A South African taxpayer’s taxable income must be determined in rands. Several provisions of the Income Tax Act (the Act) relate to foreign currency transactions and the interaction of these provisions is complicated. A taxpayer needs to determine the provision that applies to his foreign transaction. It will then provide the rule or method that needs to be applied to his foreign transaction. If an amount is in a foreign currency, it must be translated into rands. If there is an exchange item, a foreign exchange gain or foreign exchange loss must be taken into account. If an asset is disposed of or acquired in a foreign currency then a capital gain or capital loss must be calculated when it is disposed of. Examples of typical foreign exchange transactions have been provided, discussed and analysed in this dissertation. The provisions in the Act that are relevant to the foreign exchange transactions have been identified and the interaction between them has been considered. Potential difficulties because provisions in the legislation contradict each other or do not cater for a particular situation were identified. Also possible tax-saving opportunities have been identified. / Thesis (M.Acc.)-University of KwaZulu-Natal, Westville, 2010.