Who should use this publication?
This publication is for Australian resident individual taxpayers who:
- paid foreign tax on income they received from outside Australia, and
- intend to use TaxPack 2004 to fill in their tax return.
Who can claim a foreign tax credit?
If you receive foreign income that is taxable in Australia and you paid foreign tax for which you were personally liable in respect of that income, you may be entitled to a foreign tax credit.
If you are claiming a foreign tax credit in respect of a foreign capital gain, you should include a note on your income tax return that specifies the amount of the foreign capital gain included in your net capital gain.
What can you claim for?
A credit can be allowed for:
- a foreign tax which is similar to Australian income tax or capital gains tax
- foreign withholding taxes similar to Australian withholding taxes on interest, dividends or royalties
- foreign taxes listed in Australia's double taxation agreements.
Note: You are not allowed a credit for penalties, fines or interest.
If you are not sure whether you can apply for a foreign tax credit, print Schedule of additional information-Question 19 on the top of a separate piece of paper and explain your situation. Include:
- your name, address and tax file number
- the precise name of the tax and the country in which it was levied
- the name of the law under which the tax was imposed
- whether the tax was levied by a national, state or local authority and the name of the authority
- a description of the tax and why you had to pay it.
Print X in the YES box at Taxpayer's declaration question 2a on page 8 of your tax return.
Sign and attach your schedule to page 3 of your tax return.
Foreign tax credit for a dividend paid from attributed income
If you are an Australian resident and you receive a dividend that has been wholly or partly paid out of income that was previously attributed to you and therefore already subject to Australian tax, the whole or part of the dividend will be exempt from tax.
Attributed income is income that arises from an investment in a controlled foreign company, a foreign investment fund or foreign life policy, or from a transferor trust. Attributed income is shown at item 18 on your tax return (supplementary section).
Credit for foreign taxes paid after your assessment
You are only allowed a credit for foreign tax which you have actually paid.
If you do not pay the foreign tax until after your original assessment, you will need to ask for an amended determination of your foreign tax credit entitlement if you wish to receive a credit.
Your assessment may also need to be amended to take account of any additional foreign tax that you may have paid.
What evidence do you need to prove you have paid foreign tax?
You will need written evidence of payment of foreign tax, such as:
- a notice of assessment from the foreign tax authority and a receipt for the tax paid
- a statement from the foreign tax authority setting out the particulars that would normally be recorded on a notice of assessment and a receipt for payment
- a certificate for deduction of withholding tax issued by the person who pays the interest, dividend or any other income that is subject to foreign tax.
Keep the evidence with your other records. You may need to produce it later.