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Chargeability of profit or loss from foreign exchange differences

Income Tax Act 1947

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—(1) This section applies where a person is a party to a transaction that is or is to be settled in a currency that is different from the functional currency in which the person’s financial statements are kept.(2) Despite the provisions of this Act, for the purpose of sections 10 and 14, any change in the value of any receivable or payable from the transaction that is reflected in the person’s financial statements, being a change arising from movements in the rates of the 2 currencies, is treated as —(a)a gain accruing to the person; or(b)a deductible expense,as the case may be, in the basis period in which the change is recognised as a gain or loss (as the case may be) in the profit and loss account that is part of those financial statements.(3) To avoid doubt, subsection (2) —(a)applies whether or not the gain or loss is realised; and(b)does not apply to a transaction the gain or loss from which is capital in nature.(4) Subsection (2) does not apply to a transaction to which section 34A or 34AA applies.(5) This section does not apply to a person who made an election to the Comptroller, at the time of lodgment of the person’s return of income for the year of assessment 2004, for any of the person’s recognised gains or losses mentioned in subsection (2) that were unrealised, not to be treated as the person’s gain or loss for that year of assessment and every subsequent year of assessment, for the purposes of this Act.(6) However, the person mentioned in subsection (5) may in the person’s return of income for any year of assessment, make an irrevocable election to the Comptroller to be subject to this section, and, if the election is approved by the Comptroller, this section applies to that person for that year of assessment and every subsequent year of assessment.

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