ATO ID 2014/32: Is a term deposit a qualifying forex account?
Date of decision: 1 October 2014
Year of income: Year ended 30 June 2004
Business line: Private Groups and High Wealth Individuals

Issue
Is a term deposit account a qualifying forex account for the purposes of Division 775 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
No. A term deposit is not a qualifying forex account for the purposes of Division 775 of the ITAA 1997.

Facts
The taxpayer is an Australian resident for income tax purposes. The taxpayer opened a term deposit account on 17 December 2003 in New Zealand with a New Zealand bank. The account is denominated in New Zealand currency. The taxpayer deposited NZD20,000 into the account for a period of six months at an interest rate of 3%. Under the terms of the account with the bank, the money cannot be withdrawn within the six months without incurring a financial penalty.

Reasons for decision
Summary: A 'qualifying forex account' means an account that is denominated in a particular foreign currency and either has the primary purpose of facilitating transactions or is a credit card account (subsection 995-1(1) of the ITAA 1997). The taxpayer's account is denominated in a foreign currency (New Zealand currency), and is maintained in a foreign country with a New Zealand bank. However, it is not a credit card account and does not have the primary purpose of facilitating transactions. The primary purpose of the account is to hold the taxpayer's money with the bank as an investment for a period of time and not to facilitate transactions. Therefore, the account is not a qualifying forex account under Division 775 of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 subsection 995-1(1) Subdivision 775-D Subdivision 775-E
Related public rulings and determinations: ATO ID 2004/156 (Withdrawn)
Subject references: Foreign exchange gains and losses Qualifying forex account