ATO ID 2004/158: Roll-over relief: multi currency facility agreements
Date of decision: 9 February 2004
Year of income: Year ended 30 June 2004
Business line: Public Groups and International

Issue
Can an agreement to obtain finance in more than one foreign currency be a 'facility agreement' for the purposes of section 775-185 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
No. An agreement which enables finance to be obtained in more than one foreign currency cannot be a 'facility agreement' for the purposes of section 775-185 of the ITAA 1997.

Facts
An entity enters into an agreement with XYZ Bank whereby the entity has the right to issue 90-day discounted bills of exchange with the economic effect of raising US dollars and UK pounds.

Reasons for decision
Summary: Section 775-185 of the ITAA 1997 provides that: 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; From the facts provided, the agreement between the entity and XYZ Bank allows the entity to issue discounted bills of exchange denominated in more than one foreign currency (namely US dollars and UK pounds). For there to be a 'facility agreement', section 775-185 of the ITAA 1997 requires that the economic effect of the agreement enables the relevant entity to obtain finance in 'a particular foreign currency'. In other words, for an agreement to be characterised as a facility agreement, all eligible securities issued under the agreement must have the economic effect of raising funds in the same foreign currency. Therefore, as the agreement enables finance to be obtained in more than one foreign currency, it cannot be a 'facility agreement' within section 775-185 of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 section 775-185
Subject references: Facility agreements Foreign exchange gains and losses