Hello ATO @RichATO @Bruce4Tax,
I've gone through the ATO Community looking for an answer to the below but haven't had any luck. For example referred to this thread: Confusion on tax implications on Foreign Currency Exchange Gain
I've also read the section on the ATO's website on Forex realisation events but I'm still not 100% clear on the below.
Could you please help me with the below scenario:
The scenario is as follows:
-1 January: Transfer $100k AUD to USD @ AUD/USD 70c exchange rate = $70k USD
-1 February: On this date the AUD/USD is exchange rate 65c. However, use the $70k USD from the 1 January conversion to purchase shares of Microsoft on this day.
-1 March: Sell entire position in Microsoft for $75k USD representing a $5k USD gain. On the date of this sale the AUD/USD exchange rate is 60c.
-1 April: Convert $75k USD cash in my brokerage account back to AUD @ AUD/USD exchange rate of 55c. Therefore total AUD cash is now $136k (using rounding).
Could you please confirm if my workings below are correct for determining the assessable capital gain on the foreign share purchase of Microsoft:
-My understanding is the assessable capital gain on the Microsoft shares will be calculated using the exchange rate on the day of purchase and the day of sale
-Therefore, cost base will be: $70k/0.65 = $108k AUD (rounding); am I right in not using the AUD/USD 70c exchange rate here despite actually converting to the foreign currency on 1 Jan?
-And value at sale will be: $75k/0.60 = $125k AUD
-Therefore assessable capital gain will be: $125k AUD - $108k AUD = $17k; is this correct? (note - this is just to work out the assessable gain, not the actual tax owing)
Furthermore, my understanding is there will be an assessable capital gain on the FX gain itself outside of the 1 Feb-1 March holding period for the Microsoft stock. Could you please confirm if my understanding and calculations below would be correct:
-From 1 Jan to 1 Feb there is a FX gain of: ($100k*0.7 / 0.65 - $100k) = $8k (rounding)
-From 1 March to 1 April there is a FX gain of: ($75k/0.55 - $75k/0.6) = $136k (rounding) - $125k (rounding) = $11k
-Therefore total assessable capital gain on 1 April from FX appreciation = $8k + $11k = $19k; is this correct?
Sorry for the length of the question and once again really appreciate your help!
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