Who can claim a foreign tax credit?
This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.
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If you received foreign income that is taxable in Australia and you paid (or are taken to have paid) foreign tax for which you were personally liable on that income, you may be entitled to a foreign tax credit.
You may also be entitled to a foreign tax credit if you received income, or a profit or gain, derived from a source in an area covered by an international tax sharing treaty (for example, the Joint Petroleum Development Area) to the extent that the income or profit or gain is taxed in Australia.
You claim foreign tax credits at item 20 Foreign source income and foreign assets or property on the Tax return for individuals (supplementary section) 2008.
We regularly receive information from foreign tax authorities, under our tax treaties, regarding foreign source income paid to, and the tax withheld from, Australian resident taxpayers. We are making increasing use of information-matching technology to verify the correctness of tax returns. Ensure that all information is fully and correctly declared in your tax return.
What can you claim for?
You can claim a foreign tax credit for:
- a foreign tax that is similar to Australian income tax or capital gains tax (CGT)
- foreign withholding taxes similar to Australian withholding taxes on interest, dividends or royalties
- foreign taxes listed in Australia's double taxation agreements.
You cannot claim a foreign tax credit for penalties, fines or interest.
If you received a foreign pension or annuity that is solely taxable in Australia under a tax treaty and tax has been deducted from the payment by the country that paid it, you need to claim a refund of that tax rather than a foreign tax credit. Claiming a refund generally involves filling in a special claim form, which is available from the tax authority of the country from which the pension or annuity was paid.
The tax treaties can be found as Schedules to the International Tax Agreements Act 1953. This Act is available on our legal database on our website.
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If you are not sure whether you can apply for a foreign tax credit, print SCHEDULE OF ADITIONAL INFORMATION - ITEM 20 on the top of a separate piece of paper and explain your situation. Include:
- your name, address and tax file number (TFN)
- the precise name of the tax and the country in which it was levied
- the name of the law under which the tax was imposed
- whether the tax was levied by a national, state or local authority and the name of the authority, and
- a description of the tax and why you had to pay it.
Print X in the YES box at question 2a in Taxpayer's declaration on page 8 of your tax return.
Sign and attach your schedule to page 3 of your tax return.
Foreign tax credit for a dividend paid from attributed income
If you received a dividend or other type of distribution that has been wholly or partly paid out of income that was previously attributed to you under the controlled foreign company or foreign investment fund measures, you may also be entitled to a foreign tax credit even though that income may not be taxable. For information on how to calculate the foreign tax credit for distributions received from a controlled foreign company, see the Foreign income return form guide 2007-08 (NAT 1840), available on our website. For distributions received from a foreign investment fund, see the Foreign investment funds guide 2007-08 (NAT 2130), also available on our website.
Credit for foreign taxes paid after your assessment
You are only allowed a foreign tax credit for foreign tax which you have actually paid.
If you do not pay any foreign tax on your foreign income until after you receive your original Australian assessment, you will need to ask for a determination of your foreign tax credit entitlement if you wish to receive a credit.
Your assessment will then be amended to take account of the foreign tax that you paid after you received your original assessment.
What evidence do you need to prove you have paid foreign tax?
You will need written evidence of payment of foreign tax, such as:
- a notice of assessment from the foreign tax authority and a receipt for the tax paid
- a statement from the foreign tax authority setting out the particulars that would normally be recorded on a notice of assessment and a receipt for payment, or
- a certificate for deduction of withholding tax issued by the person who pays the interest, dividend or any other income that is subject to foreign tax.
Keep the evidence with your other records. You may need to produce it later.
Last modified: 28 Oct 2008QC 27910