Issue
Is a term deposit account a qualifying forex account, for the purposes of Division 775 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. A term deposit is not a qualifying forex account for the purposes of Division 775 of the ITAA 1997.
Facts
The taxpayer is an Australian resident for income tax purposes.
They open a term deposit account in New Zealand on 1 August 2003 with a New Zealand bank.
The bank is an Authorised Deposit-Taking Institution (ADI).
The account is denominated in New Zealand currency.
They deposit NZD20,000 in the account for a period of six months at an interest rate of 3%.
Under the terms of the account with the bank, he they cannot withdraw this money until 1 February 2004 without incurring a financial penalty.
Reasons for Decision
A 'Qualifying forex account' is an account that is denominated in a particular foreign currency, and is maintained in Australia or a foreign country with an ADI, or is maintained in a foreign country with a financial institution similar to an ADI. The account must either have the primary purpose of facilitating transactions, or must be a credit card account (subsection 995-1(1) of the ITAA 1997).
The taxpayer's account is denominated in a foreign currency (New Zealand currency), and is maintained in a foreign country with a New Zealand bank which is an ADI. However, it is not a credit card account and does not have the primary purpose of facilitating transactions. The primary purpose of the account is to hold the taxpayer's money with the bank as an investment for a period of time, and not to facilitate transactions.
Therefore, the account is not a 'qualifying forex account' under Division 775 of the ITAA 1997.