Working out the credit

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This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

End of attention

Your foreign tax credit entitlement for a class of foreign income is the lesser of:

• the creditable foreign tax which you have paid on that class of income and
• the Australian tax payable on that class of income, worked out using the above procedure.

The following example shows the steps to use to work out your foreign tax credit.

Example 4
Working out the foreign tax credit

Step 1

Work out taxable income

Gross up foreign income by the amount of creditable foreign tax paid:

Step 2

Work out the average rate (AR) of Australian tax

Step 3

Work out adjusted net foreign income.

For the passive class of income:

For the other class of income:

Step 4

Work out the Australian tax payable (ATP) on each class of income.

For foreign passive income:

ATP = AR x ANFI (passive income)

ATP = 0.144 x 2,185.53 = 314.72

For foreign other income:

ATP = AR x ANFI (other income)

ATP = 0.144 x 5,960.53 = 858.32

Step 5

Determine allowable foreign tax credit for each class of foreign income.

As the foreign tax paid is more than the Australian tax payable, the foreign tax credit is limited to the extent of the Australian tax payable on the foreign income - that is, $858.32.

The excess credit of $141.68 can be carried forward for offset in later years against Australian tax payable on the same class of foreign income.