ATO ID 2013/53: Foreign exchange (forex) gains and losses: Commissioner's discretion under paragraph 775-80(3)(c) of the ITAA 1997 to allow a longer period to elect out of the short term rules
Date of decision: 17 September 2013
Year of income: Year ended 30 June 2014
Business line: Public Groups and International

Issue
Can the Commissioner exercise the discretion under paragraph 775-80(3)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow a taxpayer that was not in existence at the start of the applicable commencement date, and that did not come into existence within 90 days after the start of the applicable commencement date, a longer period to choose not to have sections 775-70 and 775-75 of the ITAA 1997 (the short term rules) apply to the taxpayer?

Decision
No. Paragraph 775-80(3)(c) of the ITAA 1997 does not empower the Commissioner to exercise the discretion to allow a longer period for the taxpayer to choose not to have the short term rules apply to it.

Facts
The taxpayer is an Australian resident company. The taxpayer's applicable commencement date, under section 775-155 of the ITAA 1997, is 1 July 2003. The taxpayer was not in existence at the start of the applicable commencement date or within 90 days after the start of the applicable commencement date. The taxpayer does not wish to have sections 775-70 and 775-75 of the ITAA 1997 apply to it.

Reasons for decision
Summary: Sections 775-70 and 775-75 of the ITAA 1997 (the short term rules) are an exception to the general rule under Division 775 of the ITAA 1997 that forex realisation gains are included in assessable income, and forex realisation losses are deductible. Where the short term rules apply, forex realisation gains and losses on the acquisition or disposal of certain CGT assets and depreciating assets are integrated into the tax treatment of, or draw their character from, the asset to which those gains and losses relate. Under subsection 775-80(1) of the ITAA 1997, taxpayers may make a written, irrevocable choice not to have the short term rules apply to them. Subsection 775-80(3) of the ITAA 1997 specifies when the choice under subsection 775-80(1) of the ITAA 1997 must be made. It states: 775-80(3) A choice must be made: (a) if the taxpayer was 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; The longer period mentioned in paragraph 775-80(3)(c) of the ITAA 1997 is a reference to the 90 or 30 day periods of time within which a choice must be made to elect out of the short term rules under subparagraphs 775-80(3)(a)(i) or (ii) and subparagraphs 775-80(3)(b)(i) or (ii) of the ITAA 1997. Those periods apply only in relation to entities that were in existence at the start of the applicable commencement date or that came into existence within 90 days after the start of the applicable commencement date. Under paragraph 775-80(3)(c) of the ITAA 1997, the Commissioner can allow a longer period of time to make the choice than the 90 or 30 day periods prescribed, but only for entities that were in existence at the start of the applicable commencement date or that came into existence within 90 days after the start of the applicable commencement date. Paragraph 775-80(3)(c) of the ITAA 1997 does not allow the Commissioner to modify the substantive law by extending eligibility to make the choice under section 775-80 of the ITAA 1997 to entities that do not otherwise qualify. Paragraph 775-80(3)(c) of the ITAA 1997 does not therefore empower the Commissioner to allow a longer period for a choice to be made for entities that were not in existence at the start of the applicable commencement date or that did not come into existence within 90 days after the start of the applicable commencement date.

Legislative references: Income Tax Assessment Act 1997 Division 775 Section 775-70 Section 775-75 Subsection 775-80(1) Paragraph 775-80(3)(a) Subparagraph 775-80(3)(a)(i) Subparagraph 775-80(3)(a)(ii) Paragraph 775-80(3)(b) Subparagraph 775-80(3)(b)(i) Subparagraph 775-80(3)(b)(ii) Paragraph 775-80(3)(c) Section 775-155
Subject references: Commissioner's discretion Foreign exchange gains and losses Forex realisation gain Forex realisation loss