The ATO updated its Guide to Functional Currency Rules on 22 May 2025, detailing the rules, eligibility, and tax reporting impacts.

The Australian Taxation Office (ATO) updated its Guide to functional currency rules on 22 May 2025, covering the rules, eligibility, and tax reporting implications.

How to use the functional currency rules guide

This guide is intended for individuals who meet specific criteria. It applies to Australian residents or non-residents with a permanent establishment in Australia if they maintain their accounts solely or predominantly in a particular foreign currency and wish to calculate their taxable income (or tax loss) using that foreign currency, referred to as the “applicable functional currency.” It also applies to non-residents disposing of indirect interests in real property in Australia when their accounts are kept primarily in a foreign currency at the time of disposal. In this scenario, the use of functional currency rules is mandatory. However, the guide does not address income from overseas permanent establishments of resident taxpayers.

Functional currency translation rules

The functional currency translation rules are an exception to the core foreign currency translation rules.

Under the core foreign currency translation rules, amounts in a foreign currency must be translated into Australian dollars (A$). There are also rules about when and at what exchange rate a translation is to take place for a given type of transaction.

Under the functional currency rules, you can use a currency other than A$ as the unit of account to work out your taxable income or tax loss. The core foreign currency translation rules continue to apply to amounts and transactions not covered by the functional currency rules.

If you are an eligible taxpayer who keeps your accounts solely or predominantly in a particular foreign currency, you can choose to use that foreign currency as the unit of account to work out your taxable income or tax loss.

If you have made such a choice (that is, an effective functional currency choice), you do not translate transactions you undertake in either a foreign currency or in your applicable functional currency into A$. Rather, you translate only your net amount of taxable income or tax loss calculated in your applicable functional currency into A$.

The core foreign currency translation rules are contained in section 960-50 of Subdivision 960-C of the Income Tax Assessment Act 1997 (ITAA 1997).

The functional currency translation rules are contained in section 960-80 of Subdivision 960-D of the ITAA 1997.