Exchange rate on internationally paid expenses

Discussion in 'Accounting and Tax' started by James Bond, 11th Jun, 2015.

  1. James Bond

    James Bond Member

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    Bit of a grand thread subject!

    I recently had to pay an expense on my UK investment using AU$, in Australia. (Unusual, but a one-off)

    When I am accounting for this, what exchange rate should I use? Would a day spot rate from say Oanda.com be OK?

    Thanks

    JB
     
  2. Terry_w

    Terry_w Member

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    If you used an account here it would show up in Australian dollars.

    If you paid from an overseas account then you may have to look up the ATO published exchange rates.
     
  3. James Bond

    James Bond Member

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    Hi Terry, to be clear, it was paid in AU$ but for an expense which would be accounted for in the accounts of my UK property, in which everything else is accounted for in GB?.

    I'll have a look on the ATO website for exchange rates thanks.

    JB
     
  4. Paul@PFI

    Paul@PFI Tax, SMSF & Planning

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    The exchange rate translation rules are fairly straight forward and not a serious concern where you may slightly depart provided intent isn't to cause harm or avoid tax etc and simply put:

    1. Where a AUD / Foreign rate exchange is made use the actual rate where possible (ie using an AUS card to pay a cost in UKP);
    2. For a stream (ie rent) then use the average rate published by ATO;
    3. Where it relates to a specific amount at a specific date (ie UK tax credit / withholding tax etc) and #1 is not available then use the ATO published exchange rate on that date or monthly average etc; or
    4. Use any other reasonable basis. I would avoid using Oanda etc as it included interbank, card, travellers cheque and a host of options which may all be flawed.

    The UK accounting will be in pounds for the UK financial year ended 5th April (Don't ask). The AU tax will be based on AUD for the financial year 30 June. Your records should allow for this. If UK tax is paid for the YE5 April 2015 then a credit for this would be included in your AU return for 30June15 based on the exchange rate on or around that date. Given ATO don't publish a 5Th April arte I would use the monthly average published ATO rate.

    Important that the AU tax return does not have a rental schedule for this property. It is foreign income. This allows foreign tax credits etc. And affects some issues such as losses etc.

    https://www.ato.gov.au/Rates/Foreign-exchange-rates/
     
  5. James Bond

    James Bond Member

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    Thanks Paul.

    JB
     
  6. James Bond

    James Bond Member

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    Further to this, when I am accounting for funds in an overseas currency on my tax return - do I have to take the spot rate each day for every entry in the revenue/cost columns, or do I base the exchange rate on the total profit/loss over the financial year?

    Thanks

    JB
     
  7. Paul@PFI

    Paul@PFI Tax, SMSF & Planning

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    If you have the AUD value (ie drawn from a local account) then use that since its known. If not use monthly average (ie drawn from a UK account). If its a stream for example lets assume for a second the PM could generate a P&L for the rental income and costs that is for the year ended 30 June then I would apply an ATO average rate for the year to the lot.

    If ten people did same there would be ten different ways. Trivial differences between each. The ATO rates may be more / less favourable than actual rates. Its not going to generate a audit concern if its diligent and reasonable.
     
  8. James Bond

    James Bond Member

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    Thanks Paul.

    JB