Tax Laws Amendment (Taxation of Financial Arrangements) Act 2009 (15 of 2009)

Schedule 1   Amendments

Part 1   Main amendments

Income Tax Assessment Act 1997

6   At the end of Division 775

Add:

Subdivision 775-F - Retranslation under foreign exchange retranslation election under Subdivision 230-D

Guide to Subdivision 775-F

775-290 What this Subdivision is about

If you have made a foreign exchange retranslation election under Subdivision 230-D:

(a) a forex realisation gain or a forex realisation loss you make in relation to an arrangement that is not a Division 230 financial arrangement as a result of forex realisation event 1 to 5 or 8 is disregarded; and

(b) forex realisation event 9 enables any gains or losses to be worked out on a retranslation basis.

Table of sections

775-295 When this Subdivision applies

775-300 Tax consequences of choosing retranslation for arrangement

775-305 Retranslation of gains and losses relating to arrangement to which foreign exchange retranslation election applies - forex realisation event 9

775-310 When election ceases to apply to arrangement

775-315 Balancing adjustment when election ceases to apply to arrangement

775-295 When this Subdivision applies

(1) A *foreign exchange retranslation election applies to an *arrangement for the purposes of this Subdivision if:

(a) you start to have the arrangement after the start of the income year in which the election is made; and

(b) the arrangement is recognised in financial reports of a kind referred to in paragraph 230-255(2)(a) that are audited, or required to be audited, as referred to in paragraph 230-255(2)(b); and

(c) the arrangement is one in relation to which you are required by:

(i) *accounting standard AASB 121 (or another accounting standard prescribed for the purposes of paragraph 230-265(1)(c)); or

(ii) if that standard does not apply to the preparation of the financial report - a comparable accounting standard that applies to the preparation of the financial report under a *foreign law;

to recognise, in the financial reports referred to in paragraph 230-255(1)(a), amounts in profit or loss (if any) that are attributable to changes in currency exchange rates.

(2) The *foreign exchange retranslation election does not apply to an *arrangement for the purposes of this Subdivision if:

(a) the election is made by the *head company of a *consolidated group or *MEC group; and

(b) the election specifies that the election is not to apply to *financial arrangements in relation to *life insurance business carried on by a member of the consolidated group or MEC group; and

(c) the arrangement is one that relates to the life insurance business carried on by a member of the consolidated group or MEC group.

(3) The *foreign exchange retranslation election does not apply to an *arrangement for the purposes of this Subdivision if the arrangement is associated with a business of a kind specified in regulations made for the purposes of subsection 230-270(4).

775-300 Tax consequences of choosing retranslation for arrangement

(1) A *forex realisation gain or *forex realisation loss you make as a result of forex realisation event 1, 2, 3, 4, 5 or 8 is disregarded if:

(a) the event happens in relation to an *arrangement that you hold; and

(b) you have made a *foreign exchange retranslation election that applies to the arrangement; and

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

(2) If:

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

(b) you have made a *foreign exchange retranslation election that applies to the arrangement; and

(c) the election 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.

775-305 Retranslation of gains and losses relating to arrangement to which foreign exchange retranslation election applies - forex realisation event 9

Forex realisation event 9

(1) Forex realisation event 9 happens in relation to an *arrangement during an income year if:

(a) you have made a *foreign exchange retranslation election that applies to the arrangement; and

(b) you are required by:

(i) *accounting standard AASB 121 (or another accounting standard prescribed for the purposes of paragraph 230-265(1)(c)); or

(ii) if that standard does not apply to the preparation of the financial report - a comparable accounting standard that applies to the preparation of the financial report under a *foreign law;

to recognise, in the financial report referred to in paragraph 230-255(1)(a) for that income year, amounts in profit or loss (if any) in relation to the arrangement that are attributable to changes in currency exchange rates.

The forex realisation event 9 is taken to have happened in the income year.

Forex realisation gain

(2) You make a forex realisation gain if the standard referred to in paragraph (1)(b) requires you to recognise an amount in profit in relation to the *arrangement. That amount of the forex realisation gain is the amount the standard requires you to recognise.

Forex realisation loss

(3) You make a forex realisation loss if the *accounting standard referred to in paragraph (1)(b) requires you to recognise an amount in loss in relation to the *arrangement. That amount of the forex realisation loss is the amount that the accounting standard requires you to recognise.

Section does not apply to amounts previously recognised in equity

(4) Subsections (1), (2) and (3) do not apply to amounts that have previously been required by the standards referred to in paragraph 230-255(2)(a) to be recognised in equity.

775-310 When election ceases to apply to arrangement

(1) For the purposes of this Division, a *foreign exchange retranslation election under subsection 230-255(1) ceases to apply to an *arrangement from the start of an income year if the arrangement ceases to satisfy a requirement of paragraph 775-295(1)(b) or (c) during that income year.

(2) If the election ceases to apply to an *arrangement under subsection (1), the election cannot subsequently reapply to that arrangement (even if the requirements of paragraphs 775-295(1)(b) and (c) are satisfied once more in relation to the arrangement).

775-315 Balancing adjustment when election ceases to apply to arrangement

(1) This section applies if:

(a) you make a *foreign exchange retranslation election; and

(b) the election ceases to have effect or ceases to apply to an *arrangement.

(2) You are taken, for the purposes of this Division, to have:

(a) disposed of the *arrangement for its fair value immediately before the election ceases to have effect or ceases to apply to the arrangement; and

(b) reacquired the arrangement at its fair value immediately after the election ceases to have effect or ceases to apply to the arrangement.

Note: Paragraph (a) means that there would be a forex realisation event 9 in relation to the arrangement.