• Service: Tax, Corporate Tax
  • Type: Business and industry issue, Regulatory update
  • Date: 25/06/2013

Tax Insights

KPMG's analysis of tax issues and developments.

Grant Wardell-Johnson

Grant Wardell-Johnson
Leader, Australian Tax Centre

+61 2 9335 7128

Foreign exchange gains and losses 

by Grant Wardell-Johnson, Australian Tax Centre

The taxation of foreign exchange gains and losses is governed largely by two divisions. For most large taxpayers, Division 775, will apply to foreign exchange gains and losses in relation to tangible assets whereas Division 230, commonly referred to as the TOFA regime, will apply to financial arrangements.

Division 775 is a complex division, the nuances of which are sometimes ignored. It provides a number of elections and opportunities to integrate or conflate certain foreign exchange gains and losses into a capital gains tax calculation or the calculation of the depreciable cost base of an asset. It also provides opportunities for compliance savings through the use of certain qualifying foreign exchange accounts.


It also has its pitfalls and for large capital acquisitions in particular, it is worth going through the specifics of the provisions to ensure that the foreign exchange treatment is correct. There are particular issues in relation to trading stock and depreciable assets which do not always produce the correct economic result.


Simply backing out unrealised gains and losses and putting through realised ones may seem to be an easy part of the tax system. In truth, it hides much complexity.


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