I would like to confirm which sources of exchange rates are approved by SARS. I need to convert United Arib Emirates Dirham (AED) to ZAR .The SARS exchange rate tool and Table A & B only make provision for the major currencies. The same apply to the SARB.
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
SARS doesn’t approve exchange rates. The general rule, see section 25D(1) to the Income Tax Act is that foreign currency amount must be translated to the currency of the Republic by applying the spot rate on the date on which that amount was so received or accrued or expenditure or loss was so incurred.
Section 25D(3) however, allows a natural person to “elect that all amounts received by or accrued to, or expenditure or losses incurred by that person … in any currency other than the currency of the Republic, be translated to the currency of the Republic by applying the average exchange rate for the relevant year of assessment.” A company doesn’t have the option.
For purposes of the Income Tax Act, see section 1(1), the term:
‘average exchange rate’ in relation to a year of assessment means the average determined by using the closing spot rates at the end of daily or monthly intervals during that year of assessment which must be consistently applied within that year of assessment;
And
‘spot rate’ means the appropriate quoted exchange rate at a specific time by any authorised dealer in foreign exchange for the delivery of currency; …
These can be obtained from various sources, but SARS regularly publishes the average exchange rates (table A for yearly and table B for monthly). Where the specific currency, as in your example, is not in the SARS tables one must use the rates quoted by an authorised dealer. These are available on the internet and are not only rates quoted for the day, but include historical rates as well.
You can refer to the practice generally prevailing, IN101, where SARS explains their view with regards to determining these rates – see for instance paragraph 4.4.9, which deals with “spot rate”.