45095 Forex Gains and Losses

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1 Forex Gains and Losses Application of foreign currency (forex) rules to repayment of foreign currency denominated loan 1. Will any Forex realisation gains and losses made in respect of your foreign currency denominated cheque account be disregarded? 2. Is the foreign currency denominated dividend paid into your foreign currency cheque account during the income year translated into Australian dollars at the exchange rate prevailing at the time it was paid? 3. Are you entitled to a deduction for the expense you incurred in obtaining a rate of exchange used to translate the value of your foreign currency denominated income? Will the forex realisation gain or loss you made on repayment of the principal owing on your foreign currency denominated loan be recognised under the new forex provisions? Forex realisation gains and losses on loan used to gain non-portfolio dividends 1. To the extent that the foreign currency borrowings were incurred for the purpose of deriving non-assessable non-exempt income: - Will any forex realisation loss made by the taxpayer on the complete or partial repayment of the borrowings, as described in the subject of the ruling, be disregarded under subsection (2) of the Income Tax Assessment Act 1997 (ITAA 1997)? - Will any forex realisation gain made by the taxpayer on the complete or partial repayment of the borrowings, as described in the subject of the ruling, be non-assessable non-exempt income under section of the ITAA 1997? Foreign Exchange Translation Rules - Dividends Interest - Foreign Tax Credits- Capital Gains/ Losses 1. Can you use the exchange rate prevailing at the end of the income year to convert your foreign currency denominated dividend income derived during that income year to Australian dollars? 2. Can you use the exchange rate prevailing at the end of the income year to convert your foreign currency denominated interest income derived during that income year to Australian dollars? 3. Can you use the exchange rate prevailing at the end of the income year to convert the foreign tax credits attributed to you during that income year to Australian dollars? 4. Can you use the exchange rate prevailing at the end of the income year to convert any foreign capital gains and capital losses you made during that income year to Australian dollars?

2 Index Options Trading, Exchange Rate & Foreign Exchange Gains 1. Will the options trading income be included as my assessable income (having regard to the point set out in the application that consideration be given that, up to 30 June, 2004, such income be treated as being derived from a hobby)? 2. Which day s daily currency exchange rate should be used to translate options trading income into Australian currency in order to calculate the rulee's assessable income? 3. Is a deduction allowable for the proportion of the ISP monthly subscription fee that relates to the options trading activities? 4. Is a deduction allowable for the proportion of the internet option information service subscription fee that relates to the options trading activities? 5. Is a deduction allowable for the proportion of the telephone rental that relates to the options trading activities? 6. Is a deduction allowable for the proportion of the telephone call charges that relate to the options trading activities? 7. Is a deduction allowable for the proportion of the electricity charges that relate to the options trading activities? 8. Is a deduction allowable for the proportion of the depreciation deducti 9. Will any forex realisation gain which is made by the rulee be disregard 2 Foreign exchange gains or losses - traditional securities Foreign Exchange Gain/Loss & CGT Capital gains tax: Foreign exchange loss on redemption of fixed interest security Capital gains tax: Foreign exchange loss on redemption of fixed interest securities Will the gains or losses that you make on disposal of your bonds be assessable income or allowable deductions respectively? 2. Are you entitled to a deduction for the telephone, postage and stationery expenses you have incurred in managing your investments in the bonds? 1. Whether an exchange gain that would be made on the refinancing of a US$ borrowing of ABC Finance with a Euro denominated borrowing is on capital account. 2. In the event the Commissioner should rule that he will not seek to tax such foreign exchange gain under section 6-5 of the Income Tax Assessment Act 1936 (ITAA 1936). Should a loss resulting from the redemption of a traditional security denominated in a foreign currency be determined in that foreign currency and then translated into Australian dollars at the exchange rate prevailing at the date of redemption? Should a loss resulting from the redemption of a traditional security denominated in a foreign currency be determined in that foreign currency and then translated into Australian dollars at the exchange rate prevailing at the date of redemption? Foreign Exchange Gains and Losses The ruling concerned a request from a resident rulee in relation to the taxation consequence of a domestic operating lease arrangement under Income Tax Assessment Act 1997 (ITAA 1997) Foreign Exchange Gains and Losses The ruling concerned a request from a resident rulee in relation to the taxation consequence of a sale and leaseback arrangement under the Income Tax Assessment Act 1997 (ITAA 1997).

3 3 Application of Division Forex Realisation Event Does section of the Income Tax Assessment Act 1997 (ITAA 1997) concerning forex realisation event 4 (FRE 4) happen upon each roll-over that occurs pursuant to clause X of the loan facility contracts? 2. If there is a forex realisation gain or loss arising as a result of FRE 4 applying to an event under the loan facility contracts, is it disregarded under subsection (4) of the ITAA 1997? 3. If the forex realisation gain or loss is disregarded under subparagraph (4)(a)(ii) of the ITAA 1997, does subsection (5) of the ITAA 1997 cause subparagraph (4)(a)(ii) not to apply? It is intended that several entities will form a MEC group from 1 January On formation of the MEC group, Entity A will become a subsidiary member of the MEC group. Subsequent to the formation date, Entity A made an election pursuant to section of Part 4-5 of the Income Tax Assessment Act 1997 (ITAA 1997). SER and MEC interaction with TOFA - FOREX provisions Foreign Income-foreign exchange loss Will the election made by Entity A pursuant to of Part 4-5 of the ITAA 1997 apply to the financial assets, liabilities, rights and obligations of the MEC Group that were in existence at the formation date? Are you entitled to a deduction for the foreign exchange losses expected to be incurred, due to fluctuations in exchange rates between the time you deposited the money and the time you made the withdrawal from your foreign bank account? It is intended that several entities will form a MEC group. On formation of the MEC group, entity A will become a subsidiary member of the MEC group. Subsequent to the formation date, entity A made an election pursuant to section of Part 4-5 of the Income Tax Assessment Act 1997 (ITAA 1997). SER and MEC interaction with TOFA - FOREX provisions Will the election made by entity A pursuant to of Part 4-5 of the ITAA 1997 apply to the financial assets, liabilities, rights and obligations of the MEC group that were in existence at the formation date?

4 4 Investments-deduction-interest-foreign exchange gains and losses 1. Are you entitled to a deduction for interest incurred as an expense which is in excess of the interest income derived relating to your investment in a bond? 2. Are you entitled to a deduction for interest incurred as an expense to the extent of the interest income derived relating to your investment in a bond? 3. Where a foreign currency denominated borrowing is repaid in part or in full, is a foreign exchange (forex) realisation gain included in your assessable income and a forex realisation loss allowed as a deduction? Forex realisation loss 1. Are you entitled to a deduction for a Forex realisation loss resulting from the transfer of monies from your overseas bank account to your holding account in the year you transferred the funds? 2. Are you entitled to a deduction for a Forex realisation loss resulting from the transfer of monies from your overseas bank account to your holding account in a later year of income? Forex realisation gains and losses Capital gains tax - foreign exchange 1. Are you entitled to a deduction for a forex loss as a result of the bank account transactions in connection with your overseas and X bank accounts? 2. Is the amount of the forex loss the amount you have calculated? 3. Is the amount of the forex loss amount L? Are you entitled to apply the exchange rate on 30 June 2006 in calculating your capital proceeds from the sale of your shares for the income year? foreign exchange-limited Balance Election 1. Can you elect to have the limited balance election under section of the Income Tax Assessment Act 1997 (ITAA 1997) apply to only one of your qualifying foreign exchange (forex) accounts? 2. If you elect the limited balance election to apply only to one of your qualifying forex account, will the balance in your other forex account affect the limited balance test? Forex gains and losses Whether the taxpayer s forex gains or losses arising from hedging contracts taken out to hedge the value of its foreign currency denominated investment assets can be offset against the unrealised forex gains or losses relating to the values of the assets?

5 Foreign Currency Exchange Gains and Losses Foreign exchange (forex) - sale of shares 1. Will any foreign exchange gain or loss that may arise from the redemption of the resident entity s existing United States dollar (USD) denominated notes be assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) or deductible under section 8-1 of the ITAA 1997, respectively? 2. Will any foreign exchange gain or loss that may arise from the redemption of the resident entity s existing USD denominated notes be assessable under section 82Y of Division 3B of the Income Tax Assessment Act 1936 (ITAA 1936) or deductible under section 82Z of Division 3B of the ITAA 1936, respectively? 3. Will the redemption of the USD denominated notes entered into give rise to a capital gains tax (CGT) event under section of the ITAA 1997? Are you entitled to a deduction for a foreign exchange (forex) realisation loss? Deductions-Foreign Exchange Transfer 1. Are the foreign exchange (forex) losses attributed to the fluctuation between the foreign currency B and the Australian dollar (AUD) from the time you became an Australian resident to the time before you made any withdrawals, allowable deductions? 2. Are any of the forex realisation losses made as a result of the withdrawal of funds from the foreign currency B account after you became an Australian resident, allowable deductions? 3. Are any of the forex realisation gains or losses you may make as a result of future withdrawal of funds from your foreign currency C bank account into AUD taken into account to determine your taxable income? 4. Are the forex realisation losses made from transferring funds from your foreign currency C bank account to your foreign currency C self managed superannuation fund (SMSF) an allowable deduction in the income year the funds were transferred? Investment income - foreign exchange contracts Foreign exchange income - foreign currency denominated bank accounts 1. Are the profits on your foreign exchange (forex) contracts assessable under the Income Tax Assessment Act 1997 (ITAA 1997)? 2. Can you claim day trading rolling charges as an expense of your forex trading? Are the foreign exchange (forex) rates on 1 July 2006 and 30 June 2007 used to calculate the forex gain or loss on a series of 30 day foreign currency term deposits?

6 Foreign Exchange- taxation treatment of hedging premiums, gains and losses under Forward Exchange Purchase Agreements (FEPAs) Contracts For Differences (foreign exchange) Foreign exchange Foreign Exchange Losses 1. Does a forex realisation event happen, under Division 775 of the Income Tax Assessment Act 1997 (ITAA 1997) to company B in respect of any rights or obligations under the forward currency contracts that are the subject of this private binding ruling (PBR) request? 2. Does company B derive a forex realisation gain or loss under Division 775 of the ITAA 1997 in respect of any of the forward currency contracts or hedge premiums that are the subject of this PBR request? 3. Does company B derive a gain or loss under section 6-5 of the ITAA 1997 for any of the forward currency contracts that are the subject of the PBR request? 4. Does company B incur a loss or outgoing under section 8-1 of the ITAA 1997 for any of the forward currency contracts, or hedge premiums paid in respect to the forward currency contracts, that are the subject of this PBR request? 5. Does company B derive a gain or loss under Part 3-1 of the ITAA 1997 for any of the forward currency contracts that are the subject of this PBR request? Are the losses that you make from trading in contacts for differences deductible? 1. Are the fluctuations between the currency of Country A and $AUD on moneys held by you in Country A s bank accounts that are denominated in Country A s currency assessable as a forex realisation gain (or deductible forex realisation loss)? 2. Whether an assessable forex realisation gain (or deductible forex realisation loss) arises if you make withdrawals from, close or make deposits to your bank accounts in Country A (denominated in their currency) opened before 1 July 2003? 3. Whether an assessable forex realisation gain (or deductible forex realisation loss) arises if you make withdrawals from, close or make deposits to your bank accounts in Country A (denominated in their currency) opened after 1 July 2003? 4. Whether an assessable capital gain (loss) arise if the forex realisation gain (or deductible forex realisation loss) does not arise if you make a withdrawals from, close or make deposits to your bank accounts in Country A (denominated in their currency)? 5. Whether a Capital Gains Tax (CGT) discount provisions apply to your bank account in Country A (denominated in their currency) when yo 6. Whether the private or domestic exemption apply to your bank accou 1. Are you entitled to the foreign exchange losses for the period from the 1998 income year to the income year? 2. Are you entitled to the foreign exchange loss for the income year? 3. Do you have to include the foreign exchange gain for the income year?

7 Am I in business - forex currency trading Forex Realisation Loss 1. Is the income from my forex currency activity assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? 2. Can the loss be claimed against my other taxable income? Are you entitled to a deduction for a Forex realisation loss resulting from the transfer of monies from your overseas bank account to your Australian bank account? Tax Treatment of Foreign Exchange Losses 1. Is the forex realisation loss that the group realised on the close out of the currency swaps under forex realisation event 4 (FRE 4), deductible under section of the Income Tax Assessment Act 1997 (ITAA 1997) in the year ended 30 September 2008? 2. Is the forex realisation loss that the group realised under FRE 4 in relation to the repayment of the (US Dollars) USD borrowings relating to Tranche 1 deductible under section of the ITAA 1997 in the year ending 30 September 2009? 3. Is the forex realisation loss that the group realised under FRE 4 in relation to the repayment of the USD borrowings relating to Tranche 2 deductible under section of the ITAA 1997 in the year ending 30 September 2009? 4. Is the forex realisation loss that the group realised under FRE 4 in relation to the repayment of the USD borrowings relating to Tranche 3 deductible under section of the ITAA 1997 in the year ending 30 September 2009? 1. Is D Limited an AFI subsidiary for the purposes of Part X of the ITAA AFI subsidiary: foreign exchange gains and losses by virtue of the consolidated group being treated as if it were a *life insurance company pursuant to section of the ITAA 1997? 2. Does income derived from the lending of money within the meaning of paragraph (b) of the definition of 'financial intermediary business' in subsection 317(1) of the ITAA 1936 include any assessable profit or gain derived by D Limited as a result of a change in the rate of foreign exchange between the time a loan or borrowing designated in a foreign currency was made by D Limited and the time the loan or borrowing, respectively, was repaid or otherwise disposed of by D Limited? 3(a) Will any assessable profit or gain derived by D Limited as a result of a change in the rate of foreign exchange between the time a borrowing designated in a foreign currency was taken by D Limited and the time the borrowing, respectively, was repaid or otherwise disposed of by D Limited be a currency exchange gain realised under a transaction under which money was lent to [D Limited] within the meani 3(b) Will any assessable profit or gain derived by D Limited as a result o 4. Does income derived from the lending of money within the meanin 5(a) Will any assessable profit or gain derived by D Limited under a curr foreign exchange gains or losses Is the foreign exchange gain or loss on revenue account? foreign exchange gains or losses Is the foreign exchange gain or loss on revenue account?

8 8 Ruling No Subject Foreign exchange realisation events Link Questions 1. Will forex realisation event (FRE) 4 occur on the payment or discharge of the outstanding amount (OA) (either in full or in part) under Division of the Income Tax Assessment Act 1997 (ITAA 1997) in any of the following circumstances: (a) where the OA is paid following a call made by company A for the balance of the OA; (b) where the OA is paid following a call made by company A; (c) where the OA is mandatorily paid by the date which is nine years from the date of the issue document? 2. Will FRE 5 occur upon the voluntary payment or discharge of the OA (either in full or in part)? 3. If the Commissioner determines that the answer to Question 1 is Yes: (a) Will the forex realisation gain/loss be the difference between the following two amounts, to the extent attributable to currency exchange rate movements: - the proportionate market value, in USD, of the partly-paid shares that corresponds to the obligation assumed for the OA (such market value to be calculated at the time of entering into the Agreement 1); and - the USD equivalent of the AUD payment made to discharge such part (b) Will the forex realisation gain/loss arising as a result of any payment( made to discharge the whole or part of the OA due to calls that are mad Tax treatment of FOREX gains and losses Foreign exchange realisation loss Division 775 Foreign exchange gains & losses 1. Is the foreign exchange ( forex ) gain on the repayment of the Company B1 Foreign Exchange Dollars (FXD) Inter-Company Loan assessable under section of the Income Tax Assessment Act 1997 ( ITAA 1997 )? 2. Is the forex gain on the close out of the FXD Forward assessable under section of the ITAA 1997? 3. Is the forex gain on the repayment of the C Facility assessable under section of the ITAA 1997? 4. Is the forex loss on the repayment of the D Facility deductible under section of the ITAA 1997? 5. Is the forex loss on the repayment of the C Facility deductible under section of the ITAA 1997? 6. Is the forex loss on the close out of the B Swaps deductible under section of the ITAA 1997? Are you entitled to a deduction on your foreign exchange realisation loss made on converting your loan from Country A dollars to Australian dollars under the existing law? Are the foreign exchange realisation gains and losses made on repayment or conversion of your foreign currency loans for your investment properties in Australia, assessable and deductible to you as a foreign resident of Australia? Foreign exchange gains and losses Are the foreign exchange realisation gains and losses made on repayment or conversion of your share of the foreign currency loan for your jointly own investment property in Australia, assessable and deductible to you respectively as foreign residents of Australia?

9 Foreign exchange realisation loss 1. Are the foreign exchange losses made on repayment or conversion of your foreign currency loan in respect of your Australian investment property, deductible in your Australian tax return? 2. If so, are the losses deductible in full the income year the relevant foreign exchange realisation event occurred?