renth

Anyone with "non standard" tax affairs be they self employed, multiple property owners, people wil assets abroad needs to make sure they've a good accountant to handle their tax affairs.

Trying to argue the finer points of tax law here is a waste of time. If you want to know the real deal then for God's sake get in touch with Alan or someone like him and ask him to be your accountant.

The best thing is management of your tax affairs is tax deductable the following year! That's a bargain in anyone's book.

Alan Collett

With due deference to Renth (comments acknowledged!), I have just had a telephone conversation with the ATO. In response to my questions I was advised that:

1. Foreign currency (such as GBP's) is a CGT Asset.

2. If a an Australian tax resident retains GBP's in anticipation of an improvement of the exchange rate and a gain does arise on the disposal of those funds (eg if A$'s are bought) a CGT Event happens.

This means a capital gain (or loss) is to be accounted for.

I didn't enter into discussions regarding the application of the forex provisions. I mentioned the "private or domestic issue" aspects, but these were not taken by the ATO officer.

I also discussed the Private Ruling mentioned above with the ATO officer, and was advised the ATO Interpretative Decisions 2003/551 and 2003/803 were relied upon - you can search for these on the Legal Database at the ATO website.

As there is a difference of opinion I'm not sure what more I can usefully add - I think I've done all I can on a discussion forum, which probably takes us back to Renth's comments ...

Best regards.

Nogo

Has anyone actually paid tax on transferring gbp to $A?

I can’t think I would use Alan with his distorted view of this

I think I would use an accountant who supports the ATO view that no tax is due if forex gains are of a personal nature. Mine does and the ATO confirm this.

I think Alan is going out of his way to try to prove that tax is due and ignoring the fact that “of a personal nature” is the key to what the ATO say about it. Just read the straightforward taxpac which also confirms this.

Alan Collett

Excuse me ... "distorted"?

I have no axe to grind. I give you an opinion based on the research I have done (including my discussions with the ATO), and my understanding of the tax law. Has your accountant read the Ruling I have referred to?

If so, on what basis does s/he reach the conclusion that no assessable gain arises? I maintain that if you retain GBP's in anticipation of realising more in A$ terms and that outcome does indeed eventuate that scenario is no different to owning shares or other investments which appreciate in value - I doubt there would be many who would contend that gains arising on such investments are not subject to capital gains tax.

And I again ask you to note that the ATO confirmed this interpretation when I discussed the matter with them this morning.

I appreciate you may want to use an accountant that tells you what you want to hear, but its you who will be picking up the consequences if the ATO sees things differently in years to come.

Best regards.

Alan Collett

PS. I don't assist with the preparation of personal Tax Returns ... hence the point about "no axe to grind" ...

Wol

Is it possible that there is here a misunderstanding of the nature of the Forex legislation?

As I see it the CGT and Forex affairs are completely different. One deals with events and the other with some notional change in wealth - do I have it wrong?

MartinLuther

This is interesting. It appears that although a CGT event occurred in this case, there was no tax implication as the bank account had been opened prior to 20/9/85. I assume this date was when Aus introduced CGT.

So not all CGT events (where there is a gain) results in a tax liability. I guess it is worth investigating (with a personal ruling) whether the "personal nature" clause can be used to disregard a CGT event.

jumbo

Alan

I had thought you wanted this one to rest.

However if someone delays transferring cash or moves it gradually like myself they are more likely to be waiting not to so much to make again but to avoid a loss – which is my position.

This is the scenario that I put to the ATO 5 times – different taxation officers and also raised the issue of capital gains and received the same advice that there were no tax consequences about the transfers. Some of the 5 referred upwards to double check their answers when I challenged them.

Should I believe the ATO or you?

I suggest you phone again without leading them on holding capital for future gain or quoting tax ruling at them.

Regards

Nogo

Yes I agree that it would seem that Alan steered his ATO respondent to the answer he wanted. They can hardly dispute what is in a tax ruling and I guess Alan has researched them more than most ATO officers.

I agree that he should ask the question as an ordinary migrant who wants to know if he should pay tax on any transfer gains rather than ask leading questions. We all know to be careful with the ATO responses but this is written clearly in the 2005 taxpac. So any one not declaring such a gain has the ATOs own guidance to support them.

marco121068

Jumbo - just out of interest...what do you mean by 'to avoid a loss?'

tweed

The ATO says that there would be no tax consequences for transferring your own personal cash unless you bought say A$ then resold back to £gbp (or vice versa) and made a gain or loss.

Regards

MartinLuther

This thread actually prompted me to get a private ruling with regards to the one and only transfer of money I made when I first arrived. The transfer was made about 3 weeks after arrival when I had got things settled.

The outcome is that the gain I made was subject to CGT (it came under the old rules). If it had come under new rules then it would have been subjected to Foreign Gains Tax. The main difference is the age of the bank account out of which the money came (either pre or post 2003). (You could also get assessed under new rules if you had made a certain election prior to 16th Jan 2004.) The amount of tax paid would have been the same under both sets of rules.

The important bit was the answer to my questions regarding the "private nature" of the transfer. The transfer is not regarded to be of a private nature even though I was not in the "business" of exchanging money. UK bank accounts are treated as assets (with a nominal $ value) when you arrive and as an asset is subject to either CGT or FGT if you make a gain when you actually transfer the money. Forex gains of a private nature (which are tax free) cover situations like holiday travel money or business travel expense money (e.g. someone changes $1000 and gets £400, they spend £200 and when they change the remainder back they get $600 making a profit of $100).

I hope this helps.
Regards

tweed

Hi

The odd thing is that this is not what the ATO are telling me and others who have posted on this. Is it possible that you could send me a PM of relevant copy of your ruling or references to what they say about "of a private nature"

Cheers

MartinLuther

I only just got the ruling so it won't be posted on the ATO site yet.

I'll be a bit busy tomorrow but I'll send a PM when I can.

Regards

MartinLuther

Hi Tweed - I thought I would post here rather than a PM to keep others in the loop.

As I said before I only just got the PR and I think it'll be 28 days before the abridged version is published on the ATO site. During the process my original question got modified and the "private nature" bit won't appear in the published version. However this is how the story went.

I submitted a PR along the following lines.


Is my Forex gain of a private nature and therefore not assessable?

My wife and I arrived in Australia on the xx/xx/xx as Permanent Residents and have been tax resident from that date. Approximately 3 weeks after our arrival we managed to transfer our money from the UK bank account to our Australian bank account via an exchange company called XXXX. There was a number of reasons for the delay in moving our money across including; activating our Australian Bank Account, establishing a base, starting an internet connection service, arranging the deal, convincing the UK bank to move the money to our exchange provider and finding a suitable print and fax service for signed documents.

During the 3 weeks between our arrival and the exchange of money the exchange rate moved in our favour. I highlighted this to my accountant and he included the gain on our tax-returns as CGT because the money had come from a UK bank account established circa 1995. I have since noticed in the tax-pack for 2003-2004 that: Forex gains are generally to be included as assessable income, but some exceptions apply. For example, forex gains of a private nature, or in relation to exempt income, are not assessable”. I believe that our transfer was of a private nature.

Your Opinion (i.e. my opinion)
I believe that our transfer was of a private nature because it was the single transfer of our UK money to Australia following our arrival. Under the rules given in the Tax-Pack (NAT2677 Income-04) Page 22 this gain should not be assessable.


The process took about 2 months and by the end my question had modified into the following 2 questions:


Are you assessable on a Forex realisation gain you made transferring money between your UK and Australian bank accounts?

No

Can you disregard the capital gain you made transferring money between your UK and Australian bank accounts?

No


I contacted the case officer about the ruling because it did not specifically address my question with regards to the "private nature" of the transfer. Her position was that the UK bank account was treated as an asset and was not treated as "of a private nature" even though I was not in the business of money exchange.

I asked whether I could have claimed the "private nature" aspect if my transfer had been considered an FGT. She said it would not have made a difference.

I asked for examples where the "private nature" aspect would apply and she gave me example of business expenses and foreign travel.

The relevant provisions provided are:
Income Tax Assessment Act 1997 Subsection 775-165(2)
Income Tax Assessment Act 1997 Section 775-155
Income Tax Assessment Act 1997 Section 775-150
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 108-5
Income Tax Assessment Act 1997 Section 104-25
Income Tax Assessment Act 1997 Subsection 104-25(3)
Income Tax Assessment Act 1997 Subsection 960-50(6)
Income Tax Assessment Act 1997 Section 112-30
Income Tax Assessment Act 1997 Subsection 112-30(3)

I can appeal but I've decided not to proceed unless I can get some substantial evidence otherwise.

With regard to your statement that other people have been advised differently by the ATO - I would be interested to find out if any of that advice had been given through a PR? I know from my experience with the Inland Revenue that the advice given on a informal query can be wrong. (Fortunately I had the advice in writing and was able to use this as a "Get out of Jail Free Card" later on - figuratively speaking.) I accept that the lady at the ATO may have also made a mistake but she has been working on it for the last 2 months and is more likely to be right than someone who has responded to an informal query.

However, if anyone can supply a strong case for the "private nature" aspect then I would be prepared to go back and challenge the PR.

Regards