Edited version of private advice

Authorisation Number: 1052333150462

Date of advice: 20 November 2024

Ruling

Subject: Foreign exchange losses

Question

Will you be entitled to a foreign exchange loss under Division 775 of the Income Tax Assessment Act 1997 (ITAA 1997) in respect to foreign exchange losses on conversion of cash amounts from United States of America currency (USD) to Australian currency (AUD)?

Answer

Yes.

Forex realisation event FRE 2 happens when you cease to have a right, or a part of a right, to receive foreign currency. For the purposes of Australian taxation law, you acquired the asset or right, called a 'chose in action' when you ceased to be a temporary resident and became a permanent resident of Australia on XXXX.

In your circumstances, you became and Australian resident, ceasing temporary residency after the deposit of funds was made. Therefore, it is the Australian dollar value of the amounts when deposited into the bank account that represent your Forex cost base, that is determined by section 775-85 of the ITAA 1997.

A FRE 2 Forex event is triggered each time you make a withdrawal therefore, you will be subject to Forex realisation gains and losses on each withdrawal you make from your foreign currency denominated bank accounts that have a credit balance. These gains and losses will be either assessable or deductible under subsections 775-45(3) or 775-45(4) of the ITAA 1997.

This ruling applies for the following period:

Year ended XX.

The scheme commenced on:

Relevant facts and circumstances

On XXXXX:

•         You received USD cash proceeds into an overseas bank account in respect of a divorce settlement.

•         The funds were paid in USD's and deposited into your bank account with 'the bank'.

•         You then deposited the funds into an interest-bearing account in your account.

All the above transactions occurred on the same day.

You were a temporary resident of Australia from XX until you received your permanent residency on XX.

In XX you converted a portion of the USD's held in your account into AUD's.

In XX you converted a further portion of the USD's held in your account into AUD's.

You were an Australian resident for taxation purposes at the time the above conversion into AUD occurred.

In XX you made a withdrawal from your account.

As a resulted of the conversions from USD into AUD you incurred Foreign Exchange (FOREX) losses of approximately AUD$XX,000.

You will also incur a loss based on the difference between the AUD value at the date of deposit into the overseas bank account and the AUD value at the date the funds were converted into AUD.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 775

Income Tax Assessment Act 1997 Section 775-15

Income Tax Assessment Act 1997 Subsection 775-30 (1)

Income Tax Assessment Act 1997 Subparagraph 775-30 (2)(a),(b)

Income Tax Assessment Act 1997 Subsection 775-45(2)

Income Tax Assessment Act 1997 Subsection 775-45(3)

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