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Minerals disposed of in a foreign currency will have foreign exchange gain or loss implications for the seller and buyer.
A foreign exchange gain or loss occurs when an invoiced amount, that is in a foreign currency, is converted into Australian dollars. It is the difference between the Australian dollar value of the invoice at the time of disposal and the Australian dollar amount at the time of payment.
Realised or unrealised gain or loss
The foreign exchange gain or loss is unrealised when the invoice is issued but unpaid.
When the invoice is paid, the foreign exchange gain or loss is realised.
Treatment of foreign exchange gains or losses in royalty returns
As the holder of a NSW mining lease buying or selling minerals in a foreign currency, you must disclose any foreign exchange gain or loss in your royalty returns.
Foreign exchange gains/losses must be brought to account at the end of each return period as either unrealised or realised, and are included in ‘assessable revenue’ when calculating the royalty payable.
When a disposal occurs and settles in the same reporting period, the total foreign exchange gain or loss is to be recognised in that same period.
When a disposal is settled in a subsequent reporting period to which it occurred, then the foreign exchange gain or loss is recognised in each period up to the date of settlement.
Calculating foreign exchange gains/losses
The following scenarios show the calculation of foreign exchange gains/losses and how they are included in mineral royalty returns.
The same method applies to all minerals regardless of whether the return period is monthly, quarterly or yearly.
For mineral royalty purposes, the disposal date is taken to be the Bill of Lading (BoL) date.
For minerals (other than coal) that have a different royalty return period (quarterly or yearly) the foreign exchange gain or loss is calculated using the same methodology shown in the following scenarios. This excludes minerals that appear in schedule 6.
A disposal of coal occurred on 5 July 2017, for an invoice value of $100,000 USD. The customer paid the invoice on 27 July 2017.
The USD invoice amount of $100,000 is converted to AUD at the 5 July 2017 exchange rate of 0.7619. This equates to $131,250.82 AUD and would be recorded as a sale in AUD as at 5 July 2017.
The payment is received on 27 July 2017.
The invoice amount of $100,000 USD is converted to AUD at the 27 July 2017 exchange rate of 0.8046. This equates to $124,285.35 AUD.
This results in a realised foreign exchange loss of $6,965.47 ($124,285.35 - $131,250.82).
The coal return period is monthly. The payment amount of $124,285.35 AUD is therefore included in the July 2017 royalty return. This is the invoice amount of $131,250.82 less the foreign exchange loss of $6,965.47.
A disposal of coal occurred on 27 July 2017, for an invoice value of $100,000 USD. Payment for the disposal was received on 10 August 2017.
July 2017 Royalty Return
The USD invoice amount of $100,000 is converted to AUD at the 27 July 2017 exchange rate of 0.8046.
This equates to $124,285.35 AUD and would be recorded as a sale in AUD.
In the royalty return for July 2017, the exchange rate for 31 July 2017 is used to calculate the unrealised foreign exchange gain or loss for the period 27 July to 31 July.
The 31 July 2017 exchange rate is 0.7987.
The AUD value at 31 July is $125,203.45, resulting in an unrealised foreign exchange gain of $918.10 ($125,203.45 - $124,285.35).
The return period for coal is monthly.
An amount of $125,203.45 is included as assessable revenue in the July 2017 return.
August 2017 Royalty Return
The gain or loss for the period 1 August to 10 August is to be included in the August 2017 royalty return.
The exchange rate on the 10 August 2017 is 0.7873, which equates to $127,016.38 AUD.
A foreign exchange gain of $1,812.93 (127,016.38 - $125,203.45) is recognised in the August return.
If payment of the invoice was received in any month after August 2017, the unrealised foreign exchange gain or loss would need to be calculated in the same manner for each royalty period that payment remains outstanding.
The foreign exchange gain or loss amount is included in each monthly return until payment is made.