Private ruling: Taxation of financial arrangements - hedging financial arrangements method
Date of advice: 14 October 2021
Published: January 2022
Ruling period: Income year ended 30 June 2021 | Income year ended 30 June 2022 | Income year ended 30 June 2023
Date scheme commenced: 1 July 2020

Ruling: Q1: Did Fund X meet the requirements in section 230-315 of the Income Tax Assessment Act 1997 (ITAA 1997) to be eligible to make the hedging financial arrangement election? | A1: Yes | Q2: Do the FX forwards meet the definition of a "hedging financial arrangement" as set out in section 230-335 of the ITAA 1997? | A2: Yes | Q3: Will Fund X satisfy the record keeping requirements in section 230-355 of the ITAA 1997 in respect of the hedging financial arrangements? | A3: Yes | Q4: Will Fund X's basis for allocation of gains and losses arising from the FX forwards to the income years in which there is a CGT event (being a redemption or disposal) or Distribution Event in respect of the shares in Fund Y meet the requirements set out in subsection 230-360(2) of the ITAA 1997? | A6: Yes

Relevant facts and circumstances: The taxpayer applied for a private ruling on the tax consequences pursuant to Division 230 of the Income Tax Assessment Act 1997 in respect of the taxpayer's hedging financial arrangements involving the use of FX forwards.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 230-45(1) | Income Tax Assessment Act 1997 subsection 230-45(2) | Income Tax Assessment Act 1997 subsection 230-310(4) | Income Tax Assessment Act 1997 section 230-315 | Income Tax Assessment Act 1997 section 230-335 | Income Tax Assessment Act 1997 section 230-350 | Income Tax Assessment Act 1997 section 230-355 | Income Tax Assessment Act 1997 subsection 230-360(2) | Income Tax Assessment Act 1997 subsection 974-160(1) | Income Tax Assessment Act 1997 section 995-1


Question 5(a): Will the gains or losses arising from the FX forwards be treated as capital gains or capital losses from a CGT event to the extent that such gains or losses are reasonably attributable to the "hedged item CGT event" (being the redemption or disposal of shares in Fund Y) as required by item 1 of the table in subsection 230-310(4) of the ITAA 1997? | Question 5(b): Will the gains or losses arising from the FX forwards be treated as revenue gains or revenue losses from a source out of Australia to the extent that such gains or losses are reasonably attributable to the "ordinary income from a source out of Australia" (being a Distribution Event in respect of Fund Y) as required by item 8 of the table in subsection 230-310(4) of the ITAA 1997?