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.