FSI minutes, July 2009

6. Foreign income tax offset (FITO)

Action item	FSISG 0709/01 FSISG 0309/1 - The interaction of the FITO provisions and the ordering rule under subsection 36-17(7) of ITAA 1997.
Description	Between meetings the professional representative for the CPA provided a brief paper with additional analysis of the issue (see attachment 1). The CPA representative took members through the analysis in the paper. The representative for the CPA indicated the effect of the ordering rules under subsection 36-17 (7) may cause a taxpayer to be double taxed on part of the foreign income derived. Response Whilst the Tax Office agreed with the technical analysis presented by the member the Treasury observer directed members to paragraphs 1.144, 1.149 and 1.260 of the Explanatory Memorandum which indicates this is the intended outcome. It was agreed that any discussion on whether the intended policy outcome is the preferred result is beyond the scope of this forum.
Responsibility	The CPA representative would review the content of the EM
Due date	Further inquires directed via the Treasury observer

Defect in the law regarding the treatment of convertible foreign losses in the case of partners and partnerships

The Tax Office advised the law is to be amended to allow partnerships to apply tax losses. The amendments were introduced into parliament on the 25 June, but as the proposed legislation did not receive Royal Assent by 30 June 2009, the Tax Office will apply the following receivables policy:

• If a partnership lodges a return in accordance with the existing law, once the legislation is enacted they should seek an amendment to utilise the CFLs in their return as appropriate. Individual partners would then need to seek consequential amendments to their assessments. Interest on overpayments will be payable on any refund received.
• If a partnership chooses to anticipate the changes, we will not undertake any compliance activity prior to the enactment of the legislation. If a partnership (and consequently the partners) anticipates the change correctly, they will not need to take any further action once the legislation is enacted.
• If a partnership does not anticipate the changes correctly, they will need to seek an amendment of their earlier assessment, as will the individual partners. If a partner acted reasonably in anticipating this change, there will be no tax shortfall penalty, and if they then actively seek to amend their return within a reasonable time, we will remit the GIC attributable to the amendment to nil. Otherwise the full GIC will run from the date the change becomes law.

The Tax Office's mitigation strategy was published on the website.

The professional association representative for ICAA thanked the sub-group members and Treasury for their work in getting this matter resolved in a timely manner.

Sections within Agenda items

• 1. Introduction and welcome
• 2. Confirmation of minutes of the previous meeting
• 3. Action items from the April 2009 meeting and earlier meetings
• 4. Issues register
• 5. Foreign hybrids
• 6. Foreign income tax offset (FITO)
• 7. Thin capitalisation
• 8. Application of the thin capitalisation rules to an Australian entity investing offshore through a PE versus a joint venture
• 9. Treasury update
• 10. International new measures
• 11. International rulings program
• 12. Other business