We have a trading Trust which as unrealised foreign exchange gains in the current tax year. The question has come up as to whether the Trust and distribute the unrealised gains to beneficiaries. It is a discretionary Trust and the Trust Deed caters for th
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
We accept that the trust deed doesn’t define the word ‘income’ – if it does, it is unlikely that it will include unrealised gains. From a tax point of view, section 24B is indeed relevant.
We agree with you; section 25B(1) refers to an “amount received by or accrued to or in favour of any person during any year of assessment in his or her capacity as the trustee of a trust”.
In terms of section 24I(3)(a), … there shall be included in or deducted from the income, as the case may be, of that person any exchange difference in respect of an exchange item of or in relation to that person, subject to subsection (10A) …
For the purposes of section 24I, 'exchange difference' means the foreign exchange gain or foreign exchange loss in respect of an exchange item during any year of assessment determined by multiplying such exchange item by the difference between –
(a) the ruling exchange rate on transaction date in respect of such exchange item during that year of assessment, and –
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the ruling exchange rate at which such exchange item is realised during that year of assessment; or
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the ruling exchange rate at which such exchange item is translated at the end of that year of assessment; or
(b) the ruling exchange rate at which such exchange item was translated at the end of the immediately preceding year of assessment or at which it would have been translated had this section been applicable at the end of that immediately preceding year of assessment, and –
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the ruling exchange rate at which such exchange item is realised during that year of assessment; or
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the ruling exchange rate at which such exchange item is translated at the end of that year of assessment;
We suspect that, where an exchange item was realised during that year of assessment, that there may well be a receipt. But, where the exchange item was not realised, that there will not be a receipt or an accrual.