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  • Foreign income tax offset

    If you pay tax on your foreign employment income in the other country and that income is not exempt from tax in Australia, you could pay tax twice on the same income. To prevent this, you may be entitled to claim a foreign income tax offset (FITO) for the foreign income tax you paid.

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    Claiming a FITO for foreign tax paid

    You may be able to claim a FITO on foreign tax you pay if you have both:

    • paid income tax in another country
    • included the same income (or gain) you paid the foreign tax on in your assessable income for Australian tax purposes.

    The FITO rules apply to income years starting on or after 1 July 2008. The FITO is non-refundable and you cannot carry forward any excess.

    Claiming a foreign income tax offset

    You claim the FITO in your Australian tax return in two places:

    • in your assessable income, include the income or gain on which you paid the foreign income tax
    • claim the FITO at item 20 – Foreign source income and foreign assets and property.

    You need to convert your foreign income, foreign deductions and foreign tax paid to Australian dollars.

    If you are claiming a FITO of:

    • $1,000 or less, you only need to record the amount of foreign income tax you paid
    • more than $1,000, you need to work out your FITO limit first.

    Keep sufficient written evidence to support your claim for the FITO.

    When you are considered to have paid foreign tax

    If you have paid an amount of tax to a foreign government that is correctly imposed under the law of the country (and in accordance with any tax treaty the country has with Australia), we consider you to have paid foreign income tax.

    Legitimate payment of tax includes amounts paid on your behalf. For example, if your employer withholds tax from your payments and pays this tax to the foreign government on your behalf.

    We don't consider you to have paid foreign tax if either of the following applies:

    • You are entitled to a refund of the foreign income tax.
    • You receive a benefit that is worked out by reference to the amount of the foreign income tax.

    Foreign taxes that qualify for the offset

    To count towards a foreign income tax offset (FITO), foreign tax must be imposed under a law other than an Australian law and be one of the following:

    • a tax on income
    • a tax on profits or gains, whether of an income or capital nature
    • a tax that is subject to an agreement covered by the International Tax Agreements Act 1953.

    The following types of foreign taxes do not count towards a foreign income tax offset:

    • inheritance taxes
    • annual wealth taxes
    • net worth tax
    • taxes based on production
    • credit absorption taxes
    • unitary tax.

    You are not entitled to a FITO if you pay tax in another country on a benefit and your employer pays fringe benefits tax in Australia on the same benefit.

    Penalties, fines and interest do not qualify as foreign tax.

    Claiming a FITO and foreign tax

    You can't claim a FITO before you pay the foreign tax. But you can amend your tax return to claim the FITO after you have paid the foreign tax.

    To claim a FITO, you must have already paid tax in another country. If you have to lodge your Australian tax return before you have paid the tax in the foreign country, you cannot claim the FITO on that tax return. This situation can arise as the other country and Australia may have different income tax years.

    Once you have paid the foreign tax, you can seek an amendment to your Australian income tax assessment to claim the FITO. You have up to 4 years from the date you paid the foreign income tax (or there was a change in the amount of foreign income tax you paid that counts towards the offset) to request an amendment.

    Deferring paying tax when claiming FITO

    Whether you can defer paying tax because you are going to claim a FITO will depend on the circumstances. Generally, you must pay your assessed income tax by the date provided on your notice of assessment.

    In some circumstances we may allow you to defer the due date for payment. For example, if you are due to pay foreign tax in the coming months and will then amend your Australian return to claim a FITO that will wipe out your tax liability, we may allow a payment deferral.

    You need to ask us for a deferral. If you lodge through a tax agent, they will be able to do this for you. Alternately, you can phone us. If you phone us, you can also discuss other options available.

    Showing you have paid foreign tax

    To be eligible for a FITO, you need written evidence of the foreign tax you actually paid.

    Written evidence of foreign tax paid should include the following details:

    • the amount of foreign income or gains in the foreign currency
    • the foreign tax year in which the income or gains were derived
    • the nature and amount of foreign tax levied on the foreign income or gains
    • the date on which the foreign tax was paid
    • whether the tax paid represents an advance, instalment, or final foreign tax payment in relation to the relevant foreign income or gains.

    Written evidence could be either:

    • a statement from the foreign tax authority setting out the particulars that would normally be recorded on a notice of assessment, a similar official receipt or other document evidencing payment of foreign income tax
    • payslips, payment summaries or similar documents that show the amount of foreign tax paid – we will accept these where there is no requirement in a foreign country to lodge a tax return
    • a copy of the foreign tax return accompanied by a receipt verifying that the foreign tax, as calculated on the basis of the return, has been paid
    • a letter from the relevant foreign tax authority stating all taxes for that income year have been paid.

    You do not need to include your evidence when you lodge your Australian tax return, but you must be able to provide it if we ask for it.

    If you use a tax agent to prepare and lodge your return, you need to:

    • tell them if you have earned any assessable income that you paid foreign income tax on
    • provide them with evidence you paid the foreign tax.

    If we need information relevant to your assessment that is held overseas, we will tell you in writing and give you time to get the information.

      Last modified: 01 Jul 2022QC 23115