Under the foreign exchange (forex) measures contained in Division 775 and Subdivisions 960-C and 960-D of the Income Tax Assessment Act 1997 (ITAA 1997), forex gains and losses are generally brought to account as assessable income or allowable deductions, when realised. The forex measures cover both foreign currency denominated arrangements, and broadly, arrangements to be cash-settled in Australian currency with reference to a currency exchange rate. Forex gains and losses of a private or domestic nature, or in relation to exempt income or non-assessable non-exempt income, are generally not brought to account under the forex measures.
If a forex gain or loss is brought to account under the forex measures and under another provision of the tax law, it is generally assessable or deductible only under the forex measures. However, if a financial arrangement of a trust is subject to the taxation of financial arrangements (TOFA) rules, forex gains and losses from the financial arrangement will generally be brought to account under those TOFA rules instead of the forex measures.
Additionally, forex gains and losses will generally not be assessable or deductible under the forex measures if they arise from certain acquisitions or disposals of capital assets, or acquisitions of depreciating assets, and the time between the acquisition or disposal and payment is no more than 12 months. Instead, any forex gain or loss is usually matched with or integrated into the tax treatment of the underlying asset.
The general translation rule requires all tax-relevant amounts to be expressed in Australian currency regardless of whether there is an actual conversion of that foreign currency into Australian dollars.
The tax consequences of forex gains or losses on existing foreign currency assets, rights and obligations that were acquired or assumed before 1 July 2003 are determined under the law as it was before that date unless:
- you have made a transitional election that brings these arrangements under the forex measures, or
- there is an extension of an existing loan (for example, an extension by a new contract or a variation to an existing contract) that brings the arrangement within these measures.
For more information about these measures and how to calculate your foreign exchange realisation gains and losses, see Foreign exchange (forex).