The foreign tax credit is the credit you can claim on the amount included in your assessable income for the distribution made by the non-resident trust.
Example 6: Unlisted country trust estate
During the 2003–04 income year, a resident individual received a distribution of $10,000 from an unlisted country trust estate. The entire amount was included in the taxpayer's assessable income under section 99B. The distribution was paid from $20,000 foreign income derived by the trust in the 1998-99 income year. The income was not subject to tax in a listed country and the trust paid foreign tax of $5,000.
Interest is payable on the distributed amount of $10,000 grossed up by the amount of foreign tax relating to the distributed amount – $3,333 – multiplied by the applicable rate of tax – 47% – less the amount of foreign tax credit.
($13,333 × 47%) − $3,333 = $2,934
Note: The foreign tax credit is worked out by allocating, on a pro rata basis, the foreign tax paid by the trust estate on its foreign income. The profits and income of the trust estate that were available for distribution were:
$20,000 − $5,000 |
$15,000 |
Amount of the distribution |
$10,000 |
Foreign tax attributable to the distribution |
$3,333 |
End of example