Instructions to complete your foreign income tax offset.
J – Foreign income tax offset
Write at item 20 – label J the allowable foreign income tax offset referable to the current year of income. Do not include any allowable pre-commencement excess foreign income tax.
Include the amount at label J in the Calculation statement at label C Non-refundable non-carry forward tax offsets.
Include in the Calculation statement at label D Non-refundable carry forward tax offsets any allowable pre-commencement excess foreign income tax that has not already been utilised, provided it has not already expired.
The company may be able to claim a foreign income tax offset where it has paid foreign income tax on an amount included in its assessable income.
The company’s foreign income tax offset cannot exceed the lesser of:
- the foreign income tax paid, or
- its foreign income tax offset limit (the greater of $1,000 and the amount calculated under paragraph 770-75(2)(b) of the ITAA 1997).
The company is taken to have paid foreign income tax on an amount included in its assessable income where the foreign income tax has effectively been paid by someone else on its behalf under an arrangement with it or under the law relating to that tax. For example, foreign income tax paid by deduction or withholding, or by a trust (or partnership) in which the company is a beneficiary (or partner).
When determining whether a foreign income tax offset is allowable, the company must refer to and adhere to the provisions of Division 770 of the ITAA 1997.
The following are key points:
- You cannot claim a foreign income tax offset for amounts of attributed income included under section 459A of the ITAA 1936.
- You cannot claim a foreign income tax offset in certain circumstances where there has been a refund of foreign income tax or a receipt of any other benefit as a direct result of the payment of the foreign income tax.
- You cannot carry-forward an amount of excess foreign income tax for use in a later income year.
- Foreign income tax includes foreign tax forgone on income by foreign countries under tax sparing arrangements where the tax sparing amounts are subject to Australia’s tax treaty with the relevant country.
- The foreign income tax paid on the offshore banking income of an OBU is taken to be one-third (the current offshore banking eligible fraction) of the amount of foreign income tax actually paid (see subsection 121EG(3A) of the ITAA 1936). This rule does not apply where the OBU has had excessive use of non-OB money (see section 121EH of the ITAA 1936).
- The foreign income tax offset rules described above also apply to the head company of a consolidated or MEC group. Where a subsidiary member paid foreign income tax on an amount included in the head company’s assessable income, the head company is treated as having paid the foreign income tax and is eligible to claim a foreign income tax offset.
For more information on how to calculate the company’s allowable foreign income tax offset, see the Guide to foreign income tax offset rules 2023.
Changes to Australia's Offshore Banking Unit Regime in 2023-24
As a result of Changes to the Offshore Banking Unit (OBU) regime, an OBU’s assessable offshore banking income will be taxed at its relevant corporate tax rate from the commencement of its 2023–24 income year. Rules that deem an OBU to have only paid one-third of its foreign income tax on its offshore banking income will also no longer apply meaning that its FITO will be calculated using the ordinary rules. The changes will have effect from the commencement of an OBU’s 2023-24 income year. For example, for an OBU whose income year end is 31 December, this will have effect from 1 January 2023. For an OBU whose income year end is 30 June, this will have effect from 1 July 2023.
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