Calculate your FITO or offset limit

About the FITO limit

You claim the FITO in your tax return. First check if the amount you claim is subject to the offset limit.

As a non-refundable tax offset, the FITO reduces your income tax payable (including Medicare levy and Medicare levy surcharge).

Under the tax offset ordering rules, the FITO is applied after all other non-refundable tax and non-transferable offsets. Once your tax payable has been reduced to nil, any unused FITO isn't refunded to you and can't be carried forward to later income years.

FITO up to $1000

To claim a FITO of up to $1,000, you only need to record the actual amount of foreign income tax paid that counts towards the offset (up to $1,000).

FITO more than $1000

If you're claiming a FITO of more than $1,000, you have to work out your offset limit. This may result in your tax offset being reduced to the limit. Any foreign income tax paid in excess of the limit isn't available to be carried forward to a later income year and can't be refunded to you.

Joint Petroleum Development Area income and FITO

For Australian resident individuals with Joint Petroleum Development Area (JPDA) income, the FITO for an employee is the lesser of:

• Australian tax payable on the net assessable JPDA income (JPDA income less allowable deductions relating to that income)
• Timor-Leste tax paid on JPDA employment income.

The offset limit doesn't apply to this income.

If you paid foreign income tax after the year in which the related income or gains have been included in your assessable income, you may amend your assessment for that year to claim the offset.

Claiming your FITO

You claim the FITO in your income tax return. For help completing that part of the income tax return, see:

• Individuals – Individual supplementary tax return instructions 2026
• Companies – Company tax return 2026 instructions
• Partnerships – Partnership tax return 2026 instructions
• Trusts – Trust tax return 2026 instructions
• Funds – Fund income tax return 2026 instructions

Before you calculate your net income, you must convert all foreign income, deductions and foreign tax paid to Australian dollars.

How to calculate your offset limit

If you're claiming a FITO of more than $1,000, you must first work out your offset limit. See Example 16: offset limit. The offset limit is based on a comparison between your tax liability and the tax liability you would have if certain foreign-taxed and foreign-sourced income and related deductions were disregarded.

Step 1: Work out your income tax payable

Work out the income tax payable by you (including Medicare levy and Medicare levy surcharge) for 2025–26, excluding penalties and interest and disregarding any tax offsets.

Step 2: Work out your income tax payable disregarding certain foreign income and related deductions

Work out the income tax that would be payable by you (including Medicare levy and Medicare levy surcharge) excluding penalties and interest and disregarding any tax offsets, if the following assumptions were made:

• Your assessable income didn't include
  • any amount on which foreign income tax has been paid that counts towards your FITO
  • any other income or gains from a non-Australian source.
• You weren't entitled to the following deductions (where such deductions are actually allowable)
  • debt deductions attributable to your overseas permanent establishment
  • any deductions other than debt deductions, that are reasonably related to the assessable income amounts within the above dot point

For example: If an entity has paid foreign income tax on a capital gain that comprises part of its net capital gain, only the capital gain on which foreign income tax has been paid is disregarded (for this step).

For the purpose of this step, where deductions relate exclusively to the disregarded income amounts, you should assume that you weren't entitled to the deductions.

Whether a deduction is reasonably related to the disregarded assessable income amounts will be a question of fact depending on the circumstances of the taxpayer. The meaning of ‘reasonably related to’ is broad and it includes a relationship that may either be direct or indirect, provided that the relationship consists of a real connection. However, a merely remote relationship is insufficient.

Where deductions relate to both disregarded income amounts and other assessable income (as would typically be the case with head office and general administration expenses) you must apportion the deductions on a reasonable basis.

Allowable deductions for items such as gifts, contributions, superannuation and tax agent’s fees aren't considered to be reasonably related to any amount on which foreign income tax has been paid or other non-Australian source income.

Where foreign income is subject to averaging (for example, where the special professional income rules or primary production income rules apply) only the foreign income for the current year is excluded at this step. It's not necessary to separate the Australian and foreign amounts for prior years.

Step 3: Work out the offset limit

Subtract the result of step 2 from step 1. If the result is greater than $1,000, this is your offset limit.

Offset limit with deferred non-commercial business losses

If a current year foreign business loss is required to be deferred because of the non-commercial business loss rules, then step 2 in the offset limit calculation needs to be adjusted for the amount of any foreign business loss that's deferred. This is done before working out the amount of foreign income and expenses to be disregarded.

To be eligible for the FITO where you have a net foreign business loss, there must be other foreign income included in assessable income on which foreign income tax has been paid.

To work out the amount of foreign income and expenses to disregard at step 2:

• add back the foreign component of the current year deferred non-commercial business loss to the net foreign income amount
• subtract the net foreign income from taxable income.

If the net foreign amount is zero or negative after adding back the deferred foreign loss component, then the FITO amount will be the lower of the foreign income tax paid or the default offset limit amount of $1,000.

Special amendment rules for FITOs

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 income for Australian income tax purposes.

If you paid foreign income tax after the year in which the related income or gains have been included in your income, you can amend your assessment for that year to claim the offset. You can lodge an amended assessment within 4 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 income for Australian income tax purposes. In this situation, the foreign income tax must be paid after you've lodged your Australian income tax return for the relevant year.

The 4-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 us, which may have the effect of extending the normal period of review. In these cases, the 4-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 a refund.

The special amendment rules apply only where you've 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 us has detected an incorrect calculation of the offset limit affecting the amount of the FITO previously claimed, we can only amend a taxpayer’s assessment within the usual time limits set out in section 170 of the ITAA 1936.

Continue to: Record keeping for FITO