Contact: Gavin Clancy
Deloitte
Communications Manager
+61 3 9208 7759

Contact: Sally Morton
Deloitte
Tax Partner
61-2-9322 7511

New rules for the taxation of foreign exchange gains and losses could trap the assets of inbound expatriates working in Australia, according to Deloitte.

The new rules, in amended legislation passed by Federal Parliament in early December, are designed for the taxation of forex gains and losses recorded by corporate entities.

But Deloitte says the rules also apply to residents with overseas financial assets, with major implications for overseas executives and professionals working in Australia.

Deloitte Tax partner Sally Morton said that under the new rules, realisation of gains and losses would occur whenever currency was used, debts were repaid or when contracts were terminated.

She said the new rules would impact on resident individuals who:

• Hold foreign currency denominated bank accounts or credit card accounts;

• Have loans or debts denominated in foreign currencies;

• Hold investments producing foreign income, or otherwise derive foreign income;

• Incur expenditure in foreign currencies or

• Undertake transactions such as the purchase or sale of assets in foreign currencies.

Ms Morton said the main exclusion from the provisions was that they do not apply to foreign exchange gains or losses of a private or domestic nature.

“However if an account or loan is used for income-producing purposes – even an investment account or a mortgage on rental property – then the transaction will fall within the rules,” Ms Morton said.

Ms Morton said taxpayers can elect to apply an exception for determining forex gains and losses arising in respect of certain foreign currency denominated bank accounts or credit card accounts.

The election can be made for multiple accounts, provided that the total balance of all the accounts for which the exception is chosen is not more than A$250,000.

For this purpose, the A$250,000 limit is calculated separately for debit and credit balance accounts.

Ms Morton said taxpayers would need to consider making an election by 16 January for the exception to apply to their foreign accounts. Taxpayers who make an election by that date can choose to apply the exception from 1 July 2003 or a later date.

Without the election, taxpayers may be required to calculate forex gains and losses in respect of every deposit into or withdrawal from a foreign currency bank or loan account. In each case, the gain or loss will be calculated using the prevailing spot rate on the date of the transaction.