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Edited version of your private ruling
Authorisation Number: 1012455210376
Ruling
Subject: Definition of financial investment
Question 1
Was your foreign 'account' held with an international banking organisation a 'financial investment' for the purposes of determining the net financial investment loss per question IT5 in your tax return?
Answer
No.
This ruling applies for the following period:
Year ended 30 June 2012
The scheme commenced on:
1 July 2011
Relevant facts and circumstances
During the year ended 30 June 2012 you held a foreign joint savings account with your spouse.
The account was denominated in foreign currency.
The account was closed during the 2011-12 financial year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 995-1
Reasons for decision
The Individual tax return instructions 2012 (the instructions) at label IT5 directs taxpayers to consider if they received income from or claimed deductions for:
- shares in a company
- an investment in a managed investment scheme, including a forestry managed investment scheme
- rights or options for shares or managed investments schemes
- distributions from a partnership that included income or losses from an investment listed above
- any investment that is of a similar nature to those listed above.
If a taxpayer has a loss whereby the deductions relating to their financial investments exceed the income from those investments then this loss is to be shown at label IT5 on their tax return.
The instructions go further to advise that you do not include interest from your everyday transaction accounts.
The explanation in the instructions is taken from Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) which defines a financial investment as:
(a) a share in a company;
(b) an interest in a managed investment scheme (MIS) (within the meaning of the Corporations Act 2001);
(c) a forestry interest in a forestry managed investment scheme;
(d) a right or option in respect of an investment referred to in paragraph (a), (b) or (c);
(e) an investment of a like nature to any of those referred to in paragraphs (a) to (d).
The definition of MIS in section 9 of the Corporations Act 2001 reads in part as follows:
(a) a scheme that has the following features:
(i) people contribute money or money's worth as consideration to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not)
(ii) any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders)
(iii) the members do not have day-to-day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions); or
... ".
You held a 50% interest in a foreign savings account which was held with an international banking organisation.
The account was denominated in foreign currency and was closed during the 2011-12 financial year.
You received interest income from this account.
Such an account does not fall within the category of investments listed in the instructions, nor does it fit with the meaning of a MIS.
Therefore you are not required to include details of this bank account at IT5.