Edited version of your private ruling

Authorisation Number: 1011931933297

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. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: Foreign exchange

This ruling applies to

Question and answer:

Can you elect to have the limited balance election under section 775-230 of the ITAA 1997 apply to your account?

No.

This ruling applies for the following period:

Year ended 30 June 2012

The scheme commenced on:

1 July 2011

Relevant facts

You left Australia a number of years ago to work overseas.

During your time overseas you accumulated an amount of money.

After you returned to Australia as a permanent resident you placed the funds in a foreign currency term deposit account.

The purpose of opening this account was to hold foreign income.

Only one deposit has been made to the account and no withdrawals.

The account is held in Australia in foreign dollars.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 775

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 108-5

Income Tax Assessment Act 1997 Section 995-1(1)

Reasons for decision  

The ordinary operation of the foreign exchange gain and loss measures (the forex measures), as contained in Division 775 of the ITAA 1997, provide that deposits to, and withdrawals from, foreign currency denominated bank accounts (where a gain or loss arises from a currency exchange rate fluctuation) give rise to a gain or loss that is realised under the measures.

Withdrawals from a foreign currency account with a credit balance will also generally have a consequence under the capital gains tax (CGT) provisions. You make a capital gain or capital loss as a result of a CGT event happening to a CGT asset (section 102-20 of the ITAA 1997).  Foreign currency is specifically defined as a CGT asset (section 108-5 of the ITAA 1997). 

However, the $250,000 balance election enables taxpayers to disregard certain foreign currency gains and losses on certain foreign currency denominated bank accounts and credit card accounts with balances below a specified limit.

An election can be made in relation to a qualifying forex account. A qualifying forex account is an account denominated in a foreign currency that is held:

· in Australia with a bank, or

· overseas with a bank or similar institution.

The account must be a credit card account, or an account held for the primary purpose of facilitating transactions (section 995-1(1)).

You can elect (in writing) to have the election apply in relation to any number of accounts.

An election generally applies in relation to a particular account from the time the election is made, and continues in force in relation to that account until:

· the taxpayer ceases to hold the account

· the account ceases to be a qualifying forex account

· the election is varied by removing the account, or

· the election is withdrawn.

In your case you have an amount of money held in an account.

This account does not meet the requirements for a qualifying forex account as it is not a credit card account or held for the primary purpose of facilitating transactions.

Therefore you are not able to make a balancing election to disregard any capital gains or losses made on this account.