Special amendment rules for foreign income tax offsets
Differences between the Australian and foreign tax systems may lead to you paying foreign income tax in a different income year to that in which you include the related income or gains in your Australian assessable income.
If you paid foreign income tax after the year in which the related income or gains have been included in your Australian assessable income, you can amend your assessment for that year to claim the offset. You can lodge an amended assessment within four years of paying foreign income tax that counts towards your tax offset. This time period applies irrespective of when the income or gains were included in your Australian assessable income. In this situation, the foreign income tax must be paid after you have lodged your Australian income tax return for the relevant year.
The four-year amendment period also applies where there has been an increase or decrease in the amount of foreign income tax paid that counts towards your tax offset. The special amendment rules also apply to amendments initiated by the ATO, which may have the effect of extending the normal period of review. In these cases, the four year period starts when the increase in foreign income tax has been paid or when the foreign income tax has been reduced (for example by way of a refund).
The special amendment rules apply only where you have paid foreign income tax or there has been an increase or decrease in the tax paid that counts towards your tax offset. In all other circumstances, the normal amendment rules apply.
For example, where an audit by the ATO has detected an incorrect calculation of the foreign income tax offset limit affecting the amount of the foreign income tax offset previously claimed, we can only amend a taxpayer's assessment within the usual time limits set out in section 170 of the ITAA 1936.
Example 1
Aust Co, an Australian resident company, sells a rental property in the US, making a gain in the 2009-10 income year. The gain is taxed in the US and Australia. Aust Co pays the US income tax before lodging its Australian return for the 2009-10 income year.
In February 2012, Aust Co receives a refund of part of the US tax paid because of the favourable outcome of a dispute over the calculation of the gain. An amendment to Aust Co's 2009-10 assessment to reflect the reduction in US tax paid, and consequently its foreign income tax offset, can be made on or before February 2016.
As with your tax affairs generally, you need written evidence to support a claim for a foreign income tax offset, and you must keep such evidence so you can provide it to the ATO on request. If we require information that is held overseas we will advise you in writing, giving you time to provide it.
If you use a tax agent to prepare and lodge your return, you need to advise them if you have earned any assessable income on which foreign income tax has been paid and provide them with evidence of payment of the tax.