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27 Mar 14 FITO limit and foreign currency hedging transactions - TR 2014/D2

On 26 March 2014, the ATO released for public comment by 2 May 2014 draft Taxation Ruling TR 2014/D2 entitled "Income tax: the application of the foreign income tax offset limit under section 770-75 of the Income Tax Assessment Act 1997 to foreign currency hedging transactions".

The Ruling is concerned with the application of s 770-75 of ITAA 1997 (the foreign income tax offset limit) to an Australian resident taxpayer deriving gains and losses from foreign currency hedging transactions undertaken to mitigate the foreign currency fluctuation risk attached to the market value of a portfolio of assets.

In particular, the draft Ruling deals with:

  • when gains from foreign currency hedging transactions will be from a source other than an Australian source for the purposes of s 770-75(4)(a)(ii)
  • when losses from foreign currency hedging transactions will be reasonably related to income that is covered by s 770-75(4)(a) (disregarded income) for the purposes of s 770-75(4)(b)(ii).

On the same day, ATO ID 2013/14 (Income Tax: Foreign income tax offset: foreign exchange gains and losses: whether 'reasonably related to') was withdrawn.


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