It is common for assets or liabilities held by a Business to change in value for accounting purposes even where no actual transactions have taken place. For example, assets on the balance sheet may be revalued, or holdings of foreign currencies or loan liabilities denominated in a foreign currency may fluctuate with exchange rates.

As the value of an asset or liability changes, gains or losses could arise even where there has been no actual disposal or transfer (i.e. “realisation”) of the asset or liability. Thus, where an asset has appreciated (i.e. increased in value) without being realised (e.g. sold), a Taxable Person could face potential tax liabilities despite receiving no

cash payment that could be used to fund the tax liability. A similar (but opposite) consideration also arises in relation to the Taxable Person’s liabilities.

Taxable Persons are required to include any realised or unrealised gains and losses reported in the Financial Statements in the calculation of their Taxable Income, if they would not subsequently be recognised in their income statement. This is unless they make the election to use the realisation basis as outlined in Section