Commissioner's appeal on deductions for foreign currency losses dismissed - Messenger Press
29 Jul 2013
The Full Court of the Federal Court (Jessup, Robertson and Griffiths JJ) has dismissed the Commissioner's appeal from the decision of Perram J in Messenger Press Proprietary Limited v FCT  FCA 756 (17 July 2012).
The taxpayers, who were all members of the News Group (the ultimate holding company of which was The News Corporation Ltd) claimed deductions for currency exchange losses incurred by one of the members of the group, News Publishers Holdings Pty Ltd (NPHP).
The currency exchange losses arose from the repayment by NPHP of foreign currency loans that had been made to it as part of a complex corporate restructure of the group between 1989 and 2002.
The claim for the losses was made under the former Division 3B of Part III of ITAA 1936. A loss of $629,662,666 was claimed in the 2001 income year and a loss of $1,419,051,871 was claimed in the 2002 income year.
Broadly, the repayments were effected by instruments which did not involve "an exchange of cash or coin or of deposit funds held with banks".
The Commissioner submitted that Division 3B was concerned with gains or losses arising from exchanges of foreign currency and that this, in effect, required NPHP to have exchanged a quantity of Australian money for a quantity of foreign money. Whatever was involved in the notion of an exchange of foreign currency, however, it did not include the situation which occurred when a pre-existing book debt denominated in Australian dollars was discharged by the delivery of instruments denominated in one or more foreign currencies which were never presented for payment, or the corresponding reverse transaction.
Perram J rejected this submission.
In his appeal, the Commissioner submitted:
'(a) [Perram J] erred in concluding that a currency exchange loss can be realised (and thus incurred) for the purposes of Division 3B of the ITAA 1936 without an exchange of anything. His Honour ought to have concluded that in order to realise a currency exchange loss it is necessary for there to be a payment or outgoing involving exchanges of foreign and Australian currency.
(b) [Perram J] erred in concluding that a currency exchange loss was realised (and thus incurred) for the purposes of Division 3B of the ITAA 1936 where there was a discharge of one liability and an incurrence of another liability (characterised by his Honour as an “exchange” or “conversion” of liabilities). His Honour ought to have concluded that a currency exchange loss cannot be realised and thus incurred where there is a discharge of one liability and an incurrence of another liability without any exchanges of foreign and Australian currency.'
The Full dismissed the Commissioner's submissions.
Perram J had further held that the losses were "incurred under an eligible contract" as required by s 82Z. The Full Court agreed, dismissing the Commissioner's submissions on this ground of appeal also.
FCT v Messenger Press Proprietary Limited  FCAFC 77 (Full Federal Court, Jessup, Robertson and Griffiths JJ, 25 July 2013).