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Abstract

Over recent times, Australian enterprises have increasingly turned to overseas sources to finance their business operations and capital works programems. Where an overseas loan is denominated in foreign currency, the Australian enterprise will realise a foreign exchange gain or loss where the relevant foreign currency exchange rate changes during the term of the loan. This paper examines the taxation treatment of foreign currency exchange gains and lossses with special attention being paid to the income/capital dichotomy. Amendments to the Income Tax Assessment Act 1936 throughout the 1980s have seen the introduction of Division 3B and capital gains tax which have somewhat blurred, but not reduced, the significance of the dichotomuy.

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