Private ruling: Forex realisation event 4
Date of advice: 20 November 2018
Published: February 2019
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Did forex realisation event 4 happen pursuant to section 775-55 of the Income Tax Assessment Act 1997 when the overseas currency loans were refinanced to Australian currency loans? | A1: Yes. Section 755-55 of the Income Tax Assessment Act 1997 (ITAA 1997) states that forex realisation event 4 occurs when an entity ceases to have an obligation to pay foreign currency. In your case you have ceased to have an obligation to pay foreign currency. You incurred the obligation in return for receiving an amount of Australian or foreign currency (per subparagraph 755-55(1)(b)(ix) of the ITAA 1997). Subsection 775-55(2) of the ITAA 1997 states: “The time of the event is when you cease to have the obligation or the part of the obligation.” Therefore, the refinancing of the overseas currency loans back to Australian currency loans caused forex realisation event 4 to happen during the year ended 30 June 20XX. | Q2: Are you entitled to a deduction based on your proportionate ownership in each property to which the loans relate? | A2: Yes. Subsection 775-55(5) of the ITAA 1997 states that you make a forex realisation loss if the amount you paid in respect of the event happening exceeds the proceeds (worked out at the tax recognition time) of assuming the obligation or part of the obligation and some or all of the excess is attributable to a currency exchange rate effect. The amount of the forex realisation loss is so much of the excess as is attributable to a currency exchange rate effect. Section 775-30 of the ITAA 1997 provides a deduction for forex realisation losses. There are exceptions from the deduction being claimed including, where the loss is of a private or domestic nature (subsection 775-30(2) of the ITAA 1997), where it is made in the gaining or producing of exempt income or non-assessable non-exempt income (section 775-35 of the ITAA 1997), or on some short term forex realisation losses (section 775-75 of the ITAA 1997). In your case the forex realisation event loss is not disallowed by these provisions. Therefore, the resulting losses incurred due to exchange movements are deductible to you under section 775-30 of the ITAA 1997 in proportion to your ownership interest in the property to which the loans relate.

Relevant facts and circumstances: You acquired an investment property as a tenant in common At all times the property has been rented and/or available for rent The acquisition of the property was financed with two separate interest-only loan facilities in Australian currency Both of the loans were refinanced into an overseas currency using interest only loan facilities The overseas currency loans were refinanced back to Australian currency loans during the financial year. Due to exchange movements, losses were realised when the loans were converted.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 775-30 | Income Tax Assessment Act 1997 Subsection 775-30(2) | Income Tax Assessment Act 1997 Section 775-35 | Income Tax Assessment Act 1997 Subsection 755-55 | Income Tax Assessment Act 1997 Subparagraph 755-55(1)(b)(ix) | Income Tax Assessment Act 1997 Subsection 775-55(2) | Income Tax Assessment Act 1997 Section 775-75