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Ruling

Subject: CGT - translation rules

Question and answers:

Are you required to translate any capital gains or losses on foreign currency bank accounts at the exchange rate applicable at the time of a transaction or event?

Yes.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You became a resident of Australia for income tax purposes.

At the time you became a resident you held 2 foreign bank accounts.

Both accounts hold currencies from their respective countries.

During the 2009-10 financial year you have realised various gains and loss on the foreign currency through various types of transactions.

Relevant legislative provisions

Income Tax Assessment Act 1997, Section 102-20

Income Tax Assessment Act 1997, Section 104-25

Income Tax Assessment Act 1997, Section 108-5

Income Tax Assessment Act 1997, Subsection 960-50(6)

Reasons for decision

Under section 108-5 of the Income Tax Assessment Act 1997 (ITAA 1997), foreign currency is defined as CGT asset. You make a capital gain or loss as a result of CGT event occurring to a CGT asset under section 102-20 of the ITAA 1997. The gain or loss is made at the time of the event. 

Choosing to convert foreign currency entitlement into Australian dollars regardless of whether it is left in a foreign bank account or transferred to an Australian bank account will result in CGT event C2 occurring under section 104-25 of the ITAA 1997. Each transfer of money will trigger a CGT event.

A person will make a capital gain if the capital proceeds from the ending are more than the cost base of their funds. A person will make a capital loss if the capital proceeds are less than the reduced cost base of their funds.

Under subsection 960-50(6) of the ITAA 1997, special translation rules apply to the exchange of foreign currency to Australian currency. Item 5 states where a;

transaction or event that:
(a) involves an amount of money or the *market value of other property; and
(b) is relevant for the purposes of Part 3-1 or 3-3;
to the extent to which the amount or value is relevant for the purposes of Part 3-1 or 3-3.

The result is;

the amount or value is to be translated, for the purposes of Part 3-1 or 3-3, to Australian currency at the exchange rate applicable at the time of the transaction or event.

You hold foreign bank accounts that hold currency from their respective countries. During the course of the year you have realised various gains and losses from foreign currency transactions relating to the foreign accounts. Under subsection 960-50(6) of the ITAA 1997, when you calculate any capital gain or loss in relation to the exchange of currency, you will be required to translate the foreign currency to Australian currency at the exchange rate applicable at the time of the transaction or event (deposit or withdrawal).

Therefore, when calculating any capital gain or loss relating to the exchange of foreign currency, you will required to translate the foreign currency to Australian dollars at the at the time of a transaction or event, under section 960-50(6) of the ITAA 1997.