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18 Jul 12 Deductions for currency losses allowed - Messenger Press

The Federal Court (Perram J) has allowed the taxpayers, all members of the News Group (the ultimate holding company of which was The News Corporation Ltd) 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.

The Court rejected this submission, noting the requirement in s 82V of the necessity for the loss to be 'attributable to currency exchange rate fluctuations'. The Court said, at para 190:

"In the end, the determinative matter is the breadth of the definition of 'currency exchange loss' in s 82V(1). All that it requires is a loss attributable to a fluctuation in a rate. It does not require an exchange of anything. The expression 'currency exchange' qualifies the word 'rate' ('currency exchange rate fluctuations') but does not import any requirement, of itself, about the necessity or otherwise for an exchange of anything. Its language is too broad to be consistent with the Commissioner’s submission. Approached purely as a question of statutory construction I conclude that Division 3B will be satisfied so long as there has been a loss attributable to exchange rate fluctuations. I see no reason why a loss arising from an exchange of liabilities will not satisfy the requirements of Division 3B. It is not limited in its operation to exchanges of foreign currency and Australian money."

The Court further held that the losses were "incurred under an eligible contract" as required by s 82Z.

The matter was remitted to the Commissioner to determine the taxpayers' objection in accordance with the Court's reasons: Messenger Press Proprietary Limited v FCT [2012] FCA 756 (Federal Court, Perram J, 17 July 2012).


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