No tax tips, but a little advice on possible currency exchange tax issues

By now you are well aware that “it’s that time of year again”; that time of year most people dread. That time of year where administrative burdens mean a mass of paperwork, spreadsheets, long meetings with accountants, tax planning and, of course, tax time tips.

Get professional advice

I must mention at this point the importance of getting professional advice on tax issues as I am not an accountant nor qualified to give tax advice. Tax rulings involving foreign currency receipts or income can be quite tricky, so make sure your accountant is experienced in this area.

I am not going to provide tax advice, just a bit of commentary around why, if you are a business, you should be happy at the moment rather than stressed by the looming end of financial year.

Oh, and I will do my best not to give you any tax time tips – I am sure you have enough by now!

Although many businesses may lament, despise, loathe (choose one that fits) quarterly Business Activity Statements (BAS) it’s right now they should be praising them. Way back in 2000, along with a little thing called the GST, the Tax Office put the onus on businesses to pay tax in quarterly intervals instead of annually.

The joy of quarterly tax

Whilst this caused much angst and still does for some, it is at this particular point in time when businesses should be grateful. Grateful for a number of reasons; like the fact paying tax quarterly allows them to even out cash flow by spreading the tax burden throughout the year. Or grateful that you don’t have to gather a full year’s worth of receipts.

A big Hallelujah to the Tax Office for forcing businesses to make tax planning an all-year event! So instead of cursing the Tax Office this time of year why not celebrate the fact it could have been worse?

Converting foreign currencies for tax

For those that are new to doing business internationally, one tricky area is the treatment of foreign currency receipts. Many are unsure of the appropriate way to convert foreign income to AUD and how to calculate any tax liabilities. This is covered in detail by the Australian Tax Office’s “general translation rule”.

According to the ATO, you have two options.

If you received foreign income from business activities, you must convert this at the exchange rate applicable at the time it is derived (for example, when interest income is credited) or paid to you, whichever is the earlier.

Or you can use average rates – if they would be a “reasonable approximation” of the spot rates at the specific times you received or derived the foreign income. This usually applies to businesses that have received regular payments over the course of the year, rather than a one-off sum. The ATO has some examples of when this is appropriate, as well as a list of historic and average rates.

A happy New Tax Year to you all!

Jim Vrondas is chief currency and payment strategist, Asia-Pacific, at OzForex, Australia’s leading international payments solution provider.

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