On 10 December 2010, the ATO issued Taxation Ruling TR 2014/7 entitled "Income tax: foreign currency hedging transactions - applying the foreign income tax offset limit under section 770-75 of the Income Tax Assessment Act 1997 and determining the source of foreign currency hedging gains".
It was previously released in draft form as TR 2014/D2.
The Ruling applies to an Australian resident taxpayer deriving assessable gains and deductible losses from foreign currency hedging transactions undertaken to mitigate the foreign currency fluctuation risk attached to the market value of a portfolio of assets and sets out the application of s 770-75 of ITAA 1997 (the foreign income tax offset limit) to these gains and losses.
In particular, this 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).
The Ruling does not deal with the source of any other assessable income.