Edited version of your written advice

Authorisation Number: 1051200558842

Date of advice: 8 March 2017

Ruling

Subject: Foreign realisation events

Question and answer:

Did a forex realisation event occur when you withdrew funds from your X account?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2017

Year ended 30 June 2018

The scheme commences on

1 July 2016

Relevant facts and circumstances

You are an Australian resident for income tax purposes.

You opened an international securities trading account.

When the trading account was opened, an overseas cash account was opened automatically.

For a number of years, you transferred some funds from your AUD account to the overseas account to invest in international shares.

After a number of years, you changed your international securities trading service provider.

As a result of the closure of your AUD Account, your previous provider required you to close your linked overseas account, open up a new overseas account and transfer the balance from your old account to the new account.

During the change of providers, your overseas account didn't satisfy the conditions of the limited balance election under section 775-225 of the ITAA 1997.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 775-40

Reasons for decision

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia.  However, where you are a foreign resident, your assessable income includes only income derived from an Australian source. 

Forex gains or losses from 1 July 2003 are covered by Division 775 of the Income Tax Assessment Act 1997(ITAA 1997).

The general principle is that foreign currency gains or losses have a revenue character rather than a capital nature. Foreign currency gains or losses are assessable or deductible when they are realised if they occur as result of a forex realisation event (FRE). They are realised when a forex realisation event (FRE) happens.

There are five forex realisation events listed between sections 775-40 and 775-60 of the ITAA 1997. A withdrawal from a foreign currency denominated bank account that has a credit balance will result in the occurrence of FRE2 in relation to the amount of the foreign currency withdrawn. In this circumstance there will be a cessation of the right to receive the foreign currency that has been withdrawn from the bank with which the account is held.

In your case you held an overseas cash account that you used to trade in international shares. After a number of years you changed your international securities trading service provider. This meant that you were required to close your overseas account, open a new account and transfer the balance from one account to another. The closure of your account meant that you ceased to have a right to receive foreign currency that triggered a FRE2 under section 775-45 of the ITAA 1997.

Accordingly, an FRE2 occurred when you transferred your funds from your overseas account under section 775-45 of the ITAA 1997.

Note

While it is acknowledged that you were transferring funds from one X account to another, the Commissioner does not have the discretion to alter the fact that this was a FRE2.