Farmer - reveal all, and I may change my mind!

Best regards.

PS. Remember that I have dealt with the tax and immigration authorities for many a year now, and unless they can be bound by an opinion (usually expressed in writing) I tend to take what they say verbally or informally with a pinch of salt ... particularly in an area such as this where (in my view - for the present at least) there is no specific published guidance on what constitutes a "private nature" forex gain or loss.

This said, please don't think I'm not receptive to hearing your experiences.

PPS. Did the opinion which you obtained (Farmer) say a forex gain in the hands of a migrant isn't assessable because it is private in nature?

If so, did the opinion say WHY it is private in nature, and on what basis such a gain would be considered to be private in nature? Is there any reference to underlying case law or legislation?

quote:

Originally posted by Alan Collett:
PPS. Did the opinion which you obtained (Farmer) say a forex gain in the hands of a migrant isn't assessable because it is private in nature?

If so, did the opinion say WHY it is private in nature, and on what basis such a gain would be considered to be private in nature? Is there any reference to underlying case law or legislation?

The advice has lots of boiler plate and refers to different parts of the legislation but does not define “of a private or domestic nature”. It would seem to me to be difficult to define beyond what the ATO have already told me except by listing what it does not cover and which is therefore taxable.

Regards

From what I am hearing from you (Farmer) and others anecdotally it seems likely that the ATO's approach in this area is similar to the 6 month "window" that applies in the area of pension transfers - the exemption from applying the strict letter of the legislation isn't actually provided for in the legislation (so far as I know), but ATO policy is nevertheless to allow an exemption.

In other words, even though there doesn't seem to be anything one could rely on in the event one is challenged by the ATO, the tax office practice would seem to be to allow individual taxpayers to ignore forex gains and losses.

Nevertheless I think we should continue to press for an ATO statement in this area, to obtain clarity on which we can all rely.

Best regards.

Alan,

Having taken another long look at all the documentation I have come to the conclusion that as far as the new legislation in 775 is concerned there is an exemption from forex transactions of a private nature and that this was always the intention of the law.

However, when they introduced section 775 they did not do anything to tidy up the CGT legislation so that foreign currency even in private hands is still regarded as a CGT asset and thus any gain on currency could be deemed assessable under CGT.

Remember that a forex gain under 775 is regarded as revenue whereas previously a gain on currency would have come under CGT.

It may well be that the ATO recognise that they have screwed up but do not wish to do so publically which is why they are prepared to give private rulings following the intention of the law.

This is not satisfactory and the ATO needs to come clean.

quote:

Originally posted by Paddy:
Alan,

Having taken another long look at all the documentation I have come to the conclusion that as far as the new legislation in 775 is concerned there is an exemption from forex transactions of a private nature and that this was always the intention of the law.

However, when they introduced section 775 they did not do anything to tidy up the CGT legislation so that foreign currency even in private hands is still regarded as a CGT asset and thus any gain on currency could be deemed assessable under CGT.

Remember that a forex gain under 775 is regarded as revenue whereas previously a gain on currency would have come under CGT.

It may well be that the ATO recognise that they have screwed up but do not wish to do so publically which is why they are prepared to give private rulings following the intention of the law.

This is not satisfactory and the ATO needs to come clean.

In the end it seems to come down to when you opened the bank account from which the transfer was made. I am fortunate that although I have made dozens of transfers they have all been from accounts opened before 1985 or after July 2003. Hence any gains are exempt from both forex rules and cgt.

Regards

quote:

I am fortunate that although I have made dozens of transfers they have all been from accounts opened before 1985 or after July 2003. Hence any gains are exempt from both forex rules and cgt.

I have been looking at the ATO Interpretive Decisions and also the ATO Private Rulings and they seem pretty consistent on these questions, with one exception (see below).
It seems to me that, in the context of a migrant to Australia (who is or will become a permanent resident) who wishes to retain money in a foreign currency account (for example sterling) with a view to converting it to Australian dollars when the exchange rate is better, the relevance of the dates when the accounts were opened is as follows:-

Accounts opened on or after 19 February 1986 but before 1 July 2003
Due to an unexpected result of legislative drafting, currency fluctuations on these accounts will not be assessable to tax under the forex provisions - see ATO ID 2004/855. However the conversion to Australian dollars and transfer out will be a CGT event C2, and any gain by reason of the currency changes will be subject to CGT at that time. However if the money was in the account for more than 12 months it will benefit from the 50% discount. See ATO Private Rulings 10661, 65872 and 74083.

Accounts opened on or after 20 September 1985 but before 19 February 1986
Currency fluctuations on these accounts will be assessable to tax under the forex provisions in so far as they arise from funds deposited on or after 1 July 2003 - see ATO ID 2006/320. Because of this, no CGT applies - sections 775-15(4) and 775-30(4) of the Income Tax Assessment Act 1997 giving relief from double taxation.

Accounts opened before 20 September 1985
Currency fluctuations on these accounts will be assessable to tax under the forex provisions in so far as they arise from funds deposited on or after 1 July 2003 - see ATO ID 2006/320. Seemingly no CGT applies because the "asset" existed prior to CGT coming into effect - see ATO Private Ruling 58675. But in any case CGT would not apply because the forex provisions apply.

Note that it is possible to nominate accounts to hold no more than A$250,000 (the "limited balance" test) and exclude them from both the forex and CGT regimes.

Also according to Private Ruling 77649, foreign currency is a "personal use" asset and so if the amount of foreign currency is $10,000 or less, any gains arising from currency fluctuation would be disregarded for CGT purposes.

As the discussion on this thread mentions, in most circumstances the forex rules do not apply to gains "of a private or domestic nature" - section 775-15(2). In my research to date I have not found any definitive rulings or decisions explaining this provision. There was a reference to this in Private Ruling 58675, however in my opinion that ruling cannot be relied on. Its findings on the forex rules are not consistent with other rulings in particular with the ATO Interpretive Decision 2006/320. And the reference to the gain being of a private or domestic nature was not required for the determination which was made in that Private Ruling.

You should appreciate that if you rely on the above you do so at your own risk.

Thanks for your very helpful post, jorgon.

This Private Ruling is also useful:
http://www.ato.gov.au/rba/cont...BA/Content/92415.htm

In particular, note this comment in the context of whether the forex loss was of a "private or domestic nature":

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.

The intention or purpose of retaining non-A$ monies in a bank account when a tax resident of Australia would therefore seem to be a key factor.

Remember also that a Private Ruling is specific to the taxpayer that applied for it, so may not have general application. This said, they are a useful indication of ATO thinking on various subject matters.

Best regards.