Rules on converting foreign expenses (GBP to AUD)

[lee2]

Hi everyone,

I have a question which is probably a simple one and I might just be overthinking... My employer allows reimbursement of relocation expenses and I am wondering how we convert UK expenses to AUD.

My relocation flights from the UK to Australia were purchased in the UK using a UK debit card. I understand as a general rule we use the offical daily conversion rate from the Reserve Bank of Australia, at the time when the expenses were incurred.

Example: Flights booked and paid in the UK on 11th August 2020 at 4pm UK time. Which falls on the next day (12th August 2020) in Australia due to time zone differences.

My question is whether we should be using the exchange rate on 11th August 2020 or 12th August 2020? Thanks in advance for any help!

 

 

[Ken]

22 hours ago, lee2 said:

Hi everyone,

I have a question which is probably a simple one and I might just be overthinking... My employer allows reimbursement of relocation expenses and I am wondering how we convert UK expenses to AUD.

My relocation flights from the UK to Australia were purchased in the UK using a UK debit card. I understand as a general rule we use the offical daily conversion rate from the Reserve Bank of Australia, at the time when the expenses were incurred.

Example: Flights booked and paid in the UK on 11th August 2020 at 4pm UK time. Which falls on the next day (12th August 2020) in Australia due to time zone differences.

My question is whether we should be using the exchange rate on 11th August 2020 or 12th August 2020? Thanks in advance for any help!

 

 

Get your employer to reimburse you in GBP (you'll need it to pay the credit card bill) - then they have all the FX expenses to pay!

[lee2]

Thanks Ken for your comment....but the flights were paid using a UK debit card rather than credit card; the employer will reimburse in AUD. Thanks for any advice!

[Ken]

2 minutes ago, lee2 said:

Thanks Ken for your comment....but the flights were paid using a UK debit card rather than credit card; the employer will reimburse in AUD. Thanks for any advice!

If you are looking for guidance from Australian tax law on this point it remains silent. In any case the ATO allow a wide variety of different exchange rates to be used (provided you aren't trying to game the system by switching methods for different things). Using a Daily Conversion Rate from the RBA is a rule set by your employer not the ATO (although probably done so as to match the method they use for other foreign transactions) so it's up to your employer as to how to interpret this rule. Most employers would do the conversion for you to ensure the correct rate is used (and would normally use the rate for the 11th because most transaction information comes with just the date and not the time), but if they are leaving it up to you then use the rate that works best for you (provided you can justify it).

[lee2]

34 minutes ago, Ken said:

If you are looking for guidance from Australian tax law on this point it remains silent. In any case the ATO allow a wide variety of different exchange rates to be used (provided you aren't trying to game the system by switching methods for different things). Using a Daily Conversion Rate from the RBA is a rule set by your employer not the ATO (although probably done so as to match the method they use for other foreign transactions) so it's up to your employer as to how to interpret this rule. Most employers would do the conversion for you to ensure the correct rate is used (and would normally use the rate for the 11th because most transaction information comes with just the date and not the time), but if they are leaving it up to you then use the rate that works best for you (provided you can justify it).

Thanks Ken for the useful comment. While I am not sure which daily exchange rate my employer uses, the RBA daily rate is how the ATO does it - since 1st January 2020 according to the ATO website.

You are right that it may be best I simply leave it to the employer to decide how they calculate. Adjusting for time zone difference seems a bit over the top as, depending on the exact time of the day,  it may be the 12th in Sydney and Melbourne (AEST) - but still the 11th in Perth, Christmas Island & Cocos Islands. Thanks again and if there is anything further to add please feel free.

[Ken]

6 minutes ago, lee2 said:

Thanks Ken for the useful comment. While I am not sure which daily exchange rate my employer uses, the RBA daily rate is how the ATO does it - since 1st January 2020 according to the ATO website.

You are right that it may be best I simply leave it to the employer to decide how they calculate. Adjusting for time zone difference seems a bit over the top as, depending on the exact time of the day,  it may be the 12th in Sydney and Melbourne (AEST) - but still the 11th in Perth, Christmas Island & Cocos Islands. Thanks again and if there is anything further to add please feel free.

Although the ATO did indeed switch to using the RBA rate for their official published rates from 1st January (prior to that they used the Commonwealth Bank of Australia rate), you still have the option to use either the rate prevailing at the time of the transaction or an average rate, or (and this obviously only applies to companies) "rates consistent with the rates used when preparing an audited financial report". Furthermore you are not required to use the official published rates but instead can use "appropriate exchange rates provided by (i) a banking institution operating in Australia including, where relevant, the banking institution through which your foreign income is received or (ii) another reliable external source.

[lee2]

Thanks Ken for your comments.