How to handle exchange rate differences on foreign payments?

ccc

Hi,

I am currently working on a contract for US company and they are paying in dollars. To get a better exchange rate I usually wait for two or three payments before converting to Euros. When working out my gross income for the Revenue how do I handle a payment where the exchange rate on the date I recieve payment is different to rate on the date I convert to Euros.

For example I get a payment in 2007 where 1 Euro = $1.36 on the date of reciept. In 2008 I am going to convert the dollars to euros the rate is 1 Euro = $1.46. So i have lost out on 10 UScents per dollar converted. How do I account for the difference in exchange rates. Hope this makes sense. Appreciate any input you can provide.

Leon11

Sorry just re-read and I'm not sure how it works out for individuals, I'd only know what to do from a companies point of view. If I was to hazard a guess I'd imagine it's an allowable loss for your tax returns ie you could net either 20%/41% of the loss against your income, opposite happens if it's a gain, you'll be taxed on that too. However seeing as your receiving the actual payment on one date and then converting at a later date I don't think you're entitled to claim such losses. I'm open to correction though someone with experience should be able to clarify, only a student:(

ccc

Thanks Leon11. I am a sole trader and I invoice the US company every month. Wouldn't this structure be the same as a company? If so how would a company handle this scenario.

Mr. Incognito

For prior year years Revenue have a list of rates that they release in a tax briefing at the start of every year. For 2007 the accepted US/Euro rate is 1.3705.

When a sole trader is in receipt of periodic payments you'll have to use the spot rate for the date the payment is received. It does not matter if you wait a few months or even, in fact never exchange it in fact to euros and the losses and gains you may make are disregarded.

For filing the return I would use the rate in line with the Revenue rates- i. for your 2007 return 1.3705. For monthly invoices etc you'll have to use a spot rate.

Companies would follow the same procedure when filing a CT1.

If you want to get spot rates use the daily/monthly average rate per Oanda- www.oanda.com

As you query relates to Revenue Returns- you can use the prior year rates.

ccc

Thanks SetantaL for the clear explanation.