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Edited version of your written advice
Authorisation Number: 1012806240535
Date of advice: 19 May 2015
Ruling
Subject: $250,000 balance election
Question and Answer
Do you use your share of the balance in a joint account to determine if you meet the $250,000 balance election?
Yes.
For period A did you satisfy the limited balance test?
No.
For the remainder of the year did you satisfy the limited balance test?
Yes.
This ruling applies for the following period(s)
A foreign currency bank account has been nominated by you for the A$250,000 balance election. You maintain records to that effect.
The account is held for the purpose of facilitating transactions.
For period A your share of the account balance for the account was more than A$250,000. This is a period of more than 15 days.
For the remainder of the year your share of the account balance for the account was less than A$250,000.
Relevant legislative provisions
Section 775-245 of the Income Tax Assessment Act 1997
Reasons for decision
Gains and losses in foreign currency accounts
The ordinary operation of the foreign exchange (forex) measures, as contained in Division 775 of the Income Tax Assessment Act 1997 (ITAA 1997), is that deposits to, and withdrawals from, foreign currency denominated bank accounts may give rise to a gain or loss that is realised under the measures. Withdrawals from an account with a credit (positive) balance will also generally have a consequence under the capital gains tax (CGT) provisions.
FOREX measures
The A$250,000 balance election broadly enables you to disregard certain foreign currency gains and losses on certain foreign currency denominated bank accounts and credit card accounts (called qualifying forex accounts) with balances below the specified limit.
An election can be made for a qualifying forex account. A qualifying forex account is an account that is:
-denominated in a foreign currency
-either a credit card account, or an account held for the primary purpose of facilitating transactions.
The limited balance test
The limited balance test applies to all of the accounts for which a A$250,000 balance election is in force. Credit and debit balances of these accounts are separately added, without netting, to arrive at the total credit balance and the total debit balance. The limited balance test is passed at a particular time if the total credit balances, and the total debit balances, of all qualifying forex accounts for which an election is in force are each not more than the equivalent of A$250,000.
Breaching the limited balance test
When the balance of your elected account breaches the A$250,000 limit the exemption under the election will cease for the period of the breach.
There is a buffering rule which has a breach tolerance for a period of 15 days or less where the balance of your account is more than A$250,000 up to a maximum of $A500,000. Your records showed that you exceeded the A$250,000 limited balance test for a period in excess of 15 days. The exemption treatment for your account therefore ceases for period A, any forex realisation events occurring within that period are not exempt.
Joint accounts
The Commissioner’s position on joint bank accounts has been expressed in Taxation Determination TD 92/106. The general presumption is that holders of accounts in joint names have joint beneficial ownership of the money in equal shares. Correspondingly, the limited balance test considers the beneficial ownership of an account balance to your individual share and not the total of the joint account balance.