GST issues registers

Financial services - questions and answers

Foreign currency, foreign exchange rates and travellers' cheques

(a) added, (u) updated, (w) withdrawn

5.1. How do you convert the value of a taxable supply into Australian currency?

Non-interpretative - other references (see GSTR 2001/2 Goods and Services Tax: foreign exchange conversions)

The Commissioner has determined that you convert the value of a taxable supply into Australian currency in accordance with section 9-85 of the GST Act by using the following formula:

Consideration expressed in a foreign currency × (1 ÷ Your particular exchange rate on the conversion day)

where:

•

your particular exchange rate is the rate from the foreign exchange organisation you have chosen to use, the Reserve Bank of Australia (RBA) rate or from your agreement - whichever is applicable

•

the conversion day is the date that you use to convert your foreign currency into Australian currency for GST purposes.

5.2. What exchange rate do you use to work out the value of a taxable supply in Australian currency?

Non-interpretative - other references (see GSTR 2001/2 Goods and Services Tax: foreign exchange conversions)

Subsection 9-85(2) of the GST Act allows the Commissioner to determine the manner in which consideration in a foreign currency is to be converted into Australia currency to work out the value of a taxable supply. You may choose a particular exchange rate from one of the three following sources:

The RBA rate

The RBA rate is the unit of foreign currency per $A calculated by the RBA at 4:00pm Australian Eastern time on each business day. You can choose the RBA rate on or prior to your conversion day.

The agreed rate

The agreed rate is the rate of exchange that you, as the supplier, have agreed with the recipient of the supply. This rate can be contained in either an implied or written agreement and only applies for supplies made under the agreement and for the period of the agreement. When using an agreed rate it should reflect the rate of a particular foreign exchange organisation or the RBA. Where the supplier and the recipient are associates, the agreed rate should reflect a rate agreed to by parties dealing at arm's length.

Foreign exchange organisation rate

You can choose an exchange rate from the publicly available rates of a foreign exchange organisation. For example, an exchange rate can be:

•

a 'buying', 'selling' or 'spot' rate from a commercial bank

•

a rate under a foreign exchange contract, or

•

a rate based on an averaging of a foreign currency exchange rate if your use of that rate conforms with the relevant accounting standard or you use that rate for income tax purposes.

5.3. Can you change the foreign exchange rate you have chosen?

Non-interpretative - other references (see GSTR 2001/2 Goods and Services Tax: foreign exchange conversions)

After choosing a foreign exchange rate referred to in question 5.2 you should use it consistently for GST purposes. You may, however, change your chosen foreign exchange rate where you have sound commercial reasons. Where you alternate between exchange rates with a view to reducing your GST liability, the Commissioner considers you are using your rate inconsistently. In these circumstances, you may have understated your net amount for a tax period and the general anti-avoidance provisions under Division 165 of the GST Act may apply.

5.4. What exchange rate do you use to work out the value of a taxable importation in Australian currency?

Non-interpretative - straight application of the law

Section 13-20 of the GST Act provides that the foreign exchange rate applicable to convert the customs value for a taxable importation into Australian currency is ascertained in the manner provided under section 161J of the Customs Act 1901. That is, the applicable conversion rate is the ruling rate of exchange on the day of exportation of the goods to the indirect tax zone. The Australian Customs Service provides a list of the ruling rate of exchange for each currency for each day.

This same rate can also be used to convert the cost of the international transport and the cost to insure the goods for that transport into Australian currency.

Find out more:

•

Forex 2017/1 Goods and Services tax: foreign Currency conversion determination (No.1) 2017

•

GSTR 2001/2 Goods and Services Tax: foreign exchange conversions

5.5. What is a 'conversion day'?

Non-interpretative - other references (see GSTR 2001/2 Goods and Services Tax: foreign exchange conversions)

A conversion day is the date when you use your chosen exchange rate to convert foreign currency into Australian currency for GST purposes.

Find out about:

•

Forex 2017/1 Goods and Services tax: foreign Currency conversion determination (No.1) 2017

•

GSTR 2001/2 Goods and Services Tax: foreign exchange conversions

5.6. What conversion day do you choose if you account for GST on a non-cash basis?

Non-interpretative - other references (see GSTR 2001/2 Goods and Services Tax: foreign exchange conversions)

Find out about:

•

Forex 2017/1 Goods and Services tax: foreign Currency conversion determination (No.1) 2017

•

GSTR 2001/2 Goods and Services Tax: foreign exchange conversions

5.7. What conversion day do you choose if you account for GST on a cash basis?

Non-interpretative - other references (see GSTR 2001/2 Goods and Services Tax: foreign exchange conversions)

Find out about:

•

Forex 2017/1 Goods and Services tax: foreign Currency conversion determination (No.1) 2017

•

GSTR 2001/2 Goods and Services Tax: foreign exchange conversions

5.8. What happens when there is an adjustment event?

Non-interpretative - other references (see GSTR 2001/2 Goods and Services Tax: foreign exchange conversions)

Where there is an adjustment event in relation to a supply or acquisition, an adjustment to your net amount may arise because of that event. You must apply Division 19 which requires you to compare two amounts to determine whether or not an adjustment arises because of the adjustment event.

5.9. How do you work out the amount of the adjustment arising from the adjustment event for a taxable supply?

Non-interpretative - other references (see GSTR 2001/2 Goods and Services Tax: foreign exchange conversions)

You must work out the difference between the previously attributed GST amount (the amount of GST attributable to a tax period in respect of the supply) and the corrected GST amount (1/11th of the consideration for most supplies, taking into account the adjustment event).

5.10. What exchange rate do you use to convert the corrected GST amount into Australian currency?

Non-interpretative - other references (see GSTR 2001/2 Goods and Services Tax: foreign exchange conversions)

The exchange rate you should use for this conversion is the rate (where available) you used when you worked out the GST payable for the supply (the original conversion day).

5.11. Can you use an alternative exchange rate where the rate on the original conversion day is unavailable?

Non-interpretative - other references (see GSTR 2001/2 Goods and Services Tax: foreign exchange conversions)

You may use your chosen exchange rate from your foreign exchange organisation on the issue date of the adjustment note where you cannot calculate the adjustment amount based on the foreign exchange rate of the original conversion day. For example, where an adjustment event occurs and your records have been destroyed and the exchange rate is not available from your foreign exchange organisation.

5.12. What must be included in the 'tax invoice' where you make a taxable supply and the consideration is expressed in a foreign currency?

Non-interpretative - other references (see GSTR 2001/2 Goods and Services Tax: foreign exchange conversions)

For the tax invoice to be in the approved form, it must comply with the tax invoice requirements stated in GST Ruling GSTR 2013/1 and:

•

include on the form the GST payable in Australian currency, or

•

provide 'sufficient information' to the recipient to work out the GST payable on the supply in Australian currency.

Examples of sufficient information include:

•

the price expressed in Australian currency

•

the value expressed in Australian currency, or

•

the GST payable, the price or value expressed in a foreign currency and the conversion rate used by the supplier, or a statement, to work out the GST payable in Australian currency.

This information can be provided on the tax invoice, or on two or more documents that together meet the information requirements of a tax invoice.

The Commissioner will allow entities an administrative concession until 30 June 2001 to comply with the additional tax invoice requirements where an entity needs to adjust their computerised accounting systems.

An example of a statement with sufficient information is as follows:

'The GST is calculated in Australian currency at the exchange rate published by the RBA at 4:00pm Australian Eastern time on the business day prior to the date of this tax invoice.'

5.13. How do you calculate your input tax credit where the consideration for an acquisition is expressed in foreign currency?

Non-interpretative - other references (see GSTR 2001/2 Goods and Services Tax: foreign exchange conversions)

You can use the amount of GST payable on the tax invoice to calculate your input tax credit in Australian currency. The tax invoice will include the GST payable in Australian currency or sufficient information to determine the GST payable in Australian currency. However, the amount of the input tax credit is reduced if the acquisition is only partly creditable.

5.14. Is a foreign currency transaction a financial supply?

Non-interpretative - straight application of the law

Yes. A foreign currency transaction is a financial supply under item 9 in the table in subsection40-5.09(3) of the GST Regulations. Some examples are travellers cheques and foreign currency in cash form or drafts.

5.15. Is the fee charged by a money dealer for a foreign currency transaction subject to GST?

Non-interpretative - other references (see line number F4 in Schedule 2 of GSTR 2002/2 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions)

No GST is payable on the fee if the money dealer buys or sells Australian or foreign currency while acting in their own right and not as an agent for someone else. The fee is consideration for the supply of an interest in the currency.

5.16. Is an agent's fee or commission for facilitating a foreign currency transaction subject to GST?

Non-interpretative - straight application of the law

Yes, this fee or commission is subject to GST, as the agent is a financial supply facilitator and is making a taxable supply under section 9-5 of the GST Act.

5.17. Are travellers' cheques a financial supply?

Non-interpretative - straight application of the law

Yes. An interest in Australian currency, the currency of a foreign country or an agreement to buy or sell the currency - such as travellers' cheques - is a financial supply under item 9 in the table in subsection40-5.09(3) of the GST Regulations.

5.18. What are the GST implications for the fee or commission charged on travellers' cheques transactions within Australia?

For GST, Luxury Car Tax and Wine Equalisation Tax purposes, from 1 July 2015, where the term 'Australia' is used in this item it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act.

Non-interpretative - other references (see line number F5 and F13 in Schedule 2 of GSTR 2002/2 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions).

As a principal:

No GST is payable on the commission or fee when you buy or sell travellers' cheques or foreign currency and you are acting in your own right, and not as an agent on behalf of someone else. This is because you are a financial supply provider and have a direct interest in the financial supply.

As an agent:

If you buy or sell travellers' cheques or exchange foreign currency on behalf of someone else, and are acting as an agent, GST is payable on the fee or commission you receive for those agency services. This is because you are a financial supply facilitator and are making a taxable supply.

5.19. Is a foreign currency gain or loss an adjustment event?

Non-interpretative - straight application of the law

No. An adjustment event does not exist when you make a foreign currency gain or loss.

This is outlined in paragraph 39 of GST Ruling GSTR 2000/19 Making adjustments under Division 19 for adjustment events which states:

•

'when payment for the supply occurs, the rate of exchange may be different from that used for GST attribution purposes. The resulting gain or loss on converting the currency, whether realised or not, is not an adjustment event.'

5.20. Do I need to show foreign currency gains or losses on my Business activity statement (BAS)?

Non-interpretative - straight application of the law

Foreign currency gains or losses are not an adjustment event and are not required to be shown on the BAS.

However, foreign exchange gains and losses would need to be calculated for income tax purposes.

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