ATO Interpretative Decision
ATO ID 2006/192 (Withdrawn)
Income Tax
Allocation of foreign tax creditsFOI status: may be released
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This ATO Interpretative Decision is withdrawn because section 160AK(2) of the Income Tax Assessment Act 1936 does not apply for income years commencing on or after 1 July 2008. Despite its withdrawal, this ATO Interpretative Decision continues to be a precedential view in respect of decisions for income years up to, and including, the 2007/2008 income year.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
Status of this decision: Decision Withdrawn 31 July 2009
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Can an amended foreign tax credit determination be issued after four years from the date of the original determination to change the amount of foreign tax credits available to the taxpayer where an amended assessment has changed the Australian tax payable on foreign income.
Decision
Yes. An amended foreign tax credit determination can be issued after four years from the date of an original determination where the Australian tax payable on the foreign income has changed as a result of an amended assessment.
Facts
The Australian tax payable on foreign income on which the taxpayer has claimed foreign tax credits has changed as a result of an amended assessment.
Reasons for Decision
Subsection 160AK(2) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that:
An amendment of a determination is not to be made after the end of 4 years after the original determination date except to correct an error in calculation or a mistake of fact or in consequence of an adjustment, credit or refund of Australian tax or foreign tax.
Where four years has lapsed, one of the grounds to amend a foreign tax credit determination is if it is made '...in consequence of an adjustment, credit or refund of Australian tax'.
The phrase 'in consequence of' is not defined and so takes its ordinary meaning. The Macquarie Dictionary, 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW defines consequence as 'the act or fact of following as an effect or result upon something antecedent'.
Although the Macquarie dictionary implies two possible meanings to the phrase - a causal connection, or a 'following on' connection - it seems the courts prefer the later interpretation in the context of legislation.
For example in Reseck v. Federal Commissioner of Taxation (1975) 133 CLR 45, 75 ATC 4213; (1975) 5 ATR 538 Jacobs J rejected the notion that the words 'in consequence of' (as it appeared in subsection 26(d) of the ITAA 1936) import causation. Rather it connotes 'following on'. A similar interpretation was applied by Toohey J in Director-General of Social Services v. Hangan (1982) 45 ALR 23 when interpreting section 140 of the Social Services Act (at 33).
On either interpretation - whether on the wider 'following on' interpretation or the narrower 'causal' interpretation - the amendment of a foreign tax credit determination to vary the foreign tax credit entitlement of a taxpayer following the amendment of an assessment would be in consequence of an adjustment, credit or refund of Australian tax. The nexus between the amendment of the determination and the adjustment of Australian tax would be sufficiently clear and direct to satisfy the requirements of subsection 160AK(2) of the ITAA 1936.
This outcome is consistent with the general foreign tax credits regime, where credits are allowed to avoid the double taxation of Australian residents on their foreign income. The amount of foreign tax credits that are allowed is the lesser of foreign tax paid or Australian tax payable on a foreign income (see section 160AO of the ITAA 1936). Where an assessment is amended such that additional foreign income is included in assessable income and the Australian tax payable on foreign income is increased, taxpayers are able to claim the credit for the foreign tax paid on that foreign income provided that the terms of section 160AO are satisfied.
Date of decision: 27 July 2006Year of income: Year ended 30 June 2006
Legislative References:
Income Tax Assessment Act 1936
subsection 160AK(2)
Case References:
Reseck v. Federal Commissioner of Taxation
(1975) 133 CLR 45
75 ATC 4213
(1975) 5 ATR 538
(1982) 45 ALR 23
Other References:
The Macquarie Dictionary, 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW
Keywords
Foreign tax credits
ISSN: 1445-2782
| Date: | Version: | |
| 27 July 2006 | Original statement | |
| You are here → | 31 July 2009 | Archived |