CGT And Purchasing Goods In Foreign Currency

[aamhex]

The upcoming brexit referendum got me wondering about cross border trade during periods of large fx rate fluctuation.

Does the purchase of goods in a foreign currency count as a disposal of that currency?

Simple example:

22nd June - Purchase £10,000 (GBP) for €12,600.
23rd June - UK votes to remain in the EU; Sterling rate jumps to €1.50/£1.00.
24th June - Purchase fancy carbon fibre bicycle for £10,000 (now €15,000) inc. VAT.

Is that purchase considered a disposal for CGT purposes?
That is, has a gain of €2,400 been realised?

 

[rob oyle]

I can only imagine the rate at the time of purchase is relevant here, otherwise it could be very complex very quickly. And I don't think there'd be any CGT consideration on the purchase (and I presume sale?) of a bike.

 

[aamhex]

I can only imagine the rate at the time of purchase is relevant here, otherwise it could be very complex very quickly. And I don't think there'd be any CGT consideration on the purchase (and I presume sale?) of a bike.

Purchase of the bike or purchase of the Sterling?

I'm only using the bike as an example, could be any chattel(-ish) goods (TV, books, toys, etc). And to make it simpler, they're for personal use rather than resale.

It seems to me that it should, technically, be considered a chargeable event, but would be wildly impractical. I was just curious if there was a procedure for, or an official stance on, this sort of thing. CGT leaflets from Revenue don't seem to go that far down the rabbit hole.

 

[dublin66]

A foreign currency is an asset for tax purposes - think of it like a share. Your purchase of the bike is i)the disposal of the currency for cgt purposes and ii) purchase of an asset for CGT purposes (most likely a wasting chattel). Your CGT base cost is Euro value at date of purchase €12,600 and your proceeds is the Euro value of the asset (Sterling) at date of sale. Your calculation is correct in that you have realised a gain of €2,400. The fact that you bought a non-monetary asset with it is irrelevant for tax purposes.

 

[aamhex]

Surely there must be practical limits though.

If you buy a USD denominated widget from the US, are you technically required to report it on a form 11/CGT1? Would the credit card fees and FX commission be considered to be disposal costs?

Or say you had a USD denominated bank account in which you keep dollars you bought at several different dates, do you need to keep track of each lot of dollars for calculating gains on a first-in-first-out basis when you buy a cup of coffee with them?

According to Revenue's CGT FAQ, all disposals must be reported even if you are under the yearly exemption limit:

Irrespective of whether you have submitted a payment, or whether the gain is relieved from tax or a loss arises on the disposal, you must submit a tax return to Revenue in respect of any disposals.

There must be some kind of threshold that I can't find. Otherwise, anyone who went from Dublin to Belfast to do some shopping would have to report how much they bought their Sterling for and what the rate was when they spent it, which would be unworkable.

 

[dublin66]

aamhex - I agree with you. In practical terms the €1,270 will cover most things. From memory making a disposal of an asset (and perhaps even purchasing one) makes you a chargeable person and hence the tax return requirement. I'd imagine that this provision is more honoured in the breach than in the observance. I'd not aware of any practical limits but I'd imagine that the Revenue would issue a practice note if they started getting lots tax returns from people who disposed of foreign currency on their holidays.

 

[aamhex]

I suppose a reasonable rule of thumb might be "if you pay VAT, it's not worth reporting as a disposal". I.e. if you buy a cup of coffee or a TV with foreign currency don't count it as a disposal but if you buy another asset (shares, gold, etc) it is a disposal of that currency.

Still, the whole scenario is a bit more ambiguous than I'd like.