Commonwealth Consolidated Regulations Commonwealth Consolidated Regulations(1) For subsection 775‑145 (2) of the Act, forex realisation event 1 applies to foreign currency, on a weighted average basis, in the circumstances that an election to use a weighted average basis:
(a) has been made in writing; and
(b) complies with subregulation (4); and
(c) has not been withdrawn in accordance with subregulation (6).
(2) For subsection 775‑145 (2) of the Act, both of forex realisation events 1 and 2 apply to a fungible right, or a part of a fungible right, to receive foreign currency, on a weighted average basis, in the circumstances that an election to use a weighted average basis:
(a) has been made in writing; and
(b) complies with subregulation (4); and
(c) has not been withdrawn in accordance with subregulation (6).
(3) For subsection 775‑145 (2) of the Act, forex realisation event 4 applies to a fungible obligation, or a part of a fungible obligation, to pay foreign currency, on a weighted average basis, in the circumstances that an election to use a weighted average basis:
(a) has been made in writing; and
(b) complies with subregulation (4); and
(c) has not been withdrawn in accordance with subregulation (6).
(4) An election complies with this subregulation if it includes:
(a) a commencement date of:
(i) the date on which it is made; or
(ii) if the election is made not later than 90 days after
the day on which the Income Tax Assessment Amendment Regulations 2005
(No. 2) are registered in accordance with the
Legislative Instruments Act 2003 -- the applicable commencement date
mentioned in section 775‑155 of the Act; or
(iii) 1 July 2004; and
(b) a statement that the election is for all of the forex realisation events that are applicable to the fungible thing to which the election relates to apply, on a weighted average basis, to:
(i) all fungible things (other than a fungible thing in relation to which a choice under Subdivision 775‑E of the Act is in effect); or
(ii) 1 or more specified classes of fungible things, other than a fungible thing in relation to which a choice under Subdivision 775‑E of the Act is in effect, in circumstances (explained in the statement) in which the effect of the election would reasonably be expected to be the reduction of the costs of compliance with the income tax law; or
(iii) 1 or more specified fungible things in circumstances (explained in the statement) in which the effect of the election would be consistent with the treatment of those fungible things in the accounting records of the entity making the election, if those records were prepared in accordance with generally accepted accounting principles.
Note The applicable commencement date is explained in section 775‑155 of the Act.
(5) An election that complies with subregulation (4) takes effect in accordance with subregulation (4).
(6) An entity may withdraw an election only if:
(a) it does not appear on reasonable grounds that the election is being withdrawn for a principal purpose of obtaining a tax benefit; and
Note A tax benefit may be an incidental consequence of the withdrawal of an election.
(b) either:
(i) if accounting records in relation to the treatment of fungible things to which the election applies are being kept by the entity and prepared in accordance with generally accepted accounting principles -- the election is being withdrawn because there has been a change to the entity's accounting practices; or
(ii) if:
(A) accounting records in relation to the treatment of
fungible things to which the election applies by the entity are not
being
kept by the entity and prepared
in accordance with generally accepted
accounting principles; and
(B) the election includes the statement mentioned in subparagraph (4) (b) (ii);
there has been a change in the entity's circumstances that makes the statement mentioned in subparagraph (4) (b) (ii) incorrect.
Note A weighted average basis , which is mentioned in section 775‑145 of the Act, is used to allow:
* the cost of a fungible amount; or
* the cost of a part of a fungible amount; or
* in the case of a fungible obligation, or a part of a fungible obligation -- the proceeds of assuming the obligation or the part of the fungible obligation;
at a particular time to be determined by the weighted average cost of the amounts that were previously added to the fungible amount.
Example demonstrating the use of the weighted average basis to a foreign currency bank account
John deposits amounts of US dollars ( US$ ) into his bank account at times T 1 , T 2 , T 3 and T 7 . At times T 4 , T 5 and T 6 , John either withdraws some of the US dollars or draws on the account's credit facility.
In this example, a weighted average calculation is made at the time of each transaction, where applicable. An alternative method would be to make 1 calculation for the entire income year (although this alternative method is not appropriate in this example because the account balance changes from credit to debit). Generally, either method is suitable as long as it is used consistently.
The weighted average cost ( WAC ) of the US$ which John holds from times T 1 to T 7 is shown in the table.
|
Time |
US$ deposit or withdrawal |
Exchange rate |
Exchange rate |
A$ amount |
US$ balance |
A$ |
WAC per US$ |
|
T 1 |
1 000 |
1.3889 |
0.7200 |
1 388.89 |
1 000 |
1 388.89 |
1.3889 |
|
T 2 |
2 500 |
1.4286 |
0.7000 |
3 571.43 |
3 500 |
4 960.32 |
1.4172 |
|
T 3 |
1 750 |
1.3699 |
0.7300 |
2 397.26 |
5 250 |
7 357.58 |
1.4014 |
|
T 4 |
‑2 800 |
1.3333 |
0.7500 |
‑3 733.33 |
2 450 |
3 433.54 |
1.4014 |
|
T 5 |
‑4 000 |
1.2821 |
0.7800 |
‑5 128.21 |
‑1 550 |
‑1 987.18 |
1.2821 |
|
T 6 |
‑1 000 |
1.3158 |
0.7600 |
‑1 315.79 |
‑2 550 |
‑3 302.97 |
1.2953 |
|
T 7 |
1 200 |
1.3699 |
0.7300 |
1 643.84 |
‑1 350 |
‑1 748.63 |
1.2953 |
Note The WAC per US$ does not change upon a withdrawal while (and to the extent that) the account balance remains in credit. Also, when a deposit is made, the WAC per $US does not change while (and to the extent that) the account remains in debit.