Contact UsIf an Australian Company purchases product from its US parent and the payment currency is the US Dollar the Australian company will have the foreign currency exposure. How are unrealized gains and losses relating to these intercompany transactions treated from an Australian corporate income tax perspective?
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Fred Rollo
This question has a superficial 'simple' answer, but the correct answer may be much more complex depending upon the circumstances.
The 'simple' answer is that generally, the Australian tax regime will only assess "realised" forex gains and allow deductions for "realised" forex losses. Thus, in most scenarios, unrealised gains/losses are not recognised for tax purposes.
However, where there are "realised" gains/losses, it may become rather more complex-
1. Gains/losses made in the normal course of business (e.g., purchase/sale of trading stock) are treated according to common law principles and treated as being on revenue account (i.e., profits taxed or losses deductible).
2. Gains/losses made in connection with CGT assets will be treated as being on capital account (there are special rules around the tax treatment of capital gains/losses) and dealt with under Division 775 of ITAA 1997, except where-
3. "Financial arrangements" are involved. These so called "TOFA Rules" (Division 230 of ITAA 1997) determine how financing transactions are treated for tax purposes.
The statutory provisions in 2 & 3 above are labyrinthine (some might even say arcane) and require careful consideration involving a detailed consideration of the facts, intent and law involved.
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561 weeks ago
The 'simple' answer is that generally, the Australian tax regime will only assess "realised" forex gains and allow deductions for "realised" forex losses. Thus, in most scenarios, unrealised gains/losses are not recognised for tax purposes.
However, where there are "realised" gains/losses, it may become rather more complex-
1. Gains/losses made in the normal course of business (e.g., purchase/sale of trading stock) are treated according to common law principles and treated as being on revenue account (i.e., profits taxed or losses deductible).
2. Gains/losses made in connection with CGT assets will be treated as being on capital account (there are special rules around the tax treatment of capital gains/losses) and dealt with under Division 775 of ITAA 1997, except where-
3. "Financial arrangements" are involved. These so called "TOFA Rules" (Division 230 of ITAA 1997) determine how financing transactions are treated for tax purposes.
The statutory provisions in 2 & 3 above are labyrinthine (some might even say arcane) and require careful consideration involving a detailed consideration of the facts, intent and law involved.