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  • Court confirms ATO position on foreign income tax offsets

    The Australian Taxation Office (ATO) welcomes the decision of the High Court to not grant an application for special leave to appeal a decision of the Full Federal Court. The Full Federal Court had found in favour of the ATO in relation to foreign income tax offsets (FITO).

    “The decision is an important clarification of the law, and I encourage taxpayers and their advisors to review any prior FITO claims to ensure that the correct apportionment approach has been taken,” Deputy Commissioner Tim Dyce said.

    The Full Federal Court considered the position of an Australian tax resident who owned long term investments in the US. Upon selling the US investments and paying US tax on the gains, the taxpayer was then taxed on a portion of the gains in his assessable Australian income.

    The taxpayer included the whole of the US tax paid in his FITO to offset against his Australian income tax. However when determining the FITO available, the ATO only allowed the proportion of the US tax paid that related to the capital gain included in his Australian assessable income. The Full Federal Court affirmed the ATO’s position.

    “This decision reminds taxpayers that they can only claim the foreign income tax offset to the extent that the capital gain is assessable in Australia, rather than the full amount assessed in a foreign jurisdiction,” Mr Dyce said.

    “We believe that others may have similarly incorrectly claimed the foreign income tax offset. Now is the time to review any claim and make any necessary voluntary amendments as we intend to commence compliance activity on this issue in the near future.”

    The Full Federal Court decision can be read in full on the Federal Court of Australia websiteExternal Link.

    Taxpayers that identify a discrepancy with their FITO claims can make a voluntary disclosure or engage with us for advice.

    Last modified: 14 Feb 2020QC 61437