Foreign exchange gains and losses June Very comprehensive rules relating to the tax treatment of gains and losses on foreign exchange transactions have been introduced into our tax law.

Although extremely complex there is now far greater certainty as to the deductibility and taxability of both realised and unrealised gains and losses. In very brief outline the position is as follows:.

Foreign exchange gains and losses | Australian Taxation Office

As gains and losses effectively represent finance charges, they are all to be taxable or deductible whether of a capital nature or not and whether realised or not. This applies to all years of assessment ending on or after 1 January As a transition only, exchange differences arising out of loans, advances or debts due to any taxpayer as opposed to amounts due by taxpayers and which existed on the last day of the year of assessment and which are of a capital nature, will not be taxable or deductible as in the past.

If assets are acquired but not yet brought into use, the exchange difference will only be accounted for when the asset is brought into use for trade purposes. Foreign currency amounts owing by or to a taxpayer in respect of a loan, advance or debt.

Foreign currency amounts owing by or to a taxpayer in respect of a forward exchange contract. Foreign currency amounts arising from the holding or writing of foreign currency option contracts. All foreign exchange transactions must for recording purposes be converted to rands at the exchange rate ruling on the "transaction date" i.

All variations in exchange rates after that date give rise to exchange differences.

When the exchange item has been realised, the gain or loss is determined as the difference in Rands arising from the fluctuation in the exchange rate between "the transaction date" and the date of realisation.

If a financial year end or more than one intervenes, the exchange item has to be translated i.

forex trading losses, tax deduction - TurboTax Support

The differences must be brought to account each year as taxable gains or deductible losses. The cost of imported trading stock or fixed assets or the selling price of goods or services in foreign currency must be determined by translating the foreign currency amount at the exchange rate on the abovementioned transaction date. Subsequent variations in the exchange rate prior to settlement do not affect the cost of the stock or fixed assets and the cost must not be adjusted.

Exchange differences must be treated as exchange gains or losses. If the transaction is covered by a forward exchange contract, such contract should be treated as a separate exchange item and recorded separately from the underlying transaction.

In practice however, the underlying transaction often will simply be recorded at the exchange rate applicable to the forward exchange contract and the premium will be written off as part of the expense or treated as part of the income.

This latter treatment therefore is specifically condoned where a related or matching forward exchange contract has been entered into to hedge the loan, advance or debt and such forward rate has been used for accounting purposes.

How Currency Traders Can Reduce Their Taxes

A more detailed article on this matter will be included with the first mailing of the Tax Update Service documentation. Inland Revenue is preparing a lengthy practice note on this section, which includes examples.

This will be disseminated with Tax Update Service documentation once it has been finalised.