Edited version of private ruling

Authorisation Number: 1011703956328

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: capital gains tax on currency exchange

Question 1

Will the capital gains tax provisions under Part 3-1 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to the disposal of your foreign currency?

Answer

Yes

This ruling applies for the following period:

1 July 2010 to 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You previously worked overseas. You purchased local currency for use in case of an emergency.

You currently hold the foreign currency.

On your return to Australia, you found you could not exchange the foreign currency.

A friend recently told you:

· the foreign currency may revalue to a higher rate

· the foreign currency may become internationally tradeable

· the foreign currency may be able to be exchanged in Australia.

Your accountant has advised you that this transaction would be a simple currency exchange and would not have CGT implications. You confirmed this during a phone call to the ATO. You have requested a private ruling to get this in writing.

Relevant legislative provisions

Part 3-1 Income Tax Assessment Act 1997

Section 104-5 Income Tax Assessment Act 1997

Section 104-10 Income Tax Assessment Act 1997

Subdivision 108-C Income Tax Assessment Act 1997

Section 108-5 Income Tax Assessment Act 1997

Subsection 108-20(1) Income Tax Assessment Act 1997

Subsection 108-20(2) Income Tax Assessment Act 1997

Paragraph 108-20(2)(a) Income Tax Assessment Act 1997

Subsection 118-10(3) Income Tax Assessment Act 1997

Section 160B Income Tax Assessment Act 1936

Subsection 160B(1) Income Tax Assessment Act 1936

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Reasons for decision

All legislative references are to the Income Tax Assessment Act 1997 unless otherwise stated

Summary

Your foreign currency is a CGT asset, and is to be disposed of, which is a CGT event. The capital gain or capital loss on the disposal of your foreign currency will need to be recorded on your income tax return.

Detailed reasoning

CGT assets are defined at section 108-5 to include any kind of property, or a legal or equitable right that is not property. Foreign currency is specifically listed as a CGT asset at note 1.

Section 104-5 lists the CGT events and CGT event A1, disposal of an asset is discussed at section 104-10. Disposal of a CGT asset of foreign currency would result in a CGT event A1 occurring.

Personal use assets are discussed in Subdivision 108-C. Paragraph 108-20(2)(a) explains that a 'personal use asset' includes a CGT asset, except a collectable, that is used or kept mainly for your (or your associate's) personal use or enjoyment.

A capital loss cannot be made on a personal use asset by virtue of subsection 108-20(1). Equally, under subsection 118-10(3), any capital gain made on a personal use asset is disregarded if the first element of the asset's cost base is less than $10,000.

The Guide to Capital Gains Tax 2009-10 (NAT 4151) lists examples of assets that are not collectables or personal use assets. Foreign currency is specifically listed as an asset that is not a personal use asset or a collectable.

In your case

Foreign currency is a CGT asset.

Your foreign currency is not a personal use asset.

You propose to dispose of your foreign currency. This would be a CGT event A1.

Your foreign currency is a CGT asset, and it is to be disposed of, which is a CGT event. It is not a personal use asset. The capital gain or capital loss on the disposal of your foreign currency will need to be recorded on your income tax return.