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reign exchange transactions have been introduced into our tax law. Although extr
emely complex there is now far greater certainty as to the deductibility and tax
ability of both realised and unrealised gains and losses. In very brief outline
the position is as follows:
· As gains and losses effectively represent finance charges, they are all
to be taxable or deductible whether of a capital nature or not and whether real
ised or not. This applies to all years of assessment ending on or after 1 Januar
y 1994.
· The exchange items to which the new rules apply are those in respect of
-
Foreign currency amounts arising from the holding or writing of foreign currency
option contracts.
All variations in exchange rates after that date give rise to exchange differenc
es.
· When the exchange item has been realised, the gain or loss is determine
d as the difference in Rands arising from the fluctuation in the exchange rate b
etween "the transaction date" and the date of realisation. If a financial year e
nd (or more than one) intervenes, the exchange item has to be translated (i.e. v
alued in Rands) at each year end date (until realised) based on the "spot" excha
nge rate at that date. The differences must be brought to account each year as t
axable gains or deductible losses.
· The cost of imported trading stock or fixed assets or the selling price
of goods or services in foreign currency must be determined by translating the
foreign currency amount at the exchange rate on the abovementioned transaction d
ate. Subsequent variations in the exchange rate prior to settlement do not affec
t the cost of the stock or fixed assets and the cost must not be adjusted. Excha
nge differences must be treated as exchange gains or losses.