ATO Interpretative Decision
ATO ID 2003/618 (Withdrawn)
Income Tax
Foreign Tax Credit: Foreign tax paid on salary and wages of an Australian resident employed in foreign consulate located in AustraliaFOI status: may be released
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This ATO ID is withdrawn as former section 160AF of the Income Tax Assessment Act 1936 has been repealed. With effect from 1 July 2008 the foreign tax credit system is replaced by the foreign income tax offset system. This ATO ID contains a view that does not reflect the position under the foreign income tax offset system. Despite its withdrawal, this ATO ID continues to be a precedential view in respect of decisions relating to the former provisions.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is an Australian resident taxpayer entitled to a foreign tax credit under subsection 160AF(1) of the Income Tax Assessment Act 1936 (ITAA 1936) for foreign tax paid on salary and wages earned when employed in a foreign consulate that is located in Australia?
Decision
No. The taxpayer is not entitled to a foreign tax credit under subsection 160AF(1) of the ITAA 1936 for tax paid on salary and wages earned when employed in a foreign consulate that is located in Australia because the salary and wages are not 'foreign income'.
Facts
The taxpayer is a resident of Australia for income tax purposes.
The taxpayer is employed in a foreign consulate located in Australia. Their salary and wages are paid by the foreign government.
Foreign tax is withheld from the salary and wages.
There is no double tax treaty between Australia and the foreign country.
Reasons for Decision
Subsection 160AF(1) of the ITAA 1936 provides that where the assessable income of a resident taxpayer contains foreign income and foreign tax has been paid on that income, a foreign tax credit will be allowed. The foreign tax credit allowed against Australian income tax is the lesser of:
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- the amount of that foreign tax paid, reduced in accordance with any relief available to the taxpayer under the law relating to that tax; or
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- the amount of Australian tax payable in respect of the foreign income.
The term 'foreign income' is defined in subsection 6AB(1) of the ITAA 1936 to mean income derived from sources in a foreign country or countries.
Generally, Australian courts have held that the source of employment income is where the employee performed their duties (C of T (NSW) v. Cam and Sons Ltd (1936) 36 SR (NSW) 544; (1936) 4 ATD 32 and Federal Commissioner of Taxation v. French (1957) 98 CLR398; (1957) 7 AITR 76; (1957) 11 ATD 288).
Since the salary and wages derived by the taxpayer are from employment at a foreign consulate located in Australia, the income is not considered to be 'foreign income' that has a foreign source.
Accordingly, the taxpayer will not be entitled to a foreign tax credit under subsection 160AF(1) of the ITAA 1936.
Date of decision: 15 July 2003Year of income: Year ended 30 June 2002
Legislative References:
Income Tax Assessment Act 1936
subsection 6AB(1)
subsection 160AF(1)
Case References:
C of T (NSW) v. Cam and Sons Ltd (1936)
36 SR (NSW) 544
(1936) 4 ATD 32
98 CLR398
(1957) 7 AITR 76
(1957) 11 ATD 288 Related ATO Interpretative Decisions
ATO ID 2003/617
Keywords
Foreign income
Foreign source income
Foreign tax credits
International tax
ISSN: 1445-2782
| Date: | Version: | |
| 15 July 2003 | Original statement | |
| You are here | 14 November 2008 | Archived |