ATO Interpretative Decision

ATO ID 2003/1135 (Withdrawn)

Income Tax

Life insurance company: foreign tax credits - discretion to amend determination
FOI status: may be released

This ATO ID is withdrawn as former section 160AF of the Income Tax Assessment Act 1936 (ITAA 1936) has been repealed.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.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Will the Commissioner exercise the discretion in subsection 160AK(1) of the Income Tax Assessment Act 1936 (ITAA 1936), to amend a determination to allow a greater foreign tax credit than what would be allowable under section 160AF of the ITAA 1936, if the taxpayer is a life insurance company?

Decision

No. In exercising the discretion in subsection 160AK(1) of the ITAA 1936 to amend the foreign tax credit determination, the Commissioner will apply section 160AF of the ITAA 1936 to ascertain the amount of the credit.

Facts

A life insurance company has a taxable income of $12,000,000. The company's ordinary class of taxable income is $4,000,000 and its complying superannuation class of taxable income is $8,000,000.

The company's ordinary class of taxable income includes foreign income of $2,000,000. Foreign tax of $500,000 was paid in respect of the foreign income.

The ordinary class of taxable income, including the foreign income, is taxed at 30% and the complying superannuation class of income is taxed at 15%. The 'average rate of Australian tax' under subsection 160AF(8) of the ITAA 1936 is 20%.

The 'Australian tax payable' on the foreign income under subsection 160AF(3) of the ITAA 1936 is $400,000, being the average rate of Australian tax of 20% applied to the foreign income.

A determination was made by the Commissioner under section 160AJA of the ITAA 1936 that the foreign tax credit of $400,000 was allowable in respect of the foreign tax paid on the foreign income.

The company requested that the Commissioner exercise the discretion in subsection 160AK(1) of the ITAA 1936 and amend the foreign tax credit determination to increase the credit from $400,000 to $500,000.

Reasons for Decision

Subsection 160AF(1) of the ITAA 1936 provides that a taxpayer is entitled to a foreign tax credit where the assessable income of a resident taxpayer includes foreign income and the taxpayer has paid foreign tax for which they are personally liable in respect of that income.

The amount of the credit is the lesser of the foreign tax paid or the Australian tax payable in respect of that foreign income.

The amount of credit that is allowable in respect of foreign tax is calculated under section 160AF of the ITAA 1936. The Commissioner makes a determination under Division 19 of Part III of the ITAA 1936 of the amount that is allowable to the taxpayer.

Section 160AK of the ITAA 1936 allows the Commissioner to amend the foreign tax credit determination to increase or decrease the amount of the credit.

The amount of amended credit that is allowable under an amended determination will be ascertained under section 160AF of the ITAA 1936, taking into account any changed circumstances of the taxpayer. However, the Commissioner will not exercise the discretion in subsection 160AK(1) of the ITAA 1936 to amend a determination to allow a taxpayer a credit for a greater or lesser amount than the amount that is correctly calculated in accordance with section 160AF of the ITAA 1936.

Under subsection 160AF(1) of the ITAA 1936 the amount of foreign tax credit allowed in the income year is the lesser of:

•: the amount of foreign tax ($500,000); and
•: the amount of Australian tax payable in respect of the foreign income ($400,000).

The amount of foreign tax credit allowable under section 160AF of the ITAA 1936 is therefore $400,000.

Date of decision: 7 November 2003

Year of income: Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1936
   section 160AF
   subsection 160AF(1)
   subsection 160AF(8)
   section 160AJA
   section 160AK
   subsection 160AK(1)
   subsection 160AK(2)
   Division 18 of Part III
   Division 19 of Part III

Keywords
Foreign income
Foreign tax credits
Life assurance income

Business Line: Public Groups and International

Date of publication: 12 December 2003

ISSN: 1445-2782

history

	Date:	Version:
	7 November 2003	Original statement
You are here	9 January 2009	Archived

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