Page 93 - SAIT Compendium 2016 Volume2

PN 4/1999 Income Tax acT: PracTIce noTes PN 4/1999
comparable exchange rates) be considered that such loan, advance or debt has been realised on the date of exchange and that a new exchange item came into existence on that date.
See annexure C, example 8.
Where the other currency in which the loan, advance or debt is re ected after such exchange, is the currency of the Republic, then such loan, advance or debt is considered to have been realised on the date of such exchange without a new loan, advance or debt coming into existence. An example of such an exchange will be where a loan due by a foreign subsidiary to the holding company in the Republic, which loan is payable in a foreign currency, is converted to a loan payable in rands.
4.2 ‘TRANSACTION DATE’ and ‘REALISED’
‘Transaction date’ de nes the date on which the various exchange items arise. From that date, exchange differences are determined in respect of such exchange items.
The transaction date is, in relation to—
(a) Loans and advances: The day on which the taxpayer—
(i) received the amount payable in respect of such loan or advance (a liability); (ii) paid the amount payable in respect of such loan or advance (an asset); or
(iii) acquired the loan or advance in any other manner (an asset);
(b) Debts: The day on which—
(i) the debt was actually incurred by the taxpayer (a liability);
(ii) the amount payable in respect of the debt, accrued to the taxpayer (an asset); or
(iii) the date on which the debt was acquired in any other manner (an asset);
(c) A forward exchange contract: The day on which that contract was entered into; and
(d) A foreign currency option contract: The day on which that contract was entered into or acquired.
In terms of the de nition of ‘realised’, the time of realisation of an exchange item is, in the case of—
(a) Loans, advances or debts: When and to the extent that payment is received or made, or when and to the extent to
which the loan, advance or debt is settled or disposed of in any other manner.
(b) A forward exchange contract: When payment is received or made in respect of that contract.
(c) A foreign currency option contract: When payment is received or made in respect of the right having been exercised
in terms of that contract, or when such contract expires without such right having been exercised, or when such
contract is disposed of.
Spot rate transactions (normally transactions in respect of cash balances)
Transactions which are concluded at spot rate, for example, where dollars which are held in cash are sold for rands, generally allow two business days after the day of such transaction for the delivery of the cash.
In terms of the de nitions ‘transaction date’ and ‘realised’, the transaction date and the date of realisation is, in the case of a loan or advance, generally the date on which payment is made or received. For a spot rate transaction, the transaction date (if currency has been purchased), or the date of realisation (if currency has been sold), would be the date on which the transaction was concluded, irrespective of when the cash would be exchanged during the following two business days.
4.3 ‘TRANSLATE’
‘Translate’ de nes the process whereby an exchange item is, at the end of the year of assessment, translated into the currency of the Republic. This is accomplished by multiplying the foreign currency amount of the exchange item by the ruling exchange rate.
4.4 ‘RULING EXCHANGE RATE’
The de nition of ‘ruling exchange rate’ determines for every type of exchange item, for the purposes of the determination of an exchange difference, the exchange rates which are applicable on the relevant dates. A summary thereof appears in annexure B.
4.4.1 GENERAL
Format of use
The term ‘ruling exchange rate’ is de ned for purposes of the determination of exchange differences in respect of exchange items. In order to determine the correct exchange difference, the ruling exchange rate should be stated in the format of quantity of rands for every foreign currency unit. The rand/dollar exchange rate is, therefore, for purposes of this practice note stated as 6,1275 (R6,1275 ÷ $1) and not as 0,1632 ($0,1632 ÷ R1).
Decimal accuracy
In order to achieve a uniform minimum accuracy level, the ruling exchange rate must be expressed to at least the fourth decimal, for example R6,2461 ÷ $1.
Various types of ruling exchange rates
‘Spot rate’ is de ned in section 24I (1) of the Act as the appropriate quoted exchange rate for the delivery of currency within a period of two business days. The word ‘appropriate’ is used to provide for cases where more than one currency exists in a country, for example, nancial rands or commercial rands (in South Africa until 13 March 1995). The rate applied on translation date must be the closing rate quoted by the authorised foreign currency dealer used by the taxpayer for the relevant day for a similar amount of foreign currency. The quoted selling rate must be applied in the case of an exchange item which is a liability and the quoted buying rate where the exchange item is an asset.
‘Forward rate’ is de ned in section 24I (1) as the speci ed exchange rate at which currency will be exchanged at a future date, in terms of a forward exchange contract.
‘Acquisition rate’ and ‘disposal rate’ are de ned in section 24I (1) of the Act as the exchange rate in respect of an exchange item obtained by dividing the amount of the expenditure incurred for the acquisition, or the amount received or accrued in respect of the disposal of the exchange item, as the case may be, by the foreign currency amount in respect of the exchange item. See point 12 in this regard.
The market-related forward rate available for the remaining period of a forward exchange contract is the rate at which another forward exchange contract with similar terms (speci cally in respect of the foreign currency amount and the
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