ATO ID 2004/472: Foreign Exchange (Forex): timing of translation of foreign income that is non-assessable non-exempt income into Australian currency
Date of decision: 31 May 2004
Year of income: Year ended 30 June 2004
Business line: Public Groups and International

Issue
Where an Australian resident taxpayer derives ordinary income denominated in a foreign currency that is non-assessable non-exempt (NANE) income, when must that NANE income be translated into Australian currency (Australian dollars) under section 960-50 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
The taxpayer must translate the NANE income into Australian dollars at the exchange rate prevailing at the earlier of when the NANE income is derived or received.

Facts
An Australian resident taxpayer derives ordinary income that is denominated in a foreign currency from various sources overseas. That income is also NANE income. The taxpayer accounts for income and deductions on an accruals basis.

Reasons for decision
Summary: As an Australian resident, the taxpayer is assessable on its ordinary income derived from all sources (subsection 6-5(2) of the ITAA 1997). The foreign income derived is income according to ordinary concepts, and is thus ordinary income (subsection 6-5(1) of the ITAA 1997). The Australian resident's income falls within the list of NANE income categories in section 11-55 of the ITAA 1997. Thus the income is ordinary income that is non-assessable non-exempt income (section 6-23 of the ITAA 1997). Subsection 960-50(1) and paragraph 960-50(2)(a) of the ITAA 1997 requires amounts of ordinary income denominated in a foreign currency to be translated into Australian dollars. Item 6 of subsection 960-50(6) requires ordinary income to be translated into Australian dollars at the exchange rate prevailing at the earlier of when the amount is received or when it is derived. As the taxpayer accounts for income on an accruals basis, the taxpayer is required to translate the NANE income into Australian dollars at the exchange rate prevailing at the time it is derived, unless it receives the income prior to this time. If the NANE income is received prior to being derived, it is to be translated into Australian dollars at the exchange rate prevailing at the time it is received.

Legislative references: Income Tax Assessment Act 1997 section 6-5 section 6-23 section 11-55 section 960-50
Subject references: Foreign currency translation Foreign exchange gains and losses