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Re: Realisation of currency gain involving more than two currencies

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Hi,

 

I have been considering a multi-currency scenario where a business has a base currency in AUD, they create an invoice in USD and receive payment for that invoice in CAD (into a CAD bank account).

 

The invoice for USD 100 gets valued on the date it was created using the USD/AUD exchange rate:

1 USD = 0.75 AUD giving the invoice a value of  AUD 75.

 

A payment of CAD 90 is received fully paying out the USD 100 invoice. How should the gain or loss on this invoice be calculated?

 

1. By comparing the invoice value at the time of creation to the invoice value on the date of payment using the USD/AUD rate.

 

Example:

On the date of payment 1 USD = 0.80 AUD giving the invoice a value of AUD 80.

 

Invoice value at creation: AUD 75

Invoice value at payment: AUD 80

Realised gain: AUD 5

 

2. Or by comparing the invoice value at the time of creation to the amount received for the invoice using the CAD/AUD rate.

 

Example:

On the date of payment 1 CAD = 0.90 AUD, making the amount received AUD 81.

 

Invoice value at creation: AUD 75

Payment received: AUD 81

Realised gain: AUD 6

 

Any information, direction or further reading on this matter would be greatly appreciated.

 

Thanks,

Daniel

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Hi @daniel-spark,

 

Welcome to our Community!

 

The main thing to remember in international transactions is that the basic tax rules still apply. You start with your amount of gross income invoiced, and then make any adjustments to align your income to financial outcome (that is what is actually received as the payment). The currencies used in the transaction don’t change this.

 

Your alternative 2 is correct as it works out the gain by comparing the previously assessable amount (of AUD 75) to the amount actually received (of AUD 81). Having the realised gain be AUD 6 means that the total assessable income from the transaction is also AUD 81. If the exchange rates had moved the other way then the adjustment would be a deduction.

 

Hope this helps.

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Enthusiast

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Translation (conversion) rules has some relevant information

 

 

there are also some examples that might prove useful to you

 

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This is my personal view; I’m an ATO employee who chooses to help out here in my own time.

 

Best answer

ATO Certified

Community Support

Replies 1

Hi @daniel-spark,

 

Welcome to our Community!

 

The main thing to remember in international transactions is that the basic tax rules still apply. You start with your amount of gross income invoiced, and then make any adjustments to align your income to financial outcome (that is what is actually received as the payment). The currencies used in the transaction don’t change this.

 

Your alternative 2 is correct as it works out the gain by comparing the previously assessable amount (of AUD 75) to the amount actually received (of AUD 81). Having the realised gain be AUD 6 means that the total assessable income from the transaction is also AUD 81. If the exchange rates had moved the other way then the adjustment would be a deduction.

 

Hope this helps.

Initiate

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Thank you very much. This is a great answer and covers the question well.

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