Edited version of private advice

Authorisation Number: 1052271922319

Date of advice: 24 July 2024

Ruling

Subject: Forex - A$250,000 balance election

Question 1

Does the A$250,000 balance election mean any forex gains or losses are not assessable or deductible?

Answer

Yes.

Question 2

Are there any taxation implications if funds are moved from a foreign currency account, subject to the A$250,000 balance election, to an $A bank account located in Australia?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 2025

Year ending 30 June 2026

Year ending 30 June 2027

Year ending 30 June 2028

Year ending 30 June 2029

The scheme commenced on:

1 July 2024

Relevant facts and circumstances

You are a self-managed super fund.

You set up an account for trading through the online brokerage firm for the purpose of buying and selling US shares.

You must have funds in the account prior to placing a trade order which results in you having a balance remaining in the account.

You use this account is to facilitate share purchases and sales. You do not hold the funds in this account as a long term investment.

You purchase shares with the intention of holding them as a long term investment.

You intend to transfer further funds into the account for the purpose of purchasing additional shares.

You do not intend to transfer the earnings on the sales of shares sold in the future back to Australia but, to purchase other shares.

You intend to sell your shares, close your account, and transfer the funds back to Australia when you no longer require exposure to the US Market.

You have made a A$250,000 limited balance election on the account which has not been breached and you will not exceed the A$250,000 limit in the future.

You plan to do a conversion to A$ annually on 30 June for financial accounts purposes.

Relevant legislative provisions

Income tax Assessment Act 1997 Division 775

Income tax Assessment Act 1997 section 775-225

Income Tax Assessment Act 1997 section 775-230

Income tax Assessment Act 1997 section 775-245

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 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 period which allows you to retain the A$250,000 balance exemption if the breach is remedied within a short period of time.

The buffering rule allows you to continue to meet the limited balance test if all of the following apply:

•         The A$250,000 equivalent balance limit is breached no more than 2 times in any one income year.

•         All breaches, including those (if any) extending into or beyond the relevant income year, are remedied within 15 days of occurring.

•         The balance does not exceed the equivalent of A$500,000.

Any foreign currency gains or losses that have been realised on the account are disregarded under the A$250,000 balance election.

There will be no taxation implications when the funds are transferred from the foreign currency account to your Australian dollar account in Australia because of the A$250,000 balance election on the account.

If the funds are transferred into another foreign account, or an Australian account denominated in a foreign currency, then there may be assessable income or losses.