FEDERAL COURT OF AUSTRALIA Victoria Co Limited v Deputy Commissioner of Taxation [2000] FCA 1622 TAXATION AND REVENUE – income tax – public ruling by Commissioner on applicability of income tax law on currency exchange gain or loss – whether ruling applied to determine income tax liability of taxpayer. Income Tax Assessment Act 1936 (Cth) Div 3B (Pt III); ss 82U, 82V, 82Z, 82Z(3), 170BA, 170BA(1) Income Tax (International Agreements) Act 1953 (Cth) s 4 Taxation Administration Act 1953 (Cth) Pt IVAAA; ss 14ZAAA, 14ZAAE, 14ZAAF, 14ZAAG, 14ZAAH, 14ZZ Taxation Laws Amendment (Self Assessment) Act 1992 (Cth) s 12(2) Commissioner of Taxation v Energy Resources of Australia Ltd (1996) 185 CLR 66 applied Commissioner of Taxation v Energy Resources of Australia Ltd (1994) 54 FCR 25 applied VICTORIA CO LIMITED (ARBN 050 584 202) v DEPUTY COMMISSIONER OF TAXATION WG 60-61 OF 1998 LEE J 15 NOVEMBER 2000 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WG 60-61 OF 1998 BETWEEN: VICTORIA CO LIMITED (ARBN 050 584 202) APPLICANT AND: DEPUTY COMMISSIONER OF TAXATION RESPONDENT JUDGE: LEE J DATE OF ORDER: 15 NOVEMBER 2000 WHERE MADE: PERTH THE COURT ORDERS THAT: The "appeals" be dismissed with costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WG 60-61 OF 1998 BETWEEN: VICTORIA CO LIMITED (ARBN 050 584 202) APPLICANT AND: DEPUTY COMMISSIONER OF TAXATION RESPONDENT JUDGE: LEE J DATE: 15 NOVEMBER 2000 PLACE: PERTH REASONS FOR JUDGMENT 1 These matters are "appeals" made by the applicant ("Victoria") under s 14ZZ of the Taxation Administration Act 1953 (Cth) ("the TA Act") against "appealable objection decisions" made by the respondent ("the Commissioner"). The decisions of the Commissioner disallowed taxation objections lodged by Victoria against assessments of income tax made by the Commissioner pursuant to the Income Tax Assessment Act 1936 (Cth) ("the Act") in respect of the income years of Victoria, 1 June 1993 to 31 May 1994 and 1 June 1994 to 31 May 1995. 2 In its taxation objections Victoria contended that the Commissioner should have allowed deductions in those income years of $3,431,856 and $12,128,501 respectively, thereby reducing the taxable income in each income year to nil. 3 The following facts were not really in issue. 4 Victoria is a company incorporated in Japan. At all material times it was registered in Australia as a foreign company under the "Corporations Law". For the purpose of the Act, and the Income Tax (International Agreements) Act 1953 (Cth) (s 4), it conducted its business in Australia in or through a permanent establishment. 5 On 5 December 1989 Victoria, and a number of subsidiaries, entered into an agreement ("the Sale Agreement") to purchase the interests of, inter alia, Genting Berhad, a company incorporated in Malaysia, and its subsidiaries, in the Burswood Property Trust ("the Trust") the trustee of which owned on behalf of the Trust the Burswood Resort Casino ("the Casino") situated in Western Australia. 6 The Casino was operated by Genting (Western Australia) Pty Ltd ("Genting") under a Casino Operation Management Agreement ("Casino Management Agreement") made between Genting and the Trustee and another. 7 As part of the Sale Agreement Genting agreed that on "the completion" date of the Sale Agreement it would enter into an agreement to assign the whole of its right, title and interest in the Casino Management Agreement to Victoria or its nominee for a consideration of $A55 million. 8 Pursuant to the Sale Agreement Victoria was required, by 15 December 1989, to pay to the Sumitomo Bank, Limited ("Sumitomo") in Japan, as stakeholder, the sum in yen equivalent to $A75,676,015 using a conversion rate of Ą112.07 to $A1 - namely, Ą8,481,011,001. 9 On 13 December 1989 Victoria was granted a Euroyen Special Overdraft Facility ("first overdraft") by Sumitomo to a limit of Ą8.5 billion for a term of five years. The first overdraft was fully drawn by Victoria on 15 December 1989 and a sum of Ą8,481,011,001 deposited by Victoria in an interest-bearing term deposit with Sumitomo. That sum, with accrued interest, was reinvested on maturity from time to time until 6 August 1990. 10 In May 1990 the State of Western Australia limited the interest in the Trust that Victoria may acquire pursuant to the Sale Agreement. Pursuant to the Sale Agreement, the sum required to be held on deposit with Sumitomo was reduced accordingly. Victoria became entitled under the Sale Agreement to recover from the deposit Ą3,531,368,736, with interest, an aggregate sum of Ą3,701,245,170. That sum was withdrawn by Victoria from the stakeholder deposit on 6 August 1990 and applied to a cheque account Victoria operated with Sumitomo. 11 On 21 May 1990 Victoria arranged a Special Overdraft Facility with Sumitomo in the sum of Ą10.3 billion for a term of three months ("second overdraft"). The second overdraft was fully drawn on the same day and the amount deposited by Victoria in interest-bearing accounts with Sumitomo. 12 On 27 June 1990 Victoria arranged another Euroyen Special Overdraft Facility with Sumitomo for a sum of Ą16 billion ("third overdraft"). On 31 July 1990 Ą10.3 billion was drawn on the third overdraft and used to repay the second overdraft in full. No other drawing was made on the third overdraft thereafter. 13 The "completion date" of the Sale Agreement was 13 August 1990. On that date Genting entered an agreement with Victoria ("the Casino Management Sale Agreement") for the sale and purchase of the whole of Genting's right, title and interest in the Casino Management Agreement for the sum of $A55 million. Victoria paid Genting that sum on that date. The sum was paid from Australian dollars Victoria purchased on 31 July 1990 with yen obtained from its cheque account into which some of the borrowed monies held in interest-bearing accounts had been transferred on that day, and on 7 August 1990 with yen from its cheque account into which on 6 August 1990 the balance of the stakeholder deposit to which Victoria was entitled under the Sale Agreement had been paid and a sum of approximately Ą5.3 billion transferred from another interest-bearing account to which the borrowed funds had been applied. For the purpose of the argument in these proceedings it was accepted that the exchange rate on 13 August 1990 was Ą117.07 to $A1 and that the cost in yen to purchase $A55 million on that day would have been Ą6,438,850,034. 14 On 31 May 1991 Victoria reduced the sum of Ą10.3 billion owing under the third overdraft to Ą10 billion. On 6 September 1991 Victoria arranged a loan with Sumitomo in the sum of Ą10 billion. Victoria applied that sum on the same day to the discharge of the third overdraft. The loan was for a fixed term of two years. Upon expiry of the loan on 7 September 1993 Victoria obtained another loan from Sumitomo in the sum of Ą10 billion, the whole of which was applied to the discharge of the previous loan. The replacement loan was for a term of seven years with monthly repayments of the borrowed sum. The loan was discharged in full by payments made by Victoria on 20 and 31 May 1994. 15 All of the lending arrangements described above, and all repayments thereunder, were made in yen in Japan. No conversion to Australian dollars was made, in fact or notionally, to calculate in Australian dollars the amount received under the loans or the amount required for repayment of the loans. 16 The Commissioner did not admit formally that the documentary case presented by Victoria established a connection between the yen borrowed in Japan and the payment in Australia of $A55 million to acquire the Casino management rights. Counsel for the Commissioner referred to movements of funds in the several accounts Victoria held with Sumitomo in Japan as events that remained unexplained and capable of supporting a conclusion other than that asserted by Victoria. 17 The relevant connection, however, was deposed to by officers of Victoria conversant with the financial affairs of the company. Notwithstanding that statements of those deponents were inclined to assert conclusions rather than identify the relevant facts relied upon, their affidavits were admitted without objection and the deponents were not required to present themselves for cross-examination. Given that the officers concerned possessed knowledge of the material circumstances, I am prepared to accept that the connection between the borrowings and the acquisition of the relevant amount of Australian dollars was made out by their depositions to that effect and by inferences available from the documentary evidence adduced by Victoria. 18 Victoria claims that the assessments issued by the Commissioner were excessive in that they did not allow as a deduction a "foreign currency exchange loss" which Victoria says occurred on 7 September 1993 when Victoria "rolled-over" a loan which it says had been used for, inter alia, the acquisition of the Casino management rights. Victoria claims that such a "foreign currency exchange loss" was a capital loss deductible pursuant to the provisions of Div 3B of Pt III of the Act. 19 The loss claimed is the result of a notional calculation of the difference between the sum in Australian dollars that would have been required to obtain a sum of Ą6,438,850,034 on 6 September 1991 and the sum in Australian dollars that would have been required to obtain Ą6,438,850,034 on 7 September 1993. 20 For that calculation a conversion rate of Ą106.8 to $A1 is applied for 6 September 1991 and Ą67.78 to $A1 for 7 September 1993, resulting in the latter sum being $A34,707,459 greater than the former. Victoria claimed a deduction in that amount for the 1994 income year as a currency exchange loss and carried forward the balance as a deduction in the 1995 income year. 21 On the hearing of the "appeals" Victoria accepted, albeit without formal admission, that pursuant to Div 3B (s 82Z(3)) calculation of a currency exchange loss in the 1994 income year in the manner claimed by Victoria should have had regard to a gain received in May 1994, the date on which the loan received from Sumitomo on 7 September 1993 was discharged. It was accepted that by the relevant date in May 1994 the exchange rate had appreciated to Ą74.65 to $A1 producing a notional currency exchange gain of $A8,742,446 by reduction of the amount of Australian dollars equivalent to Ą6,438,850,034 between 7 September 1993 and May 1994. The net currency exchange loss claimed by Victoria in that income year, therefore, was $A25,964,993. 22 Counsel for Victoria submitted that pursuant to s 170BA of the Act the Commissioner was required to assess the liability of Victoria to income tax in accordance with Taxation Ruling 93/8 ("TR 93/8"), a public ruling issued by the Commissioner on 25 March 1993. At the relevant time s 170BA read as follows: "170BA(1) In this section: 'final tax', in relation to a person, means ruling affected tax payable in relation to the person after allowing: (a) a credit within the meaning of Division 19 of Part III; or (b) an offset within the meaning of Division 1 of Part IIIAA; 'ruling affected tax' means: (a) income tax; or (b) franking deficit tax within the meaning of Part IIIAA; or (c) Medicare levy; but does not include withholding tax; 'withholding tax' includes mining withholding tax. (2) Expressions used in this section have the same meanings as in Part IVAAA of the Taxation Administration Act 1953. (3) Subject to section 170BC, if: (a) there is a public ruling on the way in which an income tax law applies to a person in relation to an arrangement ('ruled way'); and (b) that law applies to a person in relation to that arrangement in a different way; and (c) the amount of final tax under an assessment in relation to that person would (apart from this section and section 170BC) exceed what it would have been if that law applied in the ruled way; the assessment and amount of final tax must be what they would be if that law applied in the ruled way." 23 TR 93/8 was predicated on the Commissioner's opinion that a currency exchange gain or loss could be realised without Australian dollars being outlaid to acquire the relevant foreign currency in a transaction in that currency undertaken by a taxpayer. TR 93/8 remained in force until 3 July 1996 when, by a notice issued by the Commissioner, it was stated that TR 93/8 was withdrawn "in consequence of the decision of the High Court in Commissioner of Taxation v Energy Resources of Australia Ltd (1996) 185 CLR 66 [which] necessitates a review of matters addressed by the Ruling". 24 In Energy Resources the High Court pointed out that there was nothing in the Act which required notional conversions to be made of a transaction in foreign currency made by a taxpayer, where the transaction was on capital, and not revenue, account. Thus, the Act did not apply to a hypothetical or notional capital loss or gain for a taxpayer that resulted from a fluctuation in a currency exchange rate. In Energy Resources the taxpayer, or its wholly-owned subsidiary, obtained US dollars under a finance facility, and applied the borrowed funds to the development and operation of a mining project in Australia. Obviously that expenditure entailed conversion of the borrowed funds from time to time. The taxpayer discharged its liability in US dollars under the finance facility by funds obtained from the issue of promissory notes in US dollars. Funds from subsequent issues of promissory notes, together with other funds the taxpayer held in US dollars, were used to discharge the liability of the taxpayer under each preceding issue of promissory notes. No part of the proceeds of any issue was remitted to Australia. The unit of account and unit of payment under the contracts constituted by the promissory notes were US dollars on each occasion. The High Court held that under the promissory note contracts any gain or loss could only be in US dollars and that for the purpose of Div 3B no currency exchange gain or loss occurred in such circumstances unless a borrower converted to Australian dollars the sum received and converted Australian dollars to US dollars to repay the loan and even then "the profit or loss results from the exchange transaction and not from the borrowing". (See: Energy Resources at 79.) 25 In respect of the first and second overdrafts Victoria used part of the yen borrowed in Japan to acquire Australian dollars and used the sum so acquired to acquire assets in Australia. However, no Australian dollars were converted to yen to perform any obligation to repay the funds advanced under those overdrafts. 26 In respect of the third overdraft and subsequent contracts of loan, all advances were in yen and no part thereof was remitted to Australia or converted. All repayments were in yen and no sum of Australian dollars was converted to yen to make such repayments. 27 It was not submitted that the law set out in Energy Resources was inapplicable to the relevant facts in these proceedings and it was accepted that if the law as set out in Energy Resources were applied to those facts, Victoria's claim for a deduction could not succeed. 28 Section 170BA provided, however, that the Commissioner was bound to assess Victoria's liability to income tax for the 1994 and 1995 income years according to TR 93/8 if the amount of income tax to be assessed according to the income tax law would exceed that assessed by applying the income tax law in the manner set out in TR 93/8. 29 The starting point, therefore, is the extent to which TR 93/8 ruled on the way in which the income tax law applied to Victoria in relation to "an arrangement". 30 Public rulings are defined in s 14ZAAA of the TA Act as rulings made under ss 14ZAAE, 14ZAAF and 14ZAAG of the TA Act. The relevant provisions are contained in Pt IVAAA of the TA Act which was inserted by the Taxation Laws Amendment (Self Assessment) Act 1992 (Cth) which provided in s 12(2) thereof as follows: "In spite of s 14ZAAH of the [TA Act] as amended by this Act, a public ruling does not apply to any arrangement within the meaning of s 14ZAAA of that Act as so amended that began to be carried out before 1 July 1992..." 31 Section 14ZAAH of the TA Act states: "14ZAAH(1) Subject to subsection (2), a public ruling about a class of arrangements applies to all arrangements in the class, whether past, present or future. 14ZAAH(2) If a public ruling states that it is to apply only to arrangements begun to be carried out after a specified date, the ruling only applies to those arrangements." 32 Section 14ZAAA of the TA Act defines "arrangement" as including: "(a) scheme, plan, action, proposal, course of action, course of conduct, transaction, agreement, understanding, promise or undertaking; or (b) part of an arrangement;" 33 Relevantly, s 14ZAAE provides: "The Commissioner may make a public ruling on the way in which, in the Commissioner's opinion, a tax law or tax laws would apply to any person in relation to a class of arrangements." 34 The question in the instant matter is the extent to which TR 93/8 ruled on the way in which, in the Commissioner's opinion, the tax law applied to any person in relation to a class of arrangements. Under the heading "What this Ruling is about" TR 93/8 read as follows in pars 1-4 thereof: "1. This Ruling explains: (a) when a taxpayer realises a foreign currency exchange gain or loss of a capital nature under Division 3B of Part III of the Income Tax Assessment Act 1936 (ITAA); and (b) the meaning of 'eligible contract' in Division 3B. 2. Division 3B applies only to foreign currency exchange gains and losses (referred to in this Ruling as foreign exchange gains and losses) of a capital nature. It does not apply to gains or losses of a capital nature unrelated to the production of assessable income or the carrying on of a business for the purpose of producing assessable income. Nor does it apply to gains or losses of a private or domestic nature or to those gains made or losses incurred in relation to production of exempt income. 3. The concepts of realisation and eligible contract are central to Division 3B. Under the Division, a foreign exchange gain made under an eligible contract is assessable income of a taxpayer in the year of income it is realised. Similarly, a foreign exchange loss incurred under an eligible contract is an allowable deduction in the income year it is realised. 4. This is the first of a number of Rulings concerning the interpretation of Division 3B. Each of those Rulings will address one or more major issues relating to Division 3B." 35 The relevant sections of Div 3B are ss 82U, 82V and 82Z which, in relevant respects, and at the relevant times, read as follows: "82U(1) This Division applies in relation to gains and losses only to the extent to which they are of a capital nature. 82U(2) This Division does not apply to a loss incurred by a taxpayer except to the extent to which, if the loss were not of a capital nature, a deduction would be allowable to the taxpayer under section 51 in respect of the loss. 82U(3) This Division does not apply to a gain made by a taxpayer under a contract except to the extent to which, if the taxpayer had incurred a loss under the contract and that loss had not been of a capital nature, a deduction would have been allowable to the taxpayer under section 51 in respect of the loss. 82U(4) This Division applies according to its tenor in relation to gains made and losses incurred before or after the commencement of this Division. 82V(1) In this Division, unless the contrary intention appears – "arrangement" means – (a) any agreement, arrangement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable, or intended to be enforceable, by legal proceedings; and (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise; … "commencing day" means 19 February 1986; … "currency exchange gain" means a gain to the extent to which it is attributable to currency exchange rate fluctuations; "currency exchange loss" means a loss to the extent to which it is attributable to currency exchange rate fluctuations; "eligible contract", in relation to a taxpayer, means – (a) a contract entered into by the taxpayer on or after the commencing day, other than a hedging contract; or (b) a hedging contract entered into by the taxpayer, on or after the commencing day, in relation to a contract to which paragraph (a) applies; "hedging contract", in relation to a taxpayer, means a contract that is entered into by the taxpayer for the sole purpose of eliminating or reducing the risk of adverse financial consequences that might result for the taxpayer or an associate of the taxpayer, under another contract, from currency exchange rate fluctuations. 82V(2) For the purposes of this Division – (a) a currency exchange gain made, or a currency exchange loss incurred, in respect of currency purchased under a contract shall be taken to have been made or incurred under that contract; (b) a gain shall be taken to have been made, or a loss to have been incurred, at the time when it was realised; and (c) a reference to a person acquiring rights or obligations arising under a contract is a reference to the person acquiring such rights or obligations otherwise than by reason of having entered into the contract. 82V(3) Subject to sub-section (4), where a taxpayer acquires rights or obligations arising under a contract, this Division applies in relation to the taxpayer as if the contract had been entered into by the taxpayer at the time when, and for the purposes for which, the taxpayer acquired the rights or obligations. 82V(4) Where – (a) a taxpayer acquires rights or obligations arising under a contract that was (apart from sub-section (3)) entered into before the commencing day; and (b) the Commissioner is satisfied that the rights or obligations were acquired under or as a result of an arrangement that was entered into or carried out by any person (whether before or after the commencement of this Division) for the purpose, or for purposes that included the purpose, of ensuring that a deduction would be allowable under this Division in respect of a currency exchange loss incurred under the contract, sub-section (3) does not apply to the acquisition by the taxpayer of the rights or obligations and, if the rights or obligations were acquired by the taxpayer under another contract, that other contract shall be deemed for the purposes of this Division to have been entered into by the taxpayer before the commencing day. 82Z(1) Subject to this section, a currency exchange loss incurred by a taxpayer in a year of income under an eligible contract is an allowable deduction in respect of the year of income. …" 36 The terms of Div 3B define the "arrangement" to which TR 93/8 could apply. Under s 82Z the relevant arrangement must involve an "eligible contract". Therefore, under s 12(2) of the Taxation Laws Amendment (Self Assessment) Act 1992 (Cth), s 14ZAAH must be read as a provision limiting the Commissioner's discretion in respect of the making of a public ruling under s 14ZAAE in respect of Div 3B, to an arrangement involving an eligible contract that began to be carried out on or after 1 July 1992. 37 In pars 55-65 of TR 93/8 the Commissioner set out his opinion on the law as to when a foreign currency exchange loss or gain is realised, and asserted (par 56) that a "taxpayer can realise a foreign exchange gain or loss arising from a liability in a foreign currency without outlaying Australian dollars to acquire the relevant currency to satisfy the liability. Similarly, a taxpayer can realise a foreign exchange gain or loss arising from a right to receive foreign currency without converting the amount received to Australian dollars." The Commissioner opined (par 61) that "[a]n interpretation…that required conversion to or from Australian dollars in order to realise a gain or loss within the meaning of paragraph 82V(2)(b) could only be adopted on the basis of unequivocal judicial authority". Energy Resources provided that authority. 38 In pars 78 and 79 of TR 93/8 the Commissioner set out an "example" of a borrowing in foreign currency which it was said gave rise to a "foreign exchange loss". On its face, the "example" appeared to support the case contended for by counsel for Victoria. The relevant paragraphs read as follows: "78. Assemble Ltd, an Australian resident manufacturing company, borrowed $US1 million on 1 July 1991 to purchase a portfolio of shares as an investment. On 1 July 1992 it sold the shares for $US1 million, and with the US dollar proceeds repaid the loan. None of these transactions involved the payment or receipt of Australian currency. Assume the relevant exchange rates were: 1 July 1991: US75˘ = $A1 1 July 1992: US70˘ = $A1 The Australian dollar equivalent of the loan when: Drawn down $A1,333,333 (i.e. $US1,000,000/.75) Repaid $A1,428,571 (i.e. $US1,000,000/.70) 79. The fact that there has been no outgoing of Australian dollars does not preclude an exchange loss being realised. Assemble realised a foreign exchange loss of $A95,238 on 1 July 1992 when it satisfied its liability by repayment. That loss is an allowable deduction for Assemble under subsection 82Z(1) for the income year ended 30 June 1993." 39 As noted earlier, the decision in Energy Resources resulted in TR 93/8 being withdrawn in July 1996. However, if the opinion of the Commissioner, set out in TR 93/8, applied to the circumstances on which Victoria's liability to income tax was to be assessed, then, pursuant to s 170BA of the Act, the Commissioner was bound to assess that taxation liability according to the terms of TR 93/8. 40 By reason of s 12(2) of the Taxation Laws Amendment (Self Assessment) Act 1992 (Cth) the Commissioner was not empowered to issue a public ruling capable of binding the Commissioner under s 170BA in respect of an "eligible contract" that had begun to be carried out before 1 July 1992 and the relevant substantive paragraphs of TR 93/8 (pars 55-65) had to be read accordingly. The "example" recited in pars 78 and 79 of TR 93/8 did not reflect a contract to which pars 55-65 of TR 93/8 could apply in so far as the contract of loan in a foreign currency described therein began before 1 July 1992. The erroneous content of the "example" could not expand the Commissioner's authority beyond that provided by statute. 41 Counsel for Victoria submitted, however, that repayment in September 1993 of the loan obtained under a contract made in September 1991 was "part of an arrangement" and, therefore, was a circumstance to which a public ruling could be addressed under s 14ZAAE. 42 That submission begs the question whether Div 3B had any operation in respect of such a "part of an arrangement" and as to what meaning of arrangement as defined in s 14ZAAA of the TA Act was relevant for the purpose of the exercise of the discretion vested in the Commissioner by s 14ZAAE of the TA Act. 43 Division 3B is concerned with the outcome of a contract and events under a contract that establish that a currency exchange gain or loss has occurred and has been realised. To receive a loan pursuant to a contract is not enough. A currency exchange gain or loss must be made or incurred "under" that contract of loan. 44 In Commissioner of Taxation v Energy Resources of Australia Ltd (1994) 54 FCR 25 at 50-54, Gummow J explained the meaning of a currency exchange gain or loss in Div 3B and the meaning of the words "under an eligible contract". The appeal from that decision was determined in Energy Resources. The reasons of Gummow J were consistent with the reasons expressed by the High Court on the appeal. 45 As Gummow J stated (pp 53-56), when Div 3B speaks of a gain or loss being made or incurred "under" an eligible contract it suggests that the gain or loss was made or incurred in exercise of a right, or discharge of an obligation, conferred or imposed by the terms of the eligible contract and not a gain or loss that has, in a broad sense, a contract as the source of that gain or loss. 46 Although more than one contract may make up the "eligible contract" for the purpose of Div 3B, the relevant rights and obligations in respect of which currency was purchased and from which a currency exchange rate fluctuation could be identified were to be found in that "eligible contract". As expressed by Gummow J (p 54): "In my view, a currency exchange gain, for the purposes of the Division, shall be taken to have been made or incurred under an eligible contract when realised in respect of currency purchased in the exercise of rights or the performance of obligations arising under the terms of the eligible contract." 47 Division 3B does not operate on "part" of a contract, for example, the repayment simpliciter of a sum borrowed, divorced from consideration of the balance of the contract. No gain or loss occurs under the contract by reason of that payment alone. That is, conversion to a foreign currency to make the payment under the contract is not an event in itself that involves a currency exchange rate fluctuation under the contract. Division 3B is concerned with the currency exchange gain or loss that arises under an "eligible contract" namely, the net position after receipt and repayment of the loan by currency exchange. 48 Notwithstanding that the Commissioner's opinion expressed in TR 93/8 (par 57) was incorrect, namely, that a "foreign exchange gain or loss" was realised regardless of whether a taxpayer converted from Australian dollars to discharge a liability in a foreign currency, the Commissioner did not purport to state that such a payment in itself created a currency exchange gain or loss. Under TR 93/8, the Commissioner's position was that the relevant times were the time of creation and time of discharge of a liability in a foreign currency regardless of whether there had been conversion to Australian dollars. The Commissioner was well aware that a gain or loss from a fluctuation in a currency exchange rate depended upon the occurrence of events under a contract in respect of which such a fluctuation could be demonstrated. Where the Commissioner stated that the gain or loss was realised "from [a] liability" it was understood that an antecedent event under a contract had created a liability to pay, subsequent to which a currency exchange rate fluctuation could be identified. 49 It follows, therefore, that TR 93/8 did not express an opinion on the operation of Div 3B inconsistent with the law, other than in respect of the application of Div 3B to notional conversions. Consequently, TR 93/8 did not purport to apply to a contract of loan that "began" before 1 July 1992. The Commissioner did not intend, nor was he empowered, to issue a public ruling in respect of a currency exchange made under a contract that began before 1 July 1992. 50 It follows that the "appeals" must be dismissed. I certify that the preceding fifty (50) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee. Associate: Dated: Counsel for the Applicant: D H Bloom QC with J R B Ley Solicitor for the Applicant: Freehill Hollingdale & Page Counsel for the Respondent: A H Slater QC with L B Price Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 28 April 2000 Date of Judgment: 15 November 2000