in later years?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2009

The scheme commenced on

1 July 2008

Relevant facts and circumstances

You made a foreign exchange realisation loss on converting your loan from country Q dollars to Australian dollars on a property you purchased in Australia.

You live in the property for your own use and at the same time rent a portion of the property (including the garage) to tenants.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 36-15(2)

Income Tax Assessment Act 1997 Subsection 36-15(3)

Income Tax Assessment Act 1997 Subsection 36-15(5)

Income Tax Assessment Act 1997 Subsection 36-15(6)

Income Tax Assessment Act 1997 Subsection 36-15(7)

Reasons for decision

Division 36 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the method for calculating and deducting tax losses of earlier income years.

The relevant legislative provisions state that a taxpayer has incurred a loss in an income year if the deductions exceed the sum of the assessable income and any exempt income. This loss can be carried forward and claimed as a deduction in the next income year.

Losses carried forward are offset against the taxable income of future years in the following order:

Where all or part of the tax loss cannot be deducted in the next income year, the undeducted amount can be carried forward to subsequent income years.

Where a taxpayer has tax losses for more than one earlier income year, they must deduct them in the order in which they were incurred. Furthermore, a tax loss can be deducted only to the extent that it has not already been deducted.

In your case, you incurred a foreign exchange loss in the relevant income year. You will need to firstly offset the loss against net exempt income (if any) and then against your taxable income (if any) in order to determine the current undeducted loss amount (if any). If an undeducted loss amount still exists, you may use it to offset against future income until the loss is fully expended.

Note

You will need to apportion your foreign exchange realisation loss for the relevant year as only part of your property is used to earn rent as mentioned in our previous private ruling.

We suggest you revisit your amendment request.

Further issues for you to consider

As advised in your previous private ruling you will need to review what actions you have taken when the proposed amendments to the foreign currency provisions as part of the Taxation of Financial Arrangements have received Royal assent.

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