Mark Minihane answers a question on foreign exchange on an unrealised gain on a loan asset.
Q: Is foreign exchange on an unrealised gain on a loan asset subject to tax? My client A lent $100m to B. A has Sterling functional currency for accounting purposes and has revalued the loan asset at year-end resulting in an accounting profit of $5m in the profit and loss account. This profit is however unrealised because A still holds the loan asset and has not sold it or it has not been repaid by B. What is the tax treatment of the accounting ‘profit’ which has arisen?
A: Prima facie a foreign exchange gain or loss on a loan...
