Private ruling: Foreign exchange losses and fringe benefits tax
Published: January 2013
Ruling period: Year ended 30 June 2012.
Date scheme commenced: 1 January 2006.

Ruling: Q1: Can you claim the loss that arose as a result of converting another currency into Australian dollars (AUD)? | A1: Yes.

Relevant facts and circumstances: You purchased employee shares as part of a leverage plan. The shares were in a company based outside Australia. The shares were required to be held for a number of years. At the completion of the period you could request your money back at no loss. Your original investment was returned to you at no loss. The conversion of the investment amount from the other currency to AUD led to a loss. The local branch of the company also advised you that the employee was required to pay any FBT associated with the purchase of the shares. You paid FBT; this was paid in addition to the cost of the investment.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 775-30, | Income Tax Assessment Act 1997 Section 775-45, | Income Tax Assessment Act 1997 Section 775-105 | Income Tax Assessment Act 1997 Section 8-1 and | Taxation Administration Act 1953 Section 359-35 .

Reasons for decision: Summary: Foreign exchange losses made on repayment or conversions of your foreign currency are deductible. | Detailed Reasoning - Detailed reasoning: Forex gains or losses from 1July 2003 are covered by Division 775 of the Income Tax Assessment Act 1997 (ITAA 1997). The general principle is that foreign currency gains or losses have a revenue character rather than a capital nature. Foreign currency gains or losses are assessable or deductible when they are realised if they occur as result of a forex realisation event (FRE). They are realised when an FRE happens. There are five forex realisation events listed between sections 775-40 and 775-60 of the ITAA 1997. A withdrawal from a foreign currency denominated bank account that has a credit balance will result in the occurrence of FRE2 in relation to the amount of the foreign currency withdrawn. In this circumstance there will be a cessation of the right to receive the foreign currency that has been withdrawn from the bank with which the account is held. You would make a forex realisation gain if the foreign currency at the time of the withdrawal was worth more Australian dollars than it was worth when the deposit was made. You would make a forex realisation loss if the foreign currency at the time of withdrawal was worth fewer Australian dollars than it was worth when the deposit was made. The forex realisation loss is the amount of the loss which is attributable to a currency exchange rate effect. The amount of the loss attributable to a currency exchange rate effect is an allowable deduction to the entity under subsection 775-30(1) of the ITAA 1997. An entity will make a forex realisation loss from FRE2 where there is a loss from the event and some or all of that loss is attributable to a currency exchange rate effect (subsection 775-45(4)) and will make a forex realisation gain where there is a gain from the event and some or all of that gain is attributable to currency exchange rate effect. In your situation, you made a forex realisation loss from the transfer of foreign funds into Australian dollars, the loss made at the time of conversion will be considered a forex loss. As such, any loss should be declared at Item at Item D15 of the Tax return for Individuals (supplementary section) Other deductions.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.