Commonwealth Numbered Acts

TAXATION LAWS AMENDMENT ACT 1987No. 61, 1987 - SECT 9

9. After Division 3A of Part III of the Principal Act the following Division
is inserted:

"Division 3B - Foreign Currency Exchange Gains and Losses Application

"82U. (1) This Division applies in relation to gains and losses only to the
extent to which they are of a capital nature.

"(2) This Division does not apply to a loss incurred by a taxpayer except to
the extent to which, if the loss were not of a capital nature, a deduction
would be allowable to the taxpayer under section 51 in respect of the loss.

"(3) This Division does not apply to a gain made by a taxpayer under a
contract except to the extent to which, if the taxpayer had incurred a loss
under the contract and that loss had not been of a capital nature, a deduction
would have been allowable to the taxpayer under section 51 in respect of the
loss.

"(4) This Division applies according to its tenor in relation to gains made
and losses incurred before or after the commencement of this Division.
Interpretation

"82V. (1) In this Division, unless the contrary intention appears -
'arrangement' means -

   (a)  any agreement, arrangement, understanding, promise or undertaking,
        whether express or implied, and whether or not enforceable, or
        intended to be enforceable, by legal proceedings; and

   (b)  any scheme, plan, proposal, action, course of action or course of
        conduct, whether unilateral or otherwise; 'associate', in relation to
        a taxpayer, has the same meaning as in Part IIIA; 'commencing day'
        means 19 February 1986; 'compensation' includes insurance, indemnity
        and a recoupment or reimbursement of any kind (however described);
        'currency exchange gain' means a gain to the extent to which it is
        attributable to currency exchange rate fluctuations; 'currency
        exchange loss' means a loss to the extent to which it is attributable
        to currency exchange rate fluctuations; 'eligible contract', in
        relation to a taxpayer, means -

   (a)  a contract entered into by the taxpayer on or after the commencing
        day, other than a hedging contract; or

   (b)  a hedging contract entered into by the taxpayer, on or after the
        commencing day, in relation to a contract to which paragraph (a)
        applies; 'hedging contract', in relation to a taxpayer, means a
        contract that is entered into by the taxpayer for the sole purpose of
        eliminating or reducing the risk of adverse financial consequences
        that might result for the taxpayer or an associate of the taxpayer,
        under another contract, from currency exchange rate fluctuations.

"(2) For the purposes of this Division -

   (a)  a currency exchange gain made, or a currency exchange loss incurred,
        in respect of currency purchased under a contract shall be taken to
        have been made or incurred under that contract;

   (b)  a gain shall be taken to have been made, or a loss to have been
        incurred, at the time when it was realised; and

   (c)  a reference to a person acquiring rights or obligations arising under
        a contract is a reference to the person acquiring such rights or
        obligations otherwise than by reason of having entered into the
        contract.

"(3) Subject to sub-section (4), where a taxpayer acquires rights or
obligations arising under a contract, this Division applies in relation to the
taxpayer as if the contract had been entered into by the taxpayer at the time
when, and for the purposes for which, the taxpayer acquired the rights or
obligations.

"(4) Where -

   (a)  a taxpayer acquires rights or obligations arising under a contract
        that was (apart from sub-section (3)) entered into before the
        commencing day; and

   (b)  the Commissioner is satisfied that the rights or obligations were
        acquired under or as a result of an arrangement that was entered into
        or carried out by any person (whether before or after the commencement
        of this Division) for the purpose, or for purposes that included the
        purpose, of ensuring that a deduction would be allowable under this
        Division in respect of a currency exchange loss incurred under the
        contract, sub-section (3) does not apply to the acquisition by the
        taxpayer of the rights or obligations and, if the rights or
        obligations were acquired by the taxpayer under another contract, that
        other contract shall be deemed for the purposes of this Division to
        have been entered into by the taxpayer before the commencing day.
        Application of Division to certain pre-commencement contracts

"82W. (1) Where, on or after the commencing day and under a contract entered
into by a taxpayer before the commencing day, any of the following happens in
relation to the taxpayer (otherwise than pursuant to a contractual obligation
that was binding on the taxpayer before the commencing day):

   (a)  the taxpayer receives loan money;

   (b)  a loan made to the taxpayer is wholly or partly rolled over;

   (c)  the period for which money has been lent to the taxpayer is extended,
        this Division applies as if -

   (d)  where paragraph (a) applies - the loan money had been received by the
        taxpayer under a contract entered into by the taxpayer at the time
        when the loan money was received;

   (e)  where paragraph (b) applies - the loan resulting from the roll-over
        had been made to the taxpayer under a contract entered into by the
        taxpayer at the time of the roll-over; and

   (f)  where paragraph (c) applies - a new loan of the amount outstanding
        immediately before the commencement of the extension period had been
        made to the taxpayer under a contract entered into by the taxpayer at
        the commencement of the extension period.

"(2) Where, on or after the commencing day and under a contract entered into
by a taxpayer before the commencing day, any of the following happens in
relation to the taxpayer (otherwise than pursuant to a contractual obligation
that was binding on the taxpayer before the commencing day):

   (a)  the taxpayer lends money;

   (b)  a loan made by the taxpayer is wholly or partly rolled over; or

   (c)  the period for which money has been lent by the taxpayer is extended,
        this Division applies as if -

   (d)  where paragraph (a) applies - the loan money had been lent by the
        taxpayer under a contract entered into by the taxpayer at the time
        when the money was lent;

   (e)  where paragraph (b) applies - the loan resulting from the roll-over
        had been made by the taxpayer under a contract entered into by the
        taxpayer at the time of the roll-over; and

   (f)  where paragraph (c) applies - a new loan of the amount outstanding
        immediately before the commencement of the extension period had been
        made by the taxpayer under a contract entered into by the taxpayer at
        the commencement of the extension period. Payments in respect of
        unexercised options

"82X. (1) For the purposes of this Division, where -

   (a)  a taxpayer has an option to purchase currency under an eligible
        contract that is a hedging contract; and

   (b)  the option expires without having been exercised, or is cancelled,
        released or abandoned, the following provisions apply:

   (c)  the amount (if any) paid by the taxpayer in respect of the option
        shall be taken to be a currency exchange loss realised by the taxpayer
        under the contract at the time when the option expired, or was
        cancelled, released or abandoned, as the case may be;

   (d)  that loss shall be taken to have accrued during the period from the
        time when the taxpayer acquired the option to the time when the option
        expired, or was cancelled, released or abandoned, as the case may be.

"(2) For the purposes of sub-section (1), where a taxpayer forfeits a deposit
paid in respect of a prospective purchase of currency, being a prospective
purchase that is cancelled or otherwise abandoned -

   (a)  the deposit shall be deemed to have been paid in respect of the grant
        to the taxpayer of an option to purchase that currency; and

   (b)  the option shall be deemed to have expired, without having been
        exercised, at the time when the deposit was forfeited. Gains to be
        included in assessable income

"82Y. The assessable income of a taxpayer of a year of income shall include
any currency exchange gain made by the taxpayer in the year of income under an
eligible contract. Losses to be allowable deductions

"82Z. (1) Subject to this section, a currency exchange loss incurred by a
taxpayer in a year of income under an eligible contract is an allowable
deduction in respect of the year of income.

"(2) A deduction is not allowable to a taxpayer in respect of a currency
exchange loss incurred under a contract unless the taxpayer notifies the
Commissioner in writing of -

   (a)  the entering into of, and the terms of, the contract; and

   (b)  the purpose or purposes for which the taxpayer entered into the
        contract, not later than the later or latest of the following dates:

   (c)  the date of lodgment of the taxpayer's first return under this Act
        after the taxpayer entered into the contract;

   (d)  the date of lodgment of the taxpayer's first return under this Act
        after the commencement of this Division;

   (e)  such later date (if any) as the Commissioner allows.

"(3) Where -

   (a)  a taxpayer has incurred a currency exchange loss under an eligible
        contract (in this sub-section referred to as the 'primary contract');
        and

   (b)  the taxpayer or another person has made a currency exchange gain under
        another contract that would not have been entered into, or might
        reasonably be expected not to have been entered into, if the primary
        contract had not been entered into, a deduction is not allowable, and
        shall be deemed never to have been allowable, to the taxpayer in
        respect of so much of the loss as does not exceed -

   (c)  where the gain was made by the taxpayer or an associate of the
        taxpayer - so much of the gain as has not been, and will not be,
        included in the assessable income of the taxpayer or of the associate;
        or

   (d)  where the currency exchange gain was made by another person, the
        lesser of -

        (i)    the total amount or value of any compensation or other benefit
               received in respect of the loss by the taxpayer or an associate
               of the taxpayer from the other person; or

        (ii)   so much of the gain as has not been, and will not be, included
               in the assessable income of the other person.

"(4) In a case to which sub-section (3) does not apply, a deduction is not
allowable, and shall be deemed never to have been allowable, to a taxpayer in
respect of a currency exchange loss to the extent to which the taxpayer
receives compensation for the loss that is not included in the assessable
income of the taxpayer.

"(5) Where a person other than the taxpayer acquires rights or obligations
arising under a contract, sub-section (3) applies in relation to the person as
if the contract had been entered into by the person for the purposes for which
the person acquired the rights or obligations. Application of Subdivision G of
Division 3 in relation to gains and losses

"82ZA. (1) For the purposes of Subdivision G of Division 3, a currency
exchange loss incurred by a taxpayer under an eligible contract shall be
deemed to be interest incurred by the taxpayer in respect of the period during
which the loss accrued.

"(2) A reference in Subdivision G of Division 3 to a deduction being
allowable, or not being allowable, under section 51 includes a reference to a
deduction being allowable, or not being allowable, under section 82Z.

"(3) Where -

   (a)  a currency exchange gain is made by a taxpayer under an eligible
        contract; and

   (b)  if, instead, a currency exchange loss had been incurred by the
        taxpayer under the contract, the loss would, to a particular extent,
        be rental property loan interest for the purposes of Subdivision G of
        Division 3 by virtue of this section, the gain shall, to the same
        extent, be deemed to be rental property income for the purposes of
        that Subdivision.

"(4) This Division has effect subject to Subdivision G of Division 3 as
Subdivision G of Division 3 applies by virtue of this section. Certain
deductions not allowable

"82ZB. Where -

   (a)  an amount is included in the assessable income of a taxpayer of a year
        of income under this Division;

   (b)  a deduction would, but for this section, be allowable under
        Subdivision A of Division 3 to the taxpayer; and

   (c)  if the amount had not been included in the assessable income, the
        deduction would not be allowable, the deduction is not allowable.".