ATO Interpretative Decision
ATO ID 2014/32
Income Tax
Is a term deposit a qualifying forex account?This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is a term deposit account a qualifying forex account for the purposes of Division 775 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. A term deposit is not a qualifying forex account for the purposes of Division 775 of the ITAA 1997.
Facts
The taxpayer is an Australian resident for income tax purposes.
The taxpayer opened a term deposit account on 17 December 2003 in New Zealand with a New Zealand bank.
The account is denominated in New Zealand currency.
The taxpayer deposited NZD20,000 into the account for a period of six months at an interest rate of 3%.
Under the terms of the account with the bank, the money cannot be withdrawn within the six months without incurring a financial penalty.
Reasons for Decision
A 'qualifying forex account' means an account that is denominated in a particular foreign currency and either has the primary purpose of facilitating transactions or is a credit card account (subsection 995-1(1) of the ITAA 1997).
The taxpayer's account is denominated in a foreign currency (New Zealand currency), and is maintained in a foreign country with a New Zealand bank. However, it is not a credit card account and does not have the primary purpose of facilitating transactions. The primary purpose of the account is to hold the taxpayer's money with the bank as an investment for a period of time and not to facilitate transactions.
Therefore, the account is not a qualifying forex account under Division 775 of the ITAA 1997.
Date of decision: 1 October 2014Year of income: Year ended 30 June 2004
Legislative References:
Income Tax Assessment Act 1997
subsection 995-1(1)
Subdivision 775-D
Subdivision 775-E
Related Public Rulings (including Determinations)
ATO ID 2004/156 (Withdrawn)
Keywords
Foreign exchange gains and losses
Qualifying forex account
Date reviewed: 9 November 2017
ISSN: 1445-2782