Income Tax Assessment Act 1997

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX  

PART 4-5 - GENERAL  

Division 775 - Foreign currency gains and losses  

Subdivision 775-B - Realisation of forex gains or losses  

SECTION 775-55   Ceasing to have an obligation to pay foreign currency - forex realisation event 4  

Forex realisation event 4

775-55(1)    
Forex realisation event 4 happens if:

(a) you cease to have an obligation, or a part of an obligation, to pay ^* foreign currency; and

(b) any of the following applies:

(i) the obligation, or the part of the obligation, is an expense or outgoing that you deduct;

(ii) the obligation, or the part of the obligation, is an element in the calculation of a net amount included in your assessable income (other than under this Division or Division 102 of this Act or Division 5 or 6 of Part III of the Income Tax Assessment Act 1936 );

(iii) the obligation, or the part of the obligation, is an element in the calculation of a net amount that is deductible (other than under Division 5 of Part III of the Income Tax Assessment Act 1936 );

(iv) you incurred the obligation, or the part of the obligation, in return for the acquisition of a *CGT asset;

(v) you incurred the obligation, or the part of the obligation, as the second, third, fourth or fifth element of the ^* cost base of a CGT asset;

(vi) you incurred the obligation, or the part of the obligation, in return for your starting to hold a ^* depreciating asset, and you deduct an amount under Division 40 or 328 for the depreciating asset;

(vii) you incurred the obligation, or the part of the obligation, as the second element of the ^* cost of a depreciating asset, and you deduct an amount under Division 40 or 328 for the depreciating asset;

(viii) you incurred the obligation, or the part of the obligation, as a ^* project amount;

(ix) you incurred the obligation, or the part of the obligation, in return for receiving an amount of Australian currency or foreign currency;

(x) you incurred the obligation, or the part of the obligation, in return for the creation or acquisition of a right to receive an amount of Australian currency or foreign currency;

(xi) the obligation, or the part of the obligation, is under an option to buy foreign currency.

Note:

For extended meaning of obligation to pay foreign currency , see section 775-140 .

Time of event

775-55(2)    
The time of the event is when you cease to have the obligation or the part of the obligation.

Forex realisation gain

775-55(3)    
You make a forex realisation gain if:

(a) the amount you paid in respect of the event happening falls short of the proceeds of assuming the obligation or the part of the obligation (the proceeds are worked out as at the tax recognition time); and

(b) some or all of the shortfall is attributable to a ^* currency exchange rate effect.

The amount of the forex realisation gain is so much of the shortfall as is attributable to a currency exchange rate effect.

Note 1:

For proceeds of assuming the obligation , see section 775-95 .

Note 2:

For tax recognition time , see subsection (7).

Note 3:

For currency exchange rate effect , see section 775-105 .

775-55(4)    
You make a forex realisation gain if:

(a) the event happens because an option to buy ^* foreign currency expires without having been exercised, or is cancelled, released or abandoned; and

(b) if the option had been exercised immediately before the event, you would have been obliged to sell the foreign currency.

The amount of the forex realisation gain is the amount you received in return for granting or assuming obligations under the option.

Forex realisation loss

775-55(5)    
You make a forex realisation loss if:

(a) the amount you paid in respect of the event happening exceeds the proceeds of assuming the obligation or the part of the obligation (the proceeds are worked out as at the tax recognition time); and

(b) some or all of the excess is attributable to a ^* currency exchange rate effect.

The amount of the forex realisation loss is so much of the excess as is attributable to a currency exchange rate effect.

Note 1:

For proceeds of assuming the obligation , see section 775-95 .

Note 2:

For tax recognition time , see subsection (7).

Note 3:

For currency exchange rate effect , see section 775-105 .

Non-cash benefit

775-55(6)    
The amount you paid in respect of the event happening can include a ^* non-cash benefit. Use the ^* market value of the benefit to work out the amount you paid.

Tax recognition time

775-55(7)    
For the purposes of this section, the tax recognition time is worked out using the table:

Tax recognition time
Item	In this case …	the tax recognition time is …
1	(a)	the obligation, or the part of the obligation, is an expense or outgoing that you deduct; and	the time when the expense or outgoing became deductible.
	(b)	the obligation, or the part of the obligation, was not incurred:
		(i)	in return for the acquisition of an item of *trading stock; or
		(ii)	in return for your starting to hold a *depreciating asset; and
	(c)	the obligation, or the part of the obligation, was not incurred as the second element of the cost of a depreciating asset
2	(a)	the obligation, or the part of the obligation, is an expense or outgoing that you deduct; and	the time when the item becomes part of your trading stock on hand.
	(b)	the obligation, or the part of the obligation, was incurred in return for the acquisition of an item of *trading stock
3	the obligation, or the part of the obligation, is an element in the calculation of a net amount included in your assessable income (other than under this Division or Division 102 of this Act or Division 5 or 6 of Part III of the Income Tax Assessment Act 1936 )	the time of the determination of the exchange rate used to translate the element for the purpose of calculating the net amount.
4	the obligation, or the part of the obligation, is an element in the calculation of a net amount that is deductible (other than under Division 5 of Part III of the Income Tax Assessment Act 1936 )	the time of the determination of the exchange rate used to translate the element for the purpose of calculating the net amount.
5	(a)	you incurred the obligation, or the part of the obligation:   (i) in return for your starting to hold a *depreciating asset; or   (ii) as the second element of the cost of a depreciating asset; and	(a) in the case of the acquisition of a depreciating asset - when you began to hold the depreciating asset (worked out under Division 40); or
	(b)	you deduct an amount under Division 40 or 328 for the depreciating asset	(b) in the case of the second element of the cost of a depreciating asset - when you incurred the relevant expenditure.
6	you incurred the obligation, or the part of the obligation, as a *project amount	the first time when any part of the amount became deductible.
7	the obligation, or the part of the obligation, is referred to in subsection 775-165(5) (which deals with extension of loans)	the extension time referred to in that subsection.
8	you incurred the obligation, or the part of the obligation, in return for:	the time when you received the currency.
	(a)	receiving Australian currency or *foreign currency; or
	(b)	the creation or acquisition of a right to receive an amount of Australian currency or foreign currency;
	where item 7 does not apply
9	(a)	you incurred the obligation, or the part of the obligation, in return for the acquisition of a *CGT asset; and	the time when you acquired the CGT asset (worked out under Division 109).
	(b)	none of the above items apply
10	(a)	you incurred the obligation, or the part of the obligation, as the second, third, fourth or fifth element of the *cost base of a CGT asset; and	the time of the transaction under which you incurred the obligation.
	(b)	none of the above items apply

Note 1:

Foreign currency is a CGT asset. If you acquire foreign currency as the borrower under a loan, item 8 will apply to your obligation to repay the foreign currency borrowed under the loan.

Note 2:

If you have made a choice for roll-over relief for a facility agreement, and forex realisation event 7 (material variation of a facility agreement) happens, subsection 775-220(6) modifies the tax recognition time for an obligation under a security that was in existence under the agreement at the time of that event.

Note 3:

Subsection 775-260(2) modifies the tax recognition time if forex realisation event 4 happens in relation to a qualifying forex account that has ceased to pass the limited balance test.

Note 4:

If you have made a choice for roll-over relief for a facility agreement, a forex realisation gain or forex realisation loss you make under the agreement as a result of forex realisation event 4 is disregarded - see section 775-200 .