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On 23 April 2014 the ATO released for public comment by 23 May 2014 draft Taxation Determination TD 2014/D10 entitled “Income tax: does forex realisation event 4 happen to the debtor under subsection 775-55(1) of the Income Tax Assessment Act 1997 on repayment of a loan taken out prior to the effective date of a choice to use the applicable functional currency and denominated in the same non-AUD currency that later becomes the applicable functional currency?”

The draft determination answers the question Yes. The repayment of the loan represents the cessation of an obligation to pay “foreign currency” (s 775-55(1)(a)) that was incurred in return for receiving an amount of Australian or “foreign currency”: s 775-55(1)(b)(ix).

As a result of FRE 4 happening, the debtor will make a forex realisation gain or loss under s 775-55(3) or (4) respectively, to the extent that any shortfall or excess between the proceeds of assuming the obligation and the amount paid in respect of FRE 4 happening is attributable to a currency exchange rate effect.

When the final determination is issued, it is currently proposed to apply both before and after its date of issue. However, the determination will not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the determination.

In view of the fact that a number of private rulings expressing a contrary views to those in this draft determination have been made, submissions are sought on whether the final determination should apply only from a certain date, and, if so, what that date should be.

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