Explanatory Memorandum(Circulated by the authority of the Treasurer,the Hon Ralph Willis, M.P.)
Chapter 15 Miscellaneous Technical Amendments
Clauses: 73,76,77 and 78
- Carry Forward of Excess Foreign Tax Credits
- Part 4 - Amendment of the Income Tax (International Agreements) Act 1953
15.1 A technical amendment to clarify the operation of the provisions that deal with the carry forward of excess foreign tax credits.
15.2 A taxpayer whose assessable income includes foreign income is entitled to a credit against the Australian tax payable on that income for the foreign tax paid. The amount of foreign tax paid that can be utilised in a particular year cannot exceed, for each class of foreign income, the Australian tax payable on the foreign income of that year.
15.3 For the income years 1987-88, 1988-89, 1989-90, the first three years in which the foreign tax credit system operated, a taxpayer was not able to carry forward an excess of foreign tax credits for an income year to a later income year. With the introduction of the Foreign Source Income legislation with general effect from the 1990-91 income year, the law was amended to allow the taxpayer to carry forward an excess credit in relation to a class of foreign income for five succeeding years.
15.4 It was intended that only excess credits that arose for the 1990-91 and subsequent years could be carried forward. This was clearly stated in the Explanatory Memorandum to the Taxation Laws Amendment (Foreign Income) Act 1990.
15.5 However, section 160AFE which deals with the carry forward of excess foreign tax credits could be interpreted as allowing a taxpayer to carry forward to the 1990-91 income year excess credits of prior income years.
15.6 Subsection 160AFE(1C) deals with the calculation of an excess foreign tax credit of an income year. Clause 370 will provide that subsection 160AFE(1C) will have the effect that an excess credit can arise only for the 1990-91 or a later year of income. That subsection is to be read as always having had that effect.
Clause 73: Clarifies the operation of subsection 160AFE(I1C).
15.7 This Bill will make a technical correction to Schedule 32 of the Income Tax (International Agreements) Act 1953 to accurately reflect the text of the Australia-Fiji comprehensive taxation agreement. The amendment will insert in paragraph 1(a) of Article 14 the word "other" before "Contracting State".
15.8 This amendment will apply to assessments in respect of income of the 1991-92 income year and subsequent income years.
Clause 76: states that the Principal Act is the Income Tax (International Agreements) Act 1953.
Clause 77: amends paragraph 1(a) of Article 14 of Schedule 32 of the Income Tax (International Agreements) Act 1953 by inserting "other" before "Contracting State".
Clause 78: states the date of effect of the amendment.