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Foreign currency is defined in s 995-1 ITAA97 as a currency other than Australian currency, digital currency or anything prescribed by the regulations (s 995-1 ITAA97). Digital currency has the same meaning as it does under the GSTA. Many transactions that affect taxpayers may occur in foreign currency. To deal with situations like these, the ITAA97 has special rules for translating foreign currency into Australian currency. The aim of these rules is to ensure that transactions that occur in foreign currency are converted into Australian dollars (‘A$’) so that a standard unit of account is used for calculating a taxpayer’s Australian income tax liabilities. It is important to be aware that transactions that occur in foreign currency can also result in taxpayers making exchange gains and exchange losses as a result of currency fluctuations. A special forex regime is contained in the ITAA97 for dealing with the tax treatment of such gains and losses.
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