New Business Tax System (Taxation of Financial Arrangements) Act (No. 1) 2003 (133 of 2003)

Schedule 4   Foreign currency

Part 1   Amendments

Income Tax Assessment Act 1997

58   After Part 4-5 (heading) (before the link note)

Insert:

[The next Division is Division 775]

Division 775 Foreign currency gains and losses

Table of Subdivisions

Guide to Division 775

775-A Objects of this Division

775-B Realisation of forex gains or losses

775-C Roll-over relief for facility agreements

775-D Qualifying forex accounts that pass the limited balance test

775-E Retranslation for qualifying forex accounts

Guide to Division 775

775-5 What this Division is about

Your assessable income includes a forex realisation gain you make as a result of a forex realisation event.

You can deduct a forex realisation loss that you make as a result of a forex realisation event.

There are 5 main types of forex realisation events:

(a) forex realisation event 1 happens if you dispose of foreign currency, or a right to receive foreign currency, to another entity;

(b) forex realisation event 2 happens if you cease to have a right to receive foreign currency (otherwise than because you disposed of the right to another entity);

(c) forex realisation event 3 happens if you cease to have an obligation to receive foreign currency;

(d) forex realisation event 4 happens if you cease to have an obligation to pay foreign currency;

(e) forex realisation event 5 happens if you cease to have a right to pay foreign currency.

There are special rules for certain short-term forex realisation gains and losses.

You may choose roll-over relief for certain facility agreements.

You may elect to receive concessional tax treatment for a qualifying forex account that passes the limited balance test.

You may choose retranslation for a qualifying forex account.

Subdivision 775-A - Objects of this Division

Table of sections

775-10 Objects of this Division

775-10 Objects of this Division

The objects of this Division are as follows:

(a) to recognise *foreign currency gains and losses for income tax purposes;

(b) to quantify those gains and losses by reference to the change in the Australian dollar value of rights and obligations;

(c) to treat certain foreign currency denominated financing facilities that are the economic equivalent of a loan as if the relevant facility were a loan;

(d) to reduce compliance costs by not requiring the recognition of certain low-value foreign currency gains and losses that involve substantial calculations.

Subdivision 775-B - Realisation of forex gains or losses

Table of sections

775-15 Forex realisation gains are assessable

775-20 Certain forex realisation gains are exempt income

775-25 Certain forex realisation gains are non-assessable non-exempt income

775-30 Forex realisation losses are deductible

775-35 Certain forex realisation losses are disregarded

775-40 Disposal of foreign currency or right to receive foreign currency - forex realisation event 1

775-45 Ceasing to have a right to receive foreign currency - forex realisation event 2

775-50 Ceasing to have an obligation to receive foreign currency - forex realisation event 3

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

775-60 Ceasing to have a right to pay foreign currency - forex realisation event 5

775-65 Only one forex realisation event to be counted

775-70 Tax consequences of certain short-term forex realisation gains

775-75 Tax consequences of certain short-term forex realisation losses

775-80 You may choose not to have sections 775-70 and 775-75 apply to you

775-85 Forex cost base of a right to receive foreign currency

775-90 Forex entitlement base of a right to pay foreign currency

775-95 Proceeds of assuming an obligation to pay foreign currency

775-100 Net costs of assuming an obligation to receive foreign currency

775-105 Currency exchange rate effect

775-110 Constructive receipts and payments

775-115 Economic set-off to be treated as legal set-off

775-120 Non-arm's length transactions

775-125 CGT consequences of the acquisition of foreign currency as a result of forex realisation event 2 or 3

775-130 Certain deductions not allowable

775-135 Right to receive or pay foreign currency

775-140 Obligation to pay or receive foreign currency

775-145 Application of forex realisation events to currency and fungible rights and obligations

775-150 Transitional election

775-155 Applicable commencement date

775-160 Exception - event happens before the applicable commencement date

775-165 Exception - currency or right acquired, or obligation incurred, before the applicable commencement date

775-170 Exemption for ADIs and non-ADI financial institutions

775-175 Application to things happening before commencement

775-15 Forex realisation gains are assessable

Basic rule

(1) Your assessable income for an income year includes a *forex realisation gain you make as a result of a *forex realisation event that happens during that year.

Exceptions

(2) However, your assessable income does not include a *forex realisation gain to the extent that it:

(a) is a gain of a private or domestic nature; and

(b) is not covered by an item of the table:

Note: Parts 3-1 and 3-3 deal with capital gains and losses.

(3) Section 775-70 provides for additional exceptions.

Note: Section 775-70 is about the tax consequences of certain short-term forex realisation gains.

No double taxation

(4) To the extent that a *forex realisation gain would be included in your assessable income under this section and another provision of this Act, the gain is only included in your assessable income under this section.

775-20 Certain forex realisation gains are exempt income

A *forex realisation gain you make is exempt income to the extent that, if it had been a *forex realisation loss, it would have been made in gaining or producing exempt income.

775-25 Certain forex realisation gains are non-assessable non-exempt income

A *forex realisation gain you make is non-assessable non-exempt income to the extent that, if it had been a *forex realisation loss, it would have been made in gaining or producing non-assessable non-exempt income.

775-30 Forex realisation losses are deductible

Basic rule

(1) You can deduct from your assessable income for an income year a *forex realisation loss that you make as a result of a *forex realisation event that happens during that year.

Exceptions

(2) However, you cannot deduct a *forex realisation loss under this section to the extent that it:

(a) is a loss of a private or domestic nature; and

(b) is not covered by an item of the table:

Note: Parts 3-1 and 3-3 deal with capital gains and losses.

(3) Section 775-75 provides for additional exceptions.

Note: Section 775-75 is about the tax consequences of certain short-term forex realisation losses.

No double deductions

(4) To the extent that this section and another provision of this Act would allow you a deduction for a *forex realisation loss, you can only deduct the loss under this section.

775-35 Certain forex realisation losses are disregarded

(1) A *forex realisation loss you make as a result of forex realisation event 1, 2 or 5 is disregarded to the extent that it is made in gaining or producing exempt income.

(2) A *forex realisation loss you make as a result of forex realisation event 3, 4 or 6 is disregarded to the extent that:

(a) it is made in gaining or producing exempt income or non-assessable non-exempt income; and

(b) the obligation, or the part of the obligation, does not give rise to a deduction.

775-40 Disposal of foreign currency or right to receive foreign currency - forex realisation event 1

Forex realisation event 1

(1) Forex realisation event 1 is *CGT event A1 that happens if you dispose of:

(a) *foreign currency; or

(b) a right, or a part of a right, to receive foreign currency.

Note: For extended meaning of right to receive foreign currency , see section 775-135.

Disposal

(2) For the purposes of this section, use subsection 104-10(2) to work out whether you have disposed of:

(a) *foreign currency; or

(b) a right, or a part of a right, to receive foreign currency.

Note: Under subsection 104-10(2), a disposal requires a change of ownership.

Time of event

(3) For the purposes of this section, subsection 104-10(3) is modified so that the time of the event is when:

(a) the *foreign currency is disposed of; or

(b) the right, or the part of the right, is disposed of.

Forex realisation gain

(4) You make a forex realisation gain if:

(a) you make a *capital gain from the event; and

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

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

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

(5) For the purposes of paragraph (4)(a), Part 3-1 is modified so that section 118-20 is disregarded in working out the *capital gain.

Note: Section 118-20 deals with reducing capital gains if an amount is otherwise assessable.

Forex realisation loss

(6) You make a forex realisation loss if:

(a) you make a *capital loss from the event; and

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

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

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

No indexation of cost base

(7) For the purposes of this section, disregard Division 114.

Note: Division 114 deals with indexation of the cost base.

Foreign currency hedging gains and losses

(8) For the purposes of this section, disregard section 118-55.

Note: Section 118-55 deals with foreign currency hedging gains and losses.

Capital proceeds

(9) For the purposes of this section, if the *capital proceeds from the event are more or less than the *market value of:

(a) the *foreign currency; or

(b) the right, or the part of the right;

the capital proceeds from the event are taken to be the market value. (The market value is worked out as at the time of the event.)

775-45 Ceasing to have a right to receive foreign currency - forex realisation event 2

Forex realisation event 2

(1) Forex realisation event 2 happens if:

(a) you cease to have a right, or a part of a right, to receive *foreign currency; and

(b) the right, or the part of the right, is one of the following:

(i) a right, or a part of a right, to receive, or that represents, *ordinary income or *statutory income (other than statutory income that is assessable under this Division or Division 102);

(ii) a right, or a part of a right, created or acquired in return for your ceasing to *hold a *depreciating asset;

(iii) a right, or a part of a right, created or acquired in return for your paying, or agreeing to pay, an amount of Australian currency or foreign currency;

(iv) a right, or a part of a right, created or acquired in return for the occurrence of a *realisation event in relation to a *CGT asset you own, and none of subparagraphs (i), (ii) and (iii) applies; and

(c) you did not cease to have the right, or the part of the right, because you disposed of the right or the part of the right (within the meaning of section 775-40).

Note 1: Disposals are dealt with by section 775-40 (forex realisation event 1).

Note 2: For extended meaning of right to receive foreign currency , see section 775-135.

Time of event

(2) The time of the event is when you cease to have the right or the part of the right.

Forex realisation gain

(3) You make a forex realisation gain if:

(a) the amount you receive in respect of the event happening exceeds the *forex cost base of the right or the part of the right (the forex cost base is 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 gain is so much of the excess as is attributable to a currency exchange rate effect.

Note 1: For forex cost base , see section 775-85.

Note 2: For tax recognition time , see subsection (7).

Note 3: For currency exchange rate effect , see section 775-105.

Forex realisation loss

(4) You make a forex realisation loss if:

(a) the amount you receive in respect of the event happening falls short of the *forex cost base of the right or the part of the right (the forex cost base is 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 loss is so much of the shortfall as is attributable to a currency exchange rate effect.

Note 1: For forex cost base , see section 775-85.

Note 2: For tax recognition time , see subsection (7).

Note 3: For currency exchange rate effect , see section 775-105.

(5) You make a forex realisation loss 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) you were capable of exercising the option immediately before the event happened.

The amount of the forex realisation loss is the amount you paid in return for the grant or acquisition of the option.

Non-cash benefit

(6) The amount you receive 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 receive.

Tax recognition time

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

Note: Subsection 775-260(1) modifies the tax recognition time if forex realisation event 2 happens in relation to a qualifying forex account that has ceased to pass the limited balance test.

775-50 Ceasing to have an obligation to receive foreign currency - forex realisation event 3

Forex realisation event 3

(1) Forex realisation event 3 happens if:

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

(b) the obligation, or the part of the obligation, is one of the following:

(i) an obligation, or a part of the obligation, incurred in return for the creation or acquisition of a right to pay foreign currency;

(ii) an obligation, or a part of the obligation, incurred in return for the creation or acquisition of a right to pay Australian currency.

Note 1: For extended meaning of obligation to receive foreign currency , see section 775-140.

Note 2: For extended meaning of right to pay foreign currency , see section 775-135.

Time of event

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

Forex realisation gain

(3) You make a forex realisation gain if:

(a) the amount you receive in respect of the event happening exceeds the net costs of assuming the obligation or the part of the obligation (the net costs 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 gain is so much of the excess as is attributable to a currency exchange rate effect.

Note 1: For net costs of assuming the obligation , see section 775-100.

Note 2: For tax recognition time , see subsection (7).

Note 3: For currency exchange rate effect , see section 775-105.

(4) You make a forex realisation gain if:

(a) the event happens because an option to sell *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 buy 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

(5) You make a forex realisation loss if:

(a) the amount you receive in respect of the event happening falls short of the net costs of assuming the obligation or the part of the obligation (the net costs 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 loss is so much of the shortfall as is attributable to a currency exchange rate effect.

Note 1: For net costs of assuming the obligation , see section 775-100.

Note 2: For tax recognition time , see subsection (7).

Note 3: For currency exchange rate effect , see section 775-105.

Non-cash benefit

(6) The amount you receive 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 receive.

Tax recognition time

(7) For the purposes of this section, the tax recognition time is the time when you received an amount in respect of the event happening.

Right to pay Australian currency

(8) To avoid doubt, for the purposes of this section, a right to pay Australian currency includes a right to pay Australian currency, where the right is subject to a contingency.

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

Forex realisation event 4

(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.

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

Time of event

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

Forex realisation gain

(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.

(4) You make a forex realisation gain if:

(a) the event happens because an option to sell *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

(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

(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

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

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.

775-60 Ceasing to have a right to pay foreign currency - forex realisation event 5

Forex realisation event 5

(1) Forex realisation event 5 happens if:

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

(b) the right, or the part of the right, is one of the following:

(i) a right, or a part of a right, created or acquired in return for the assumption of an obligation to pay foreign currency;

(ii) a right, or a part of a right, created or acquired in return for the assumption of an obligation to pay Australian currency.

Note 1: For extended meaning of right to pay foreign currency , see section 775-135.

Note 2: For extended meaning of obligation to pay foreign currency , see section 775-140.

Time of event

(2) The time of the event is when you cease to have the right or the part of the right.

Forex realisation gain

(3) You make a forex realisation gain if:

(a) the amount you pay in respect of the event happening falls short of the *forex entitlement base of the right or the part of the right (the forex entitlement base is 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 forex entitlement base , see section 775-90.

Note 2: For tax recognition time , see subsection (7).

Note 3: For currency exchange rate effect , see section 775-105.

Forex realisation loss

(4) You make a forex realisation loss if:

(a) the amount you pay in respect of the event happening exceeds the *forex entitlement base of the right or the part of the right (the forex entitlement base is 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 forex entitlement base , see section 775-90.

Note 2: For tax recognition time , see subsection (7).

Note 3: For currency exchange rate effect , see section 775-105.

(5) You make a forex realisation loss if:

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

(b) you were capable of exercising the option immediately before the event happened.

The amount of the forex realisation loss is the amount you paid in return for the grant or acquisition of the option.

Non-cash benefit

(6) The amount you pay 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 pay.

Tax recognition time

(7) For the purposes of this section, the tax recognition time is the time when you pay an amount in respect of the event happening.

Obligation to pay Australian currency

(8) To avoid doubt, for the purposes of this section, an obligation to pay Australian currency includes an obligation to pay Australian currency, where the obligation is subject to a contingency.

775-65 Only one forex realisation event to be counted

Option to buy foreign currency

(1) The following table applies to an option to buy a particular *foreign currency if the exercise price is payable in another foreign currency:

Option to sell foreign currency

(2) The following table applies to an option to sell a particular *foreign currency if the exercise price is payable in another foreign currency:

Forward contracts

(3) The following table applies to a contract to buy a particular *foreign currency in return for another foreign currency:

Residual rule

(4) If:

(a) 2 or more of forex realisation events 1, 2, 3, 4 and 5 happen to you at the same time in relation to the same rights and/or obligations; and

(b) none of the above subsections applies;

apply the forex realisation event that is most appropriate, and ignore the remaining event or events.

775-70 Tax consequences of certain short-term forex realisation gains

(1) The following table has effect unless you have made a choice under section 775-80:

Additional result where forex realisation gain exceeds cost etc.

(2) The following table has effect:

(3) To the extent that a *forex realisation gain:

(a) would have been included in your assessable income under section 775-15 if this section had not been enacted; and

(b) would, apart from this subsection, be included in your assessable income under another provision of this Act;

the gain is not included in your assessable income under that other provision.

775-75 Tax consequences of certain short-term forex realisation losses

(1) The following table has effect unless you have made a choice under section 775-80:

(2) To the extent that:

(a) section 775-30 would have allowed you a deduction for a *forex realisation loss if this section had not been enacted; and

(b) apart from this subsection, another provision of this Act would allow you a deduction for the loss;

you cannot deduct the loss under that other provision.

775-80 You may choose not to have sections 775-70 and 775-75 apply to you

(1) You may choose not to have sections 775-70 and 775-75 apply to you.

(2) A choice must be in writing.

(3) A choice must be made:

(a) if you were in existence at the start of the applicable commencement date;

(i) within 90 days after the applicable commencement date; or

(ii) within 30 days after the commencement of this subsection; or

(b) if you came into existence within 90 days after the start of the applicable commencement date;

(i) within 90 days after you came into existence; or

(ii) within 30 days after the commencement of this subsection; or

(c) if the Commissioner allows a longer period - within that longer period.

Note: For applicable commencement date , see section 775-155.

(4) A choice has effect from the start of the applicable commencement date.

(5) A choice may not be revoked.

775-85 Forex cost base of a right to receive foreign currency

The forex cost base of a right, or a part of a right, to receive *foreign currency is the total of:

(a) the money you:

(i) paid; or

(ii) are required to pay; or

(iii) would be required to pay in the event of the exercise of an option;

in respect of acquiring the right or part of the right; and

(b) the *market value of any *non-cash benefit you:

(i) provided; or

(ii) are required to provide; or

(iii) would be required to provide in the event of the exercise of an option;

in respect of acquiring the right or part of the right;

reduced by any amounts that are deductible under a provision of this Act other than this Division.

775-90 Forex entitlement base of a right to pay foreign currency

The forex entitlement base of a right, or a part of a right, to pay *foreign currency is the total of:

(a) the money you:

(i) are entitled to receive; or

(ii) would be entitled to receive in the event of the exercise of an option;

in respect of the discharge or satisfaction of the right or the part of the right; and

(b) the *market value of any *non-cash benefit you:

(i) are entitled to acquire or obtain; or

(ii) would be entitled to acquire or obtain in the event of the exercise of an option;

in respect of the discharge or satisfaction of the right or the part of the right;

reduced by:

(c) any amounts that you paid to acquire the right or the part of the right, where the amounts are not deductible under a provision of this Act other than this Division; and

(d) the market value of any non-cash benefit that you provided to acquire the right or the part of the right, where the market value is not deductible under a provision of this Act other than this Division.

775-95 Proceeds of assuming an obligation to pay foreign currency

For the purposes of this Division, the proceeds of assuming an obligation, or a part of an obligation, to pay *foreign currency are the total of:

(a) the money you:

(i) received; or

(ii) are entitled to receive; or

(iii) would be entitled to receive in the event of the exercise of an option;

in return for incurring the obligation or the part of the obligation; and

(b) the *market value of any *non-cash benefit you:

(i) acquired or obtained; or

(ii) are entitled to acquire or obtain; or

(iii) would be entitled to acquire or obtain in the event of the exercise of an option;

in return for incurring the obligation or the part of the obligation;

reduced by any amounts that are included in assessable income under a provision of this Act other than this Division.

775-100 Net costs of assuming an obligation to receive foreign currency

(1) For the purposes of this Division, the net costs of assuming an obligation, or a part of an obligation, to receive *foreign currency are the total of:

(a) the money you:

(i) are required to pay; or

(ii) would be required to pay in the event of the exercise of an option;

in respect of the fulfilment of the obligation or the part of the obligation; and

(b) the *market value of any *non-cash benefit you:

(i) are required to provide; or

(ii) would be required to provide in the event of the exercise of an option;

in respect of the fulfilment of the obligation or the part of the obligation;

reduced by the amount worked out under subsection (2).

(2) The amount worked out under this subsection is the total of:

(a) the money you:

(i) received; or

(ii) are entitled to receive;

because you incurred the obligation or the part of the obligation; and

(b) the *market value of any *non-cash benefit you:

(i) received or obtained; or

(ii) are entitled to receive or obtain;

because you incurred the obligation or the part of the obligation;

reduced by any amounts that are included in assessable income under a provision of this Act other than this Division.

(3) To avoid doubt, paragraphs (2)(a) and (b) do not apply to money or a *non-cash benefit that you:

(a) received or obtained; or

(b) are entitled to receive or obtain;

because of the fulfilment of the obligation or the part of the obligation.

775-105 Currency exchange rate effect

(1) A currency exchange rate effect is:

(a) any currency exchange rate fluctuations; or

(b) a difference between:

(i) an expressly or implicitly agreed currency exchange rate for a future date or time; and

(ii) the applicable currency exchange rate at that date or time.

(2) To work out whether there is a currency exchange rate effect and (if so), the extent of that effect, use whichever of the following translation rules is applicable to you:

(a) the translation rules in section 960-50 (the standard rules);

(b) the translation rules in section 960-80 (the functional currency rules).

775-110 Constructive receipts and payments

For the purposes of this Subdivision, if an entity (the payer ) did not actually pay an amount to another entity (the recipient ), but the amount was applied or dealt with in any way on the recipient's behalf or as the recipient directs (including by discharging all or a part of an obligation owed by the recipient), then:

(a) the payer is taken to have paid the amount as soon as it is applied or dealt with; and

(b) the recipient is taken to have received the amount as soon as it is applied or dealt with.

Note: The set-off of an obligation to pay an amount against a right to receive an amount is an example of how this section would operate.

775-115 Economic set-off to be treated as legal set-off

If the economic effect of an *arrangement is to provide for the set-off, in whole or in part, of one or more amounts against one or more other amounts, this Subdivision applies as if:

(a) the parties to the arrangement had the respective rights and obligations that they would have had if the provision for economic set-off were structured as a provision for legal set-off of rights and obligations; and

(b) if the economic set-off happens - the parties were taken, under section 775-110, to have paid and received the respective amounts that they would have paid and received if the economic set-off were structured as a legal set-off of rights and obligations.

775-120 Non-arm's length transactions

If:

(a) you and another entity did not deal with each other at arm's length in connection with a transaction that is relevant to working out:

(i) whether you make a *forex realisation gain or a *forex realisation loss; or

(ii) the amount of any *forex realisation gain or a *forex realisation loss made by you; and

(b) apart from this section, a particular amount is more or less than it would have been if you and the other entity had been dealing with each other at arm's length;

this Subdivision applies to you as if that amount were the amount it would have been if you and the other entity had been dealing with each other at arm's length.

775-125 CGT consequences of the acquisition of foreign currency as a result of forex realisation event 2 or 3

If you acquire *foreign currency as a result of forex realisation event 2 or 3:

(a) the first element of the foreign currency's *cost base is replaced by the foreign currency's *market value at the time you received the foreign currency; and

(b) the first element of the foreign currency's *reduced cost base is replaced by the foreign currency's market value at the time you received the foreign currency.

775-130 Certain deductions not allowable

If:

(a) an amount is included in your assessable income under this Division; and

(b) if this Division had not been enacted, the amount would not have been included in your assessable income under any other provision of this Act (other than Division 102); and

(c) if this section had not been enacted, a deduction would be allowable to you under a provision listed in the table in subsection 51AAA(2) of the Income Tax Assessment Act 1936; and

(d) if the amount had not been included in your assessable income under this Division, the deduction would not be allowable;

the deduction is not allowable.

775-135 Right to receive or pay foreign currency

Extended meaning of right to receive foreign currency

(1) For the purposes of this Division, a right to receive foreign currency includes a right to receive an amount calculated by reference to a currency exchange rate effect, even if that amount is not an amount of *foreign currency.

(2) To avoid doubt, for the purposes of this Division, a right to receive foreign currency includes a right to receive *foreign currency, where the right is subject to a contingency.

Extended meaning of right to pay foreign currency

(3) For the purposes of this Division, a right to pay foreign currency includes a right to pay an amount calculated by reference to a currency exchange rate effect, even if that amount is not an amount of *foreign currency.

(4) To avoid doubt, for the purposes of this Division, a right to pay foreign currency includes a right to pay *foreign currency, where the right is subject to a contingency.

775-140 Obligation to pay or receive foreign currency

Extended meaning of obligation to pay foreign currency

(1) For the purposes of this Division, an obligation to pay foreign currency includes an obligation to pay an amount calculated by reference to a currency exchange rate effect, even if that amount is not an amount of *foreign currency.

(2) To avoid doubt, for the purposes of this Division, an obligation to pay foreign currency includes an obligation to pay *foreign currency, where the obligation is subject to a contingency.

Extended meaning of obligation to receive foreign currency

(3) For the purposes of this Division, an obligation to receive foreign currency includes an obligation to receive an amount calculated by reference to a currency exchange rate effect, even if that amount is not an amount of *foreign currency.

(4) To avoid doubt, for the purposes of this Division, an obligation to receive foreign currency includes an obligation to receive *foreign currency, where the obligation is subject to a contingency.

775-145 Application of forex realisation events to currency and fungible rights and obligations

(1) Forex realisation event 1, 2 or 4 applies in relation to:

(a) *foreign currency; or

(b) a fungible right, or a part of a fungible right, to receive foreign currency; or

(c) a fungible obligation, or a part of a fungible obligation, to pay foreign currency;

on a first-in first-out basis.

(2) The regulations may provide that any or all of forex realisation events 1, 2 and 4 apply, or apply in specified circumstances, to:

(a) *foreign currency; or

(b) a fungible right, or a part of a fungible right, to receive foreign currency; or

(c) a fungible obligation, or a part of a fungible obligation, to pay foreign currency;

on a weighted average basis (despite subsection (1)).

(3) The circumstances that may be specified for the purposes of subsection (2) include the circumstance that you have made an election to use a weighted average basis.

(4) Subsection (3) does not limit subsection (2).

775-150 Transitional election

(1) You may elect to have this section apply to you.

Note: For the consequences of an election, see sections 775-160 and 775-165.

(2) An election must be in writing.

(3) An election must be made;

(a) within 60 days after the applicable commencement date; or

(b) within 30 days after the commencement of this subsection.

Note: For applicable commencement date , see section 775-155.

(4) An election may not be revoked.

775-155 Applicable commencement date

For the purposes of this Division, your applicable commencement date is:

(a) the first day of the 2003-04 income year; or

(b) if that day is earlier than 1 July 2003 - the first day of the 2004-05 income year.

775-160 Exception - event happens before the applicable commencement date

(1) A *forex realisation gain or *forex realisation loss you make as a result of forex realisation event 1, 2, 3, 4 or 5 is disregarded if the event happened before the applicable commencement date.

Note: For applicable commencement date , see section 775-155.

(2) Subsection (1) does not apply if:

(a) you have made an election under section 775-150; and

(b) the Commissioner is satisfied that the event happened under, or as a result of, an *arrangement that was entered into or carried out for the purpose, or for purposes that included the purpose, of obtaining the benefit of the operation of subsection (1).

775-165 Exception - currency or right acquired, or obligation incurred, before the applicable commencement date

Exception - foreign currency acquired before the applicable commencement date

(1) A *forex realisation gain or *forex realisation loss you make on the disposal of *foreign currency as a result of forex realisation event 1 is disregarded if:

(a) the foreign currency was acquired before the applicable commencement date; and

(b) you have not made an election under section 775-150.

For the purposes of paragraph (a), the time of acquisition is worked out under Division 109.

Note: For applicable commencement date , see section 775-155.

Exception - right acquired before the applicable commencement date

(2) A *forex realisation gain or *forex realisation loss you make as a result of forex realisation event 1, 2 or 5 happening to a right or a part of a right is disregarded if:

(a) the right, or the part of the right;

(i) was acquired before the applicable commencement date; or

(ii) arose under an eligible contract (within the meaning of the former Division 3B of Part III of the Income Tax Assessment Act 1936) that was entered into before the applicable commencement date; and

(b) you have not made an election under section 775-150.

For the purposes of subparagraph (a)(i), the time of acquisition is worked out under Division 109.

Note: For applicable commencement date , see section 775-155.

(3) If:

(a) at a particular time (the extension time ) on or after the applicable commencement date and under a contract that was entered into before the applicable commencement date, the period for which money has been lent is extended; and

(b) either:

(i) the contract is separate from the original loan contract; or

(ii) the extension amounts to a variation of the original loan contract;

subparagraph (2)(a)(ii) does not apply to a right, or a part of a right, that arises after the extension time and relates to the loan.

Note: For applicable commencement date , see section 775-155.

Exception - obligation incurred before the applicable commencement date

(4) A *forex realisation gain or *forex realisation loss you make as a result of forex realisation event 3 or 4 happening to an obligation or a part of an obligation is disregarded if:

(a) either:

(i) you incurred the obligation, or the part of the obligation, before the applicable commencement date; or

(ii) the obligation, or the part of the obligation, arose under an eligible contract (within the meaning of the former Division 3B of Part III of the Income Tax Assessment Act 1936) that was entered into before the applicable commencement date; and

(b) you have not made an election under section 775-150.

Note: For applicable commencement date , see section 775-155.

(5) If:

(a) at a particular time (the extension time ) on or after the applicable commencement date and under a contract that was entered into before the applicable commencement date, the period for which money has been lent is extended; and

(b) either:

(i) the contract is separate from the original loan contract; or

(ii) the extension amounts to a variation of the original loan contract;

subparagraph (4)(a)(ii) does not apply to an obligation, or a part of an obligation, that arises after the extension time and relates to the loan.

Note: For applicable commencement date , see section 775-155.

775-170 Exemption for ADIs and non-ADI financial institutions

This Division does not apply to a *forex realisation gain or a *forex realisation loss made by an *ADI or a *non-ADI financial institution.

775-175 Application to things happening before commencement

The use of the present tense in a provision of this Division does not imply that the provision does not apply to things happening before the commencement of this Division.

Subdivision 775-C - Roll-over relief for facility agreements

Guide to Subdivision 775-C

775-180 What this Subdivision is about

A facility agreement is an agreement where:

(a) you have a right to issue eligible securities and another entity or entities must acquire the securities; and

(b) the economic effect of the agreement is to enable you to obtain finance in a particular foreign currency.

If you choose roll-over relief for a facility agreement:

(a) a forex realisation gain or a forex realisation loss you make as a result of forex realisation event 4 is disregarded if the event happens because you discharge your obligation under an eligible security issued by you under the agreement; and

(b) if you issue an eligible security under the agreement otherwise than as a result of a roll-over - you are taken to have been given a loan (the notional loan ); and

(c) if an eligible security is rolled-over under the agreement - the period of the notional loan is extended by the term of the new security; and

(d) forex realisation event 6 happens if you discharge your obligation under the notional loan; and

(e) forex realisation event 7 happens if a material variation is made to the agreement.

Table of sections

Operative provisions

775-185 What is a facility agreement ?

775-190 What is an eligible security ?

775-195 You may choose roll-over relief for a facility agreement

775-200 Forex realisation event 4 does not apply

775-205 What is a roll-over ?

775-210 Notional loan

775-215 Discharge of obligation to pay the principal amount of a notional loan under a facility agreement - forex realisation event 6

775-220 Material variation of a facility agreement - forex realisation event 7

[This is the end of the Guide.]

Operative provisions

775-185 What is a facility agreement ?

A facility agreement is an agreement between an entity (the first entity) and another entity or entities under which:

(a) the first entity has a right to issue *eligible securities; and

(b) an entity or entities must acquire the securities;

where the economic effect of the agreement is to enable the first entity to obtain finance in a particular *foreign currency:

(c) up to the foreign currency amount specified in the agreement; and

(d) during the term of the agreement.

775-190 What is an eligible security ?

An eligible security is:

(a) a bill of exchange, or a promissory note, that is:

(i) non-interest bearing; and

(ii) issued at a discount to face value; and

(iii) denominated in a particular *foreign currency; and

(iv) for a fixed term; or

(b) a security that is:

(i) specified in the regulations; and

(ii) denominated in a foreign currency; and

(iii) for a fixed term.

775-195 You may choose roll-over relief for a facility agreement

(1) You may choose roll-over relief for a *facility agreement if:

(a) you have entered into the agreement; and

(b) you have a right to issue *eligible securities under the agreement; and

(c) the economic effect of the agreement is to enable you to obtain finance in a particular *foreign currency:

(i) up to the foreign currency amount specified in the agreement; and

(ii) during the term of the agreement.

(2) A choice must be made:

(a) within 90 days after the first time you issue an *eligible security under the *facility agreement; or

(b) within 90 days after the applicable commencement date; or

(c) within 30 days after the commencement of this subsection.

Note: For applicable commencement date , see section 775-155.

(3) If you make a choice within 90 days after the first time you issue an *eligible security under the *facility agreement, the choice is taken to have been in effect throughout the period that began immediately before the first time you issued an eligible security under the facility agreement.

(4) If:

(a) you make a choice;

(i) within 90 days after the applicable commencement date; or

(ii) within 30 days after the commencement of this subsection; and

(b) subsection (3) does not apply;

the choice is taken to have been in effect throughout the period that began at whichever is the later of the following times:

(c) the start of the applicable commencement date;

(d) the first time you issued an *eligible security under the *facility agreement.

Note: For applicable commencement date , see section 775-155.

(5) A choice must be in writing.

(6) A choice continues to apply until the *facility agreement ends.

Note: If forex realisation event 7 happens (material variation of facility agreement), subsection 775-220(5) terminates your choice.

(7) A choice may not be revoked.

(8) An *ADI or a *non-ADI financial institution is not entitled to make a choice under this section.

775-200 Forex realisation event 4 does not apply

A *forex realisation gain or a *forex realisation loss you make as a result of forex realisation event 4 is disregarded to the extent to which the event happens because:

(a) you discharge your obligation under an *eligible security issued by you under a *facility agreement; and

(b) you have made a choice for roll-over relief for the facility agreement, and that choice is in effect.

775-205 What is a roll-over ?

A roll-over happens under a *facility agreement if:

(a) you discharge your obligation under an *eligible security issued by you under the agreement (the rolled-over security ); and

(b) at the same time, you issue a new eligible security (the new security ) under the agreement; and

(c) the issue of the new security is related to the discharge of your obligation under the rolled-over security in one of the following ways:

(i) your obligation under the rolled-over security is wholly or partly set-off against your right to receive the *foreign currency issue price of the new security;

(ii) your obligation under the rolled-over security is wholly or partly satisfied by the issue of the new security; and

(d) you have made a choice for roll-over relief for the agreement, and that choice is in effect; and

(e) the new security is issued on or after the applicable commencement date; and

(f) if you have not made an election under section 775-150 - the rolled-over security is issued on or after the applicable commencement date.

Note: For applicable commencement date , see section 775-155.

775-210 Notional loan

(1) The rules in this section have effect only for the purposes of this Subdivision.

Notional loan

(2) If you issue an *eligible security under a *facility agreement otherwise than as a result of a roll-over, you are taken to have been given a loan (the notional loan ):

(a) of a *foreign currency principal amount equal to the foreign currency face value of the security; and

(b) for a period equal to the term of the security; and

(c) that is taken to be attached to the security; and

(d) the start time of which is the time when you issued the security.

Note 1: The period of the notional loan may be extended as the result of a later roll-over - see subsection (3).

Note 2: The notional loan may become attached to a later security as the result of a roll-over - see subsection (3).

Note 3: The foreign currency principal amount of the notional loan may remain the same, or may fall (but not rise), as a result of a later roll-over - see subsection (3).

Note 4: If, at a later time, the security is rolled-over, and the foreign currency face value of the new security exceeds the foreign currency face value of the rolled-over security, you are taken to have been given an additional notional loan of a foreign currency principal amount equal to the excess - see subsection (3).

Effect of roll-over

(3) The table has effect if an *eligible security is rolled-over under a *facility agreement:

Consequences if security is not rolled-over

(4) If:

(a) you discharge your obligation under an *eligible security issued under a *facility agreement; and

(b) the security is not rolled-over at the time of discharge; and

(c) you have made a choice for roll-over relief for the facility agreement, and that choice is in effect;

then, for each notional loan attached to the security, you are taken to have paid a *foreign currency amount equal to the foreign currency principal amount of the notional loan in order to discharge your obligation to pay the foreign currency principal amount of the notional loan.

Foreign currency

(5) For the purposes of the application of this section to a particular *facility agreement that provides for the issue of *eligible securities, foreign currency is the *foreign currency in which the securities are denominated.

Note: Section 960-50 (Australian currency translation rule) does not affect the operation of this section - see subsection 960-50(10). You translate to Australian currency when you apply section 775-215 (forex realisation event 6).

775-215 Discharge of obligation to pay the principal amount of a notional loan under a facility agreement - forex realisation event 6

Forex realisation event 6

(1) Forex realisation event 6 happens if:

(a) you discharge an obligation, or a part of an obligation, to pay the *foreign currency principal amount of a notional loan attached to an *eligible security issued by you under a *facility agreement; and

(b) you have made a choice for roll-over relief for the agreement, and that choice is in effect.

Time of event

(2) The time of the event is when you discharge the obligation or the part of the obligation.

Forex realisation gain

(3) You make a forex realisation gain if:

(a) the amount of the obligation, or the part of the obligation, at the start time of the notional loan, exceeds the amount you paid in order to discharge the obligation or the part of the obligation; and

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

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

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

Forex realisation loss

(4) You make a forex realisation loss if:

(a) the amount of the obligation, or the part of the obligation, at the start time of the notional loan, falls short of the amount you paid in order to discharge the obligation or the part of the obligation; and

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

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

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

Exempt income etc.

(5) For the purposes of the application of sections 775-20, 775-25 and 775-35 to the event, assume that the notional loan had been an actual loan.

775-220 Material variation of a facility agreement - forex realisation event 7

Forex realisation event 7

(1) Forex realisation event 7 happens if:

(a) a material variation is made to the terms or conditions of a *facility agreement; or

(b) a material variation is made to the effect of a facility agreement; or

(c) a material variation is made to the type or types of security that can be issued under a facility agreement;

so long as you have made a choice for roll-over relief for the facility agreement, and that choice is in effect.

Note: See also subsections (7) and (8).

Time of the event

(2) The time of the event is when the material variation happens.

Forex realisation gain

(3) You make a forex realisation gain if:

(a) the total of the forex realisation gains that you would have made as a result of forex realisation event 6 if you had, at the time of forex realisation event 7:

(i) discharged your liabilities under each of the notional loans to which the agreement relates; and

(ii) not rolled-over any *eligible security;

exceeds:

(b) the total of the forex realisation losses that you would have made as a result of forex realisation event 6 if you had, at the time of forex realisation event 7:

(i) discharged your liabilities under each of the notional loans to which the agreement relates; and

(ii) not rolled-over any eligible security.

The amount of the forex realisation gain is the amount of the excess.

Note: See also subsection (9).

Forex realisation loss

(4) You make a forex realisation loss if:

(a) the total of the forex realisation losses that you would have made as a result of forex realisation event 6 if you had, at the time of forex realisation event 7:

(i) discharged your liabilities under each of the notional loans to which the agreement relates; and

(ii) not rolled-over any *eligible security;

exceeds:

(b) the total of the forex realisation gains that you would have made as a result of forex realisation event 6 if you had, at the time of forex realisation event 7:

(i) discharged your liabilities under each of the notional loans to which the agreement relates; and

(ii) not rolled-over any eligible security.

The amount of the forex realisation loss is the amount of the excess.

Note: See also subsection (9).

Termination of choice

(5) If forex realisation event 7 happens in relation to a *facility agreement:

(a) your choice for roll-over relief for the facility agreement ceases to have effect immediately after the event; and

(b) you are not entitled to make a fresh choice for roll-over relief for the facility agreement.

Modification of tax recognition time

(6) If:

(a) forex realisation event 7 happens in relation to a *facility agreement; and

(b) an *eligible security issued by you under the facility agreement was in existence at the time of that event; and

(c) at a later time, forex realisation event 4 happens because you cease to have an obligation, or a part of an obligation, to pay *foreign currency under the security;

section 775-55 applies to you as if the tax recognition time for the obligation, or the part of the obligation, were the time of forex realisation event 7 (despite subsection 775-55(7)).

Material variation

(7) To avoid doubt, if a variation to:

(a) the terms or conditions of a facility agreement; or

(b) the effect of a facility agreement;

results in the agreement ceasing to be a facility agreement, the variation is taken to be a material variation for the purposes of subsection (1).

(8) The regulations may provide that a specified kind of variation is taken to be a material variation for the purposes of subsection (1).

Total amount

(9) To avoid doubt, the total amount referred to in paragraph (3)(b) or (4)(b) may be zero.

Subdivision 775-D - Qualifying forex accounts that pass the limited balance test

Guide to Subdivision 775-D

775-225 What this Subdivision is about

You may elect to have this Subdivision apply to one or more qualifying forex accounts held by you.

If you elect to have this Subdivision apply to an account, a forex realisation gain or a forex realisation loss you make in relation to the account as a result of forex realisation event 2 or 4 is disregarded if the account passes the limited balance test.

For an account to pass the limited balance test, the combined balance of all the accounts covered by your election must not be more than the foreign currency equivalent of $250,000.

The limited balance test includes a buffer provision which allows the combined balance to be more than the foreign currency equivalent of $250,000, but not more than the foreign currency equivalent of $500,000, for not more than 2 15-day periods in any income year.

Table of sections

Operative provisions

775-230 Election to have this Subdivision apply to one or more qualifying forex accounts

775-235 Variation of election

775-240 Withdrawal of election

775-245 When does a qualifying forex account pass the limited balance test ?

775-250 Tax consequences of passing the limited balance test

775-255 Notional realisation when qualifying forex account starts to pass the limited balance test

775-260 Modification of tax recognition time

[This is the end of the Guide.]

Operative provisions

775-230 Election to have this Subdivision apply to one or more qualifying forex accounts

(1) You may elect to have this Subdivision apply to one or more *qualifying forex accounts held by you.

(2) An election must be in writing.

(2A) If:

(a) you make an election within 30 days after the commencement of this subsection; and

(b) the election is expressed to have come into effect on a specified day; and

(c) the specified day is included in the period:

(i) beginning on 1 July 2003; and

(ii) ending on the day on which the election is made;

the election is taken to have come into effect on the specified day.

(3) An election continues in effect, in relation to a particular account, until:

(a) you cease to hold the account; or

(b) the account ceases to be a *qualifying forex account; or

(c) the election is varied by removing the account; or

(d) a withdrawal of the election takes effect;

whichever happens first.

Note 1: For variation of election, see section 775-235.

Note 2: For withdrawal of election, see section 775-240.

(4) If an election made by you under this section is in effect, you are not entitled to make another election under this section.

(5) An *ADI or a *non-ADI financial institution is not entitled to make an election under this section.

775-235 Variation of election

(1) If you have made an election under section 775-230, you may vary your election by:

(a) adding one or more *qualifying forex accounts; or

(b) removing one or more qualifying forex accounts.

(2) A variation must be in writing.

(3) Removing an account does not prevent you from adding the account in a future variation.

775-240 Withdrawal of election

(1) If you have made an election under section 775-230, you may withdraw your election.

(2) A withdrawal must be in writing.

(3) Withdrawing an election does not prevent you from making a fresh election under section 775-230 in relation to any or all of the same accounts.

775-245 When does a qualifying forex account pass the limited balance test ?

Basic rule

(1) For the purposes of this Subdivision, a *qualifying forex account that you hold passes the limited balance test at a particular time if, at that time:

(a) an election made by you under section 775-230 has effect in relation to:

(i) the account; or

(ii) the account and one or more other *qualifying forex accounts; and

(b) the total of the credit balances of the account and each of those other accounts (if any) is not more than the *foreign currency equivalent of $250,000; and

(c) the total of the debit balances of the account and each of those other accounts (if any) is not more than the foreign currency equivalent of $250,000.

Note: For buffering during an increased balance period, see subsections (2) and (3).

Buffering during first and second increased balance period

(2) For the purposes of this section, an increased balance period is a continuous period consisting of:

(a) an income year; or

(b) a particular part of an income year;

where, at each time during the period, either or both of the following conditions is satisfied:

(c) the total of the credit balances of the account or accounts covered by your section 775-230 election is more than the *foreign currency equivalent of $250,000, but not more than the foreign currency equivalent of $500,000;

(d) the total of the debit balances of the account or accounts covered by your section 775-230 election is more than the foreign currency equivalent of $250,000, but not more than the foreign currency equivalent of $500,000.

(3) The table has effect:

Translation of foreign currency

(4) For the purposes of the application of section 960-50 to this section, work out the *foreign currency equivalent of an amount of Australian currency as at a particular time in an income year by translating the foreign currency to Australian currency at the average exchange rate for the third month that preceded the income year.

Debit balances

(5) For the purposes of this section, a debit balance is to be expressed as a positive amount.

Note: For example, if you owe $1,100 on a credit card account, the debit balance of that account is $1,100.

775-250 Tax consequences of passing the limited balance test

(1) A *forex realisation gain or a *forex realisation loss you make as a result of forex realisation event 2 or 4 is disregarded if the event happens in relation to a *qualifying forex account that:

(a) you hold at the time of the event; and

(b) passes the limited balance test at the time of the event.

(2) If CGT event C1 or C2 happens in relation to a *qualifying forex account that:

(a) you hold at the time of the event; and

(b) passes the limited balance test at the time of the event;

disregard so much of any *capital gain or *capital loss you make as a result of the event as is attributable to a *currency exchange rate effect.

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

775-255 Notional realisation when qualifying forex account starts to pass the limited balance test

Credit balance

(1) For the purposes of this Division, if:

(a) you hold a *qualifying forex account; and

(b) at a particular time:

(i) the account starts to pass the limited balance test; and

(ii) the account has a credit balance; and

(iii) you have one or more rights to receive a total amount of *foreign currency represented by the credit balance of the account;

you are treated as:

(c) having ceased to have those rights at that time; and

(d) having re-acquired those rights immediately after that time.

Note: This means that forex realisation event 2 will happen when the account starts to pass the limited balance test.

Debit balance

(2) For the purposes of this Division, if:

(a) you hold a *qualifying forex account; and

(b) at a particular time:

(i) the account starts to pass the limited balance test; and

(ii) the account has a debit balance; and

(iii) you have one or more obligations to pay a total amount of *foreign currency represented by the debit balance of the account;

you are treated as:

(c) having ceased to have those obligations at that time; and

(d) having started to again owe those obligations immediately after that time.

Note: This means that forex realisation event 4 will happen when the account starts to pass the limited balance test.

775-260 Modification of tax recognition time

Forex realisation event 2

(1) If:

(a) forex realisation event 2 happens in relation to a *qualifying forex account that:

(i) you hold at the time of the event; and

(ii) does not pass the limited balance test at the time of the event; and

(b) apart from this subsection, the tax recognition time, worked out using the table in subsection 775-45(7), happened at a time when the account passed the limited balance test;

section 775-45 applies to you as if the tax recognition time were the most recent time before the forex realisation event when the account ceased to pass the limited balance test (despite subsection 775-45(7)).

Forex realisation event 4

(2) If:

(a) forex realisation event 4 happens in relation to a *qualifying forex account that:

(i) you hold at the time of the event; and

(ii) does not pass the limited balance test at the time of the event; and

(b) apart from this subsection, the tax recognition time, worked out using the table in subsection 775-55(7), happened at a time when the account passed the limited balance test;

section 775-55 applies to you as if the tax recognition time were the most recent time before the forex realisation event when the account ceased to pass the limited balance test (despite subsection 775-55(7)).

Subdivision 775-E - Retranslation for qualifying forex accounts

Guide to Subdivision 775-E

775-265 What this Subdivision is about

If you choose retranslation for a qualifying forex account:

(a) a forex realisation gain or a forex realisation loss you make in relation to the account as a result of forex realisation event 2 or 4 is disregarded; and

(b) forex realisation event 8 enables any gains or losses to be worked out on a retranslation basis.

Table of sections

Operative provisions

775-270 You may choose retranslation for a qualifying forex account

775-275 Withdrawal of choice

775-280 Tax consequences of choosing retranslation for an account

775-285 Retranslation of gains and losses relating to a qualifying forex account - forex realisation event 8

[This is the end of the Guide.]

Operative provisions

775-270 You may choose retranslation for a qualifying forex account

(1) You may choose retranslation for a *qualifying forex account held by you.

(2) A choice must be in writing.

(2A) If:

(a) you make a choice within 30 days after the commencement of this subsection; and

(b) the choice is expressed to have come into effect on a specified day; and

(c) the specified day is included in the period:

(i) beginning on 1 July 2003; and

(ii) ending on the day on which the choice is made;

the choice is taken to have come into effect on the specified day.

(3) A choice continues in effect until:

(a) you cease to hold the account; or

(b) the account ceases to be a *qualifying forex account; or

(c) a withdrawal of the choice takes effect;

whichever happens first.

Note: For withdrawal of choice, see section 775-275.

775-275 Withdrawal of choice

(1) If you have made a choice for retranslation for a *qualifying forex account held by you, you may withdraw your choice.

(2) A withdrawal must be in writing.

(3) Withdrawing a choice does not prevent you from making a fresh choice under section 775-270.

775-280 Tax consequences of choosing retranslation for an account

(1) A *forex realisation gain or *forex realisation loss you make as a result of forex realisation event 2 or 4 is disregarded if:

(a) the event happens in relation to a *qualifying forex account that you hold; and

(b) you have made a choice for retranslation for the account; and

(c) the choice is in effect when the event happens.

(2) If:

(a) CGT event C1 or C2 happens in relation to a *qualifying forex account that you hold at the time of the event; and

(b) you have made a choice for retranslation for the account; and

(c) the choice is in effect when the event happens;

disregard so much of any *capital gain or *capital loss you make as a result of the event as is attributable to a *currency exchange rate effect.

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

775-285 Retranslation of gains and losses relating to a qualifying forex account - forex realisation event 8

Forex realisation event 8

(1) Forex realisation event 8 happens if:

(a) you have made a choice for retranslation for a *qualifying forex account held by you; and

(b) that choice was in effect throughout a continuous period (the retranslation period ) consisting of:

(i) an income year; or

(ii) a particular part of an income year; and

(c) either:

(i) there is a positive retranslation amount for the account for the retranslation period (worked out under subsection (2)); or

(ii) there is a negative retranslation amount for the account for the retranslation period (worked out under subsection (3)).

Retranslation amount

(2) If the amount worked out using the formula in subsection (4) is a positive amount, that amount is a positive retranslation amount for the account for the retranslation period.

(3) If the amount worked out using the formula in subsection (4) is a negative amount, that amount is a negative retranslation amount for the account for the retranslation period.

(4) Work out an amount for the account for the retranslation period using the formula:

Closing balance of account for the retranslation period - Opening balance of account for the retranslation period - Total deposits made to account during the retranslation period + Total withdrawals made from account during the retranslation period

(5) For the purposes of subsection (4), a debit balance is to be expressed as a negative amount (for example, a debit balance of $50,000 is to be expressed as - $50,000).

Forex realisation gain

(6) You make a forex realisation gain if there is a positive retranslation amount for the account for the retranslation period. The amount of the forex realisation gain is the positive retranslation amount.

Forex realisation loss

(7) You make a forex realisation loss if there is a negative retranslation amount for the account for the retranslation period. The amount of the forex realisation loss is the negative retranslation amount.

(8) For the purposes of subsection (7), reverse a negative amount (for example, a negative retranslation amount of - $50,000 will become a forex realisation loss of $50,000).

Translation of foreign currency

(9) For the purposes of the application of section 960-50 to this section:

(a) if a retranslation period for an account did not begin immediately after the end of another retranslation period for the account - the opening balance of the account for the first-mentioned retranslation period is to be translated to Australian currency at the exchange rate applicable at the start of the first-mentioned retranslation period; and

(b) if a retranslation period for an account began immediately after the end of another retranslation period for the account - the opening balance of the account for the first-mentioned retranslation period is to be translated to Australian currency at the exchange rate applicable at the end of the other retranslation period; and

(c) the closing balance of an account for a retranslation period is to be translated to Australian currency at the exchange rate applicable at the end of the retranslation period; and

(d) each deposit is to be translated to Australian currency at the exchange rate applicable at the time of the deposit; and

(e) each withdrawal is to be translated to Australian currency at the exchange rate applicable at the time of the withdrawal.

Deposits

(10) For the purposes of this section, a deposit includes any amount paid or transferred into the account.

Withdrawals

(11) For the purposes of this section, a withdrawal includes any amount paid, advanced, drawn or transferred out of the account.