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Gains on exchange rate taxable?

Gains on exchange rate taxable?

Old Aug 16th 2007, 4:11 am
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Default Gains on exchange rate taxable?

I'm just wondering are the gains you make via currency exchange taxable?
My idea since i have alot of cash, is to exchange back and fourth via euro/aus.My end goal is to have AUD but if i can make some cash out of this it would be nice.Either way i cant see a loss as i'm 50/50 on where to utimately settle europe or Oz.If the exchange rate goes particularly bad for a long time in one direction i will buy my house in which ever location suits my currency at that time, at the moment i cant really lose,sometimes its good to be indecisive .
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Old Aug 16th 2007, 4:19 am
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Default Re: Gains on exchange rate taxable?

Originally Posted by ed_the_lad View Post
I'm just wondering are the gains you make via currency exchange taxable?
My idea since i have alot of cash, is to exchange back and fourth via euro/aus.My end goal is to have AUD but if i can make some cash out of this it would be nice.Either way i cant see a loss as i'm 50/50 on where to utimately settle europe or Oz.If the exchange rate goes particularly bad for a long time in one direction i will buy my house in which ever location suits my currency at that time, at the moment i cant really lose,sometimes its good to be indecisive .
Your intention is to make profit


That makes it taxable
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Old Aug 16th 2007, 4:40 am
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Default Re: Gains on exchange rate taxable?

Yep, you're talking about trading - that's a business.

The likes of OzForex and HIFX are really there for the one-off large transfers, and they make it clear they are not to be used for trading.

Sloshing large liquid funds backwards and forwards to take advantage of the ups and downs of the various currencies relative to each other sounds like a good idea (an FX snowball!), but the transfer people would soon spot what you were up to. You can set up a trading account with other agencies, but I think there's more involved and you're into tax-implication territory.

To have, say, a Euro account somewhere in Europe, use a HIFX account for Euro to OZ transfers, have an OZ account here, use an OzForex account for Oz to Euro transfers, would mean that as far as each of the transfer people were concerned, you're only going in one direction.

But I never told you that.

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Old Aug 16th 2007, 4:48 am
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Default Re: Gains on exchange rate taxable?

And how does it looks in case of loss on the exchange rate.

Let's say I had a 100k in USD the moment I have landed in Oz and become a resident for tax puposes (at that time it was worth 130kAUD) than before the end of tax year I have changed this into AUD and got only 117k.

So can I claim a loss of 13k?
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Old Aug 16th 2007, 4:51 am
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Default Re: Gains on exchange rate taxable?

Originally Posted by Mipik View Post
And how does it looks in case of loss on the exchange rate.

Let's say I had a 100k in USD the moment I have landed in Oz and become a resident for tax puposes (at that time it was worth 130kAUD) than before the end of tax year I have changed this into AUD and got only 117k.

So can I claim a loss of 13k?
I think so, yes. It would be a capital loss you could offset against future capital gains, not a deduction on your tax return.

This has been the topic of heated debate before. At the end of the day you ought to ask a good accountant what the score is, or call the ATO and ask them.

This page is pretty interesting:

http://www.gomatilda.com/news/article.cfm?articleid=327
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Old Aug 16th 2007, 5:00 am
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Default Re: Gains on exchange rate taxable?

Originally Posted by renth View Post
I think so, yes. It would be a capital loss you could offset against future capital gains, not a deduction on your tax return.

This has been the topic of heated debate before. At the end of the day you ought to ask a good accountant what the score is, or call the ATO and ask them.

This page is pretty interesting:

http://www.gomatilda.com/news/article.cfm?articleid=327
Thanks.

This is the interesting part of this article:
3. Mike also has £100,000 following the sale of his home in the UK. He also opens a new interest bearing bank account denominated in UK’s and deposits his funds in that bank account. He also moves to Australia when the exchange rate is £1 = A$2.50.

Like Susan he decides to hang onto his UK£’s because he thinks the UK£-A$ exchange rate will move in his favour over time. Mike sees the exchange rate at £1 = A$2.70 and decides to hang onto his UK£’s because he thinks the exchange rate will move towards A$2.90 to the £. Unfortunately for Mike the exchange rate suddenly moves against him and he eventually decides to buy A$’s when the exchange rate is £1 = A$2.38 => he receives A$238,000.

Mike has therefore realised a loss of A$12,000 on the disposal of his UK£’s, but is pleasantly surprised when he is advised that he can claim the A$12,000 “loss” (the difference between the value of his UK£’s when he arrived in Australia and the value when they are sold) as a deduction against his income for the year in which he sold the UK£’s. As he is paying income tax at 48.5% this means his tax bill has been reduced by over A$5,800.



Sounds a bit too good to be true.
Keeping fingers crossed.
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Old Aug 16th 2007, 5:03 am
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Default Re: Gains on exchange rate taxable?

Originally Posted by Mipik View Post
...but is pleasantly surprised when he is advised that he can claim the A$12,000 “loss” (the difference between the value of his UK£’s when he arrived in Australia and the value when they are sold) as a deduction against his income for the year in which he sold the UK£’s. As he is paying income tax at 48.5% this means his tax bill has been reduced by over A$5,800.
OK, fair play. Just highlights how important it is to get an accountant for this sort of thing.
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Old Aug 16th 2007, 5:24 am
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Smile Re: Gains on exchange rate taxable?

Originally Posted by ed_the_lad View Post
i'm 50/50 on where to utimately settle europe or Oz.

I thought you had a senior Cisco job in Melbourne????

Not enjoying it?

Buzzy
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Old Aug 16th 2007, 5:34 am
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Default Re: Gains on exchange rate taxable?

In the mid to late 90s the US$ was ranging between 1.6 and 1.85 ish to the pound iirc.

Now the HK$ was at that time tied to the US $ and the Sing $ was managed against the US$

I was sending money from HK to UK and UK to Sing as and when.

Didn't actually realise what I was doing but did make a bit of profit out of it.
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Old Aug 16th 2007, 5:35 am
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Default Re: Gains on exchange rate taxable?

Originally Posted by Mipik View Post
Thanks.

This is the interesting part of this article:
3. Mike also has £100,000 following the sale of his home in the UK. He also opens a new interest bearing bank account denominated in UK’s and deposits his funds in that bank account. He also moves to Australia when the exchange rate is £1 = A$2.50.

Like Susan he decides to hang onto his UK£’s because he thinks the UK£-A$ exchange rate will move in his favour over time. Mike sees the exchange rate at £1 = A$2.70 and decides to hang onto his UK£’s because he thinks the exchange rate will move towards A$2.90 to the £. Unfortunately for Mike the exchange rate suddenly moves against him and he eventually decides to buy A$’s when the exchange rate is £1 = A$2.38 => he receives A$238,000.

Mike has therefore realised a loss of A$12,000 on the disposal of his UK£’s, but is pleasantly surprised when he is advised that he can claim the A$12,000 “loss” (the difference between the value of his UK£’s when he arrived in Australia and the value when they are sold) as a deduction against his income for the year in which he sold the UK£’s. As he is paying income tax at 48.5% this means his tax bill has been reduced by over A$5,800.



Sounds a bit too good to be true.
Keeping fingers crossed.

Its wrong because you cannot offset capital losses against income tax. They need to go against future capital profit.

Renth mate you were right first time
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Old Aug 16th 2007, 6:29 am
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Default Re: Gains on exchange rate taxable?

If you go to an accountant about this then it's worth checking out a few and seeing if they agree first. Ask them whether they think Capital Gains rules apply or Foreign Exchange Gains rules apply. If they don't know what you're talking about, don't take them on.

My current position on this is that if the money is transferred from a pre-July-2003 account and you've not done a certain election (which can no longer be made) then any gains are subject to CGT and any losses can be offset against capital gains. If the money comes from a post-July-2003 account then it comes under FGT. This is treated as income and not as a capital gain so losses can be offset against income.

The outstanding question is the ATO's interpretation of what constitutes "transfers of a personal nature" (part of the FGT rules but not CGT). Currently some people have been told that it applies whilst others have been told that it doesn't apply. I intend to get a personal ruling on this sometime soonish.


Last edited by MartinLuther; Aug 16th 2007 at 6:32 am.
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Old Aug 16th 2007, 6:39 am
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Default Re: Gains on exchange rate taxable?

There are an increasing number of Private Ruling extracts appearing on the ATO website on this subject.

For example (re forex losses):
http://www.ato.gov.au/rba/content.as...tent/66456.htm

Note:

"Any Forex realisation loss made when you transferred the balance of your overseas bank account was not a loss of a private and domestic nature since the account was opened with the purpose of earning a greater return than possible elsewhere. Therefore, any such Forex realisation loss made may be deducted from your assessable income in the income year which you transferred the monies."

Best regards.
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Old Aug 16th 2007, 6:42 am
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Default Re: Gains on exchange rate taxable?

Originally Posted by Geelong Gent View Post
Its wrong because you cannot offset capital losses against income tax. They need to go against future capital profit.

Renth mate you were right first time
Have a read of the Ruling mentioned above ... the loss is a forex loss, which is not the same as a capital loss ...

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Old Aug 16th 2007, 6:50 am
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Default Re: Gains on exchange rate taxable?

See also: http://www.ato.gov.au/rba/content.as...tent/65872.htm

This Ruling puts the forex provisions to one side because the bank account (used for personal purposes only) was opened before the commencement of the forex provisions and a transitional election was not prepared.

However, the Ruling confirms that a capital gain can arise on such an account.

Please also recognise that Private Rulings are specific to the taxpayer who applied to the ATO - though I find they provide useful guidance as to how the ATO would interpret a particular matter.

Best regards.
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Old Aug 16th 2007, 7:33 am
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Default Re: Gains on exchange rate taxable?

Originally Posted by Buzzy--Bee View Post
I thought you had a senior Cisco job in Melbourne????

Not enjoying it?

Buzzy
Like any job it has its ups and downs,but its a contract job which started at 3 months and now i have an extension for another 3, so nothing is certain, hence me hedging bets.The main thing thats driving me crazy is the fact i didnt change my cash when i arrived and since then the dollar has gone from strength to strength(apart from the last day or 2), this in turn has lead to accomodation issues and lots of crazy housemates in shared housing.
If the exchange rate holds out i'll change tomorrow, if i can find a house at a reasonable price i'll buy if not i'll become a trader :-) . Anyway Melbourne is great, my job is pretty great, all thats missing is somewhere nice to live while i
try and find a place to buy.
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