Foreign Exchange Flashcards
s25D - name it
Determination of taxable income in a foreign currency
s25D(1) - general rule
- Amounts received or accrued to a taxpayer; or
- Expenditure or losses incurred by a taxpayer in a
foreign currency
Translated at spot rate on the day
- Received or accrued; or
- Expenditure or loss is incurred
*s25D Applies at the TRANSACTION DATE
Case law applicable (3)
Received - “Own benefit, own behalf” (Geldenhuys)
Accrued – “Unconditionally entitled” (People stores)
Incurred – “Unconditional legal obligation” (Edgars)
S25D(2): If the amounts in a foreign currency are attributable to a permanent establishment outside of SA
- Determine the functional currency of the PE and translate all transactions to that functional currency using spot rate
- Translate the functional currency to Rand using the average exchange rate for the YOA
- don’t apply s25D(2) if inflation rate of country is >100%
s25D(3) Natural Persons and Non-trading Trusts can
- can elect to use average OR spot for their YOA
- Election applies to whole year i.e. cant change during the year but can elect differently in following year
- elect most favourable
Non-trading trust
- Does not buy/sell trading stock, or supply services or rent assets etc.
- A trust that rents fixed property = trading (rental income)
S24I(3): In determining the taxable income of a person [s24I(2)] there shall be included in or deducted from taxable income…
- any exchange differences
- in respect of any exchange item.
s24I(1): Exchange item is
An amount in foreign currency:
(a) That constitutes a unit of currency held by that person
(b) Owing to or by that person
(c) Owing by or to a person under a FEC
(d) Where a person has a right or contingent obligation in terms of a foreign currency option contract (FCOC)
s24I(2) defines a person as:
- All companies
- Trading trusts
- Natural persons:
– hold FC and debt as trading stock
– FEC
– FCOC
These are the persons that fall in scope of s24(2)
s24I(1): affected contract
FEC or FCOC that is entered into to hedge a debt:
- At end of YOA debt has not yet actually arisen; and
- Debt will be used to finance goods or services or an expense or will arise from the supply of goods or services.
• Effect of an affected contract: a nil s24I exchange
difference is accounted for while is an affected contract.
Ruling Exchange Rate: FEC Affected Contact
Transaction Date: forward rate per contract
Translation Date: forward rate per contract
Realisation Date: spot rate
Effect: no gain/loss until realised
Ruling Exchange Rate: FCOC Affected contract
Transaction Date: 0
Translation Date: (premium or consideration)/FC x FC
Realisation Date: (MV of contract)/FC x FC
S24I(4): if any foreign currency
• Debt incurred by or payable to a person becomes bad or
• Realisation of the debt resulted in a loss due to decline in the market value of the debt.
(2)
- The amount of foreign exchange gains to date must be deducted from taxable income.
- The amount of foreign exchange losses must be included into taxable income.
S24I(7) - Notwithstanding s24I(3):
Where an exchange difference or a premium or consideration for a FCOC relates to debt for a capital asset (including IP) in YOA before asset Brought into Use.
- Where an exchange difference or a premium or consideration for a FCOC relates to debt for a capital asset (including IP) in YOA before asset Brought into Use.
- Carry forward the exchange difference amount to the year of assessment that the asset is brought into use.
- Or in year when debt will no longer be incurred or asset won’t be brought into use.
s24I(10A): deferrals (4 requirements)
- think of the summary
• No deduction or inclusion for an exchange difference in respect of a loan (receivable or payable) if:
- At end of YOA other person is part of the same (tax) group or is a CP AND
- The debt is not hedged with a FEC or FCOC AND
- The loan is not a current asset or liability for IFRS purposes AND
- -Is not directly/indirectly funded by a 3rd party
• If conditions met, ignore unrealised losses or gains and only account for the forex loss or gain on realisation.
Summary: an unhedged non-current intergroup position is deferred
