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Edited version of your private ruling
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Ruling
Subject: Employee share scheme - Sale Proceeds - Foreign exchange loss
Question:
Are foreign exchange (forex) losses deductible?
Answer
Yes.
This ruling applies for the following periods:
Year ended 2011,
Year ended 2012.
The scheme commences from:
2010
Relevant facts and circumstances
You sold ESS shares in an overseas company.
You received the proceeds of the sales in two financial years.
Your ESS statement from your employer has an amount greater than the proceeds received from the transactions.
The ESS statement informs you that depending on personal circumstances it may be appropriate to report a different amount that has been reported on the ESS statement.
Possible reasons: -
· due to your employer not having visibility if fees have been charged, and
· difference in exchange rates used by employer and the bank.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-10
Income Tax Assessment Act 1997 Division 83A
Income Tax Assessment Act 1997 section 775-30
Reasons for decision
Subsection 6-10(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that amounts that are not ordinary income, but are included in your assessable income by provisions about assessable income, are called statutory income.
A discount obtained on the acquisition of shares through participation in an ESS is an example of statutory income.
The new ESS rules require an employer to provide an employee with a statement showing the discount amount that has occurred during the financial year and a report to the Australian Tax Office (ATO) of all amounts for their employees. If required the ATO may carry out data matching to ensure the correct income has been declared by individual taxpayers.
The tax law allows a deduction listed under section 12-5 of the ITAA 1997 for forex loss made from a forex realisation event. Section 775-30 of the ITAA 1997 is the relevant legislation for forex realisation losses that are deductible and the following subsections list when a forex loss is deductible: -
Subsection 775-30(1) of the ITAA 1997 basic rule states the following: -
You can deduct from your assessable income for an income year a forex realisation loss that you make as a result of a forex realisation event that happens during that year.
However subsection 775-30(2) of the ITAA 1997 list exceptions to the basic rule, one being: -
· is a loss of a private or domestic nature
Your situation
Your investment in an income producing asset such as shares from an ESS means the forex losses will be deductible as the loss is not private or domestic in nature.
You will need to report the income as stated on your ESS statement for the financial year to ensure it matches the ATO report received from your employer.
The information you provided indicates a forex realisation event (sale of shares in country X) occurred however not all proceeds from this event were received in the same financial year. This means you will need to calculate a forex loss deduction for each of your transactions and include them in the correct financial year.
You are entitled to a deduction for a forex loss that requires a calculation using the exchange rate for the date the amount was sent and then using the exchange rate for when the funds were received. Please refer to the ATO website www.ato.gov.au for examples of how to calculate forex losses at 'Foreign exchange (forex): foreign currency denominated shares.'
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