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Edited version of your private ruling
Authorisation Number: 1012463769480
Ruling
Subject: Foreign Exchange (forex) realisation event and foreign exchange losses
Question 1
Will there be a forex realisation event in the income year you transfer the monies?
Answer
Yes.
Question 2
Will a foreign realisation loss be an allowable deduction?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2013.
The scheme commenced on:
After 1 July 2003.
Relevant facts and circumstances
You are a citizen of the Country A and your spouse is an Australian citizen.
You arrived in Australia with your family on during at some time after 1 July 20XX and were lawfully present under a temporary work visa.
After 1 July 20XX you opened a forex bank account in Country A to hold your foreign currency cash savings.
You are the sole account holder of the forex bank account.
You opened the forex bank account as an investment for the purpose of earning a greater return than possible elsewhere.
The forex bank account is a high interest earning account that offers a higher interest rate to your everyday transactional accounts.
You will transfer the entire balance of the forex bank account to a high interest Australian currency account during the 20YY-ZZ income year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 775-30
Income Tax Assessment Act 1997 Section 775-45
Reasons for decision
Question 1
Forex realisation event 2 happens when you cease to have a right, or part of a right, to receive foreign currency, and the right or the part of the right is created or acquired in return for the taxpayer paying an amount of Australian currency or foreign currency.
You acquired a contractual right to receive a certain amount of foreign currency when you deposited money into a forex bank account. Your right to receive foreign currency will cease and forex realisation event 2 will happen when you transfer the balance of your forex bank account into your Australian bank account.
Question 2
You can deduct a forex realisation loss you make as a result of a forex realisation event that happens during the year. However, you cannot deduct certain forex realisation losses of a private or domestic nature.
Any forex realisation loss you make when you transfer the balance of your forex bank account to an Australian bank account will not be private or domestic in nature. We considered the following factors when making our decision:
· you opened the account as an investment for the purpose of earning a greater return than possible elsewhere
· the forex bank account is a high interest earning account that offers a higher interest rate to your everyday transactional accounts.
Therefore, a foreign realisation loss would be an allowable deduction in the income year you transfer the monies.