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Edited version of your written advice
Authorisation Number: 1013004026892
Date of advice: 27 April 2016
Ruling
Subject: GST, supplies and foreign exchange conversions
Question 1
When is the conversion day for the purposes of GST under section 9-85 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
See reasons for decision.
Question 2
How is the difference between the value of the foreign currency at the conversion day for reporting purposes and at the time of the actual foreign currency exchange treated for GST?
Answer
See reasons for decision.
Relevant facts and circumstances
You are registered for GST and account on a cash basis.
You make taxable supplies and receive payments in overseas dollars (OSD).
You have been treating the conversion day as being the day on which any consideration is received for the supply in your bank account.
This bank account could only hold Australian dollars (AUD) so was exchanged from OSD to AUD on the conversion day.
You have now changed the bank account that the OSD are to be paid into so that it only holds OSD.
You may make a business decision to leave the OSD in the account till a more favourable AUD exchange rate occurs to exchange the currency into AUD.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 9-5, and
A New Tax System (Goods and Services Tax) Regulations 1999 subregulation 40-5.09(3).
Reasons for decision
Where you are liable for GST on your taxable supplies there is a requirement pursuant to section 9-85 of the GST Act that the value is expressed in Australian currency. In working out the value of a taxable supply that is in foreign currency, the supply must be treated as if it is in Australian currency.
There is no requirement for you to actually exchange the foreign currency for Australian dollars at this conversion day. It is only required to determine a value to be used when issuing tax invoices, where they are required, and for Business Activity Statement (BAS) reporting.
Where you are required to do a foreign exchange conversion the Commissioner has determined under subsection 9-85(2) of the GST Act the manner in which the value or an amount of consideration for a supply is worked out.
Paragraph 19 of GSTR 2001/2 provides that in working out the value of a taxpayer supply, you convert the consideration on a conversion day worked out in accordance with the following formula:
Amount expressed in foreign currency (1/your particular exchange rate on the conversion day)
Where
• Your particular exchange rate is the rate from the foreign exchange organisation, the Reserve Bank of Australia (RBA) rate, or the rate from your agreement, whichever is applicable, and
• The conversion day is the date that the foreign currency is converted into Australian currency for GST purposes.
There is also a requirement that you use your particular exchange rate consistently.
The conversion day, being the date you use to convert foreign currency to Australian currency for GST purposes and also use to account on a cash basis, is any of the following:
• the transaction date,
• the invoice date, or
• the day on which any of the consideration is received for the supply.
You have told us that you accounted for the conversion of OSD into AUD when you received the consideration for the taxable supply which was also the same time that the currency was exchanged from OSD to AUD. You can still use this as your conversion day regardless of the fact that you may continue to hold the currency in OSD, and not exchange it for AUD until a later time. A calculated Australian dollar value is necessary for GST purposes to work out the amount of GST for issuing tax invoices and BAS reporting.
One of the requirements of issuing a tax invoice is that it contains enough information to enable the GST payable to be ascertained. This requirement is satisfied where the tax invoice includes the GST payable in Australian currency or it provides sufficient information for the recipient to work out the GST payable on the supply in Australian currency.
Paragraph 42 of GSTR 2001/2, sent to you earlier via email, provides what would be sufficient if you require further information.
Question 2
Where you do a conversion of foreign currency into Australian currency and at a later time exchange the currency from OSD to AUD the acquisition by you will satisfy item 9 in the table of subregulation 40-5.09(3) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) and be input taxed.
As the currency exchange transaction is considered to be a financial supply and input taxed, no GST will be charged. Neither will it change the consideration for your taxable supply for which you originally received the OSD currency for.