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Edited version of your written advice
Authorisation Number: 1051207777912
Date of advice: 5 April 2017
Ruling
Subject: Foreign loss
Question and answer
Is the foreign exchange loss calculated on the proceeds of your relative's deceased estate deductible in terms of section 775-30 of the Income Tax Assessment Act 1997 (ITAA 1997)?
No.
This ruling applies for the following periods
Year ending 30 June 2017
Year ending 30 June 2016
The scheme commenced on
1 July 2015
Relevant facts
You are a resident of Australia for tax purposes.
On # you received $ from your relative's deceased estate, paid into your country A bank account.
The amount you received was worth $ Australian dollars at the exchange rate on #.
On # you transferred $ to your Australian bank account, which was $ in Australian dollars.
On # the value of the $ in Australian dollars was $.
You calculated a Forex loss of $X.
Assumptions
None
Relevant legislative provisions
Section 775-30 of the Income Tax Assessment Act 1997
Subsection 775-30(2) of the Income Tax Assessment Act 1997
Paragraph 775-30(2)(a) of the Income Tax Assessment Act 1997
Paragraph 775-30(2)(b) of the Income Tax Assessment Act 1997
Section 775-35 of the Income Tax Assessment Act 1997
Section 775-40 of the Income Tax Assessment Act 1997
Section 775-60 of the Income Tax Assessment Act 1997
Section 960-50 of the Income Tax Assessment Act 1997
Section 960-80 of the Income Tax Assessment Act 1997
Reasons for decision
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. They are realised when a forex realisation event happens.
There are five forex realisation events listed between sections 775-40 and 775-60 of the Income Tax Assessment Act 1997 (ITAA 1997).
Forex realisation event 2 happens when you cease to have a right to receive foreign currency and the right was created or acquired in return for your paying an amount of Australian currency that is calculated by reference to an exchange rate.
Exemptions
There are certain circumstances in which a taxpayer cannot deduct a Forex realisation loss arising from Forex realisation event 2 (subsection 775-30(2) of the ITAA 1997):
(1) It is private or domestic in nature (paragraph 775-30(2)(a) of the ITAA 1997).
(2) It is not a right covered by item 1 paragraph 775.30(2)(b) of the ITAA1997.
1 |
forex realisation event 2 |
a right, or a part of a right, created or acquired in return for the occurrence of a *realisation event in relation to a *CGT asset you own, where subparagraph 775-45(1)(b)(iv) applies |
a gain or loss that would result from the occurrence of the realisation event in relation to the CGT asset would be taken into account for the purposes of Part 3-1 or 3-3 |
In your case:
The funds you received were from your relative's deceased estate in country A hence it is private and domestic in nature.
While your entitlement to a portion of the deceased estate is a CGT asset the relevant event E7, where the trustee disposes of foreign currency to end you capital interest in the trust does not happen for a deceased estate (104-85(1) ITAA 1997.
Hence there is no CGT gain or loss taken into account. As a consequence you cannot deduct the forex realisation loss.