Eligibility for the foreign income tax offset
You may be able to claim a foreign income tax offset (FITO) for foreign tax paid in another country. The offset provides relief from paying double tax on your foreign and worldwide income.
To claim a foreign income tax offset, you must:
- have actually paid or deemed to have paid an amount of foreign income tax
- include the foreign income or gain on which you paid the tax on in either your
- Australian assessable income
- non-assessable non-exempt income under section 23AI or 23AK of the income Tax Assessment Act 1936.
Your foreign income tax offset reduces your tax payable for an income year. It applies in the income year in which your foreign income or gain forms part of your income in Australia.
To find out which foreign taxes count towards the tax offset, see When a foreign income tax offset applies.
Calculate the foreign income tax offset
You may pay foreign income tax in a different income year. This is because of the difference between the Australian and foreign tax systems.
You can only claim the offset after you have paid the foreign tax.
Before you calculate your net income, you must convert all foreign income into Australian dollars. This includes your foreign income, deductions and tax paid.
For more details, see Calculating and claiming your foreign income tax offset.
Applying FITO against Medicare levy and surcharge
Your foreign income tax offset (FITO) reduces your tax payable for an income year. If any offset remains, you can use it to reduce your liability to pay Medicare levy. Then any further offset reduces any liability to pay the Medicare levy surcharge.
Our systems apply the offset against the Medicare levy and Medicare levy surcharge when you lodge your tax return.
For more information, see Guide to foreign income tax offset rules.
Check if you can claim a tax offset for foreign tax you pay on income from another country.