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Karima19(Newbie)Newbie
19 Apr 2026

Hi,

I am seeking clarification regarding the tax treatment of a foreign exchange loss under Division 775 ITAA 1997.

A taxpayer held USD funds in a foreign bank account in connection with a small business activity. Due to exchange rate movements, a loss was realised when the funds were converted back to AUD.

At the time of conversion, the funds were not directly linked to a specific transaction (for example, payment to suppliers) but were originally generated from business-related activities.

Could you please clarify whether this loss would be:

  • Deductible under Division 775 (forex realisation event), or
  • Deductible under s8-1 ITAA 1997, or
  • Treated as a capital/private loss and therefore non-deductible?

Any guidance, ATO rulings, or references would be greatly appreciated.

Thank you.

34 views
1 replies
34 views
1 replies

All replies

RachelATO(Community Moderator)Community Moderator
20 Apr 2026

Hi @Karima19,


Yes, you can claim a foreign exchange loss under Div 775 if it arises from a forex realisation event.


A forex realisation event occurs when you dispose of foreign currency or cease to have a right or obligation to receive or pay foreign currency. In your case, converting USD funds back to AUD would trigger forex realisation event 1 (disposal of foreign currency).


Some forex losses aren't deductible, such as those of a private or domestic nature or those relating to exempt income. The connection to your small business activity is relevant in determining deductibility.


Section 8-1 may also apply as an alternative basis for deduction if the loss was incurred in gaining or producing assessable income from your business.

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Is a foreign exchange loss deductible under Division 775 if not linked to a specific transaction? | ATO Community