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Edited version of private ruling
Authorisation Number: 1011813374641
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Ruling
Subject: Foreign income tax offset
Question 1
Are you entitled to 100% of the foreign tax paid as foreign income tax offset, where a smaller percentage of the foreign income for which foreign income tax was paid is exempt current pension income?
Answer
No.
Question 2
Are you entitled to the same percentage of foreign income tax offset as the foreign income that is not exempt?
Answer
Yes.
This ruling applies for the following period
Income year ending 30 June 2011
Relevant facts
The Super fund total assessable income includes amongst other items, foreign income.
Foreign tax is paid on the foreign income.
The superfund exempt current pension income based on the actuarial certified percentage is X%.
You stated that X% of your foreign income is exempt current pension income based on this actuarial certified percentage.
The taxable income includes the remaining non-exempt portion of the assessable income.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 770-10(1)
Income Tax Assessment Act 1997 Subsections 6-5(2)
Income Tax Assessment Act 1997 Subsections 6-10(4)
Income Tax Assessment Act 1997 Subsections 6-15(2)
Income Tax Assessment Act 1997 Subsections 6-20(1)
Income Tax Assessment Act 1997 Subsections 11-15
Income Tax Assessment Act 1997 Sections 295-390
Income Tax Assessment Act 1997 Sections 295-385
Reasons for decision
Subsection 770-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a taxpayer is entitled to a foreign income tax offset for an amount of foreign income tax if they paid it in respect of an amount that is all or part of an amount included in your assessable income for the year.
Note 2 of subsection 770-10(1) of the ITAA 1997 provides that, if the foreign income tax has been paid on an amount that is part non-assessable non-exempt income and part assessable income for the income year, only a proportionate share of the foreign income tax (the share that corresponds to the part that is assessable income) will count towards the tax offset (excluding the operation of subsection (2)).
Subsections 6-5(2) and 6-10(4) of the ITAA 1997 provide that the assessable income of a resident taxpayer includes ordinary income and statutory income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
However, subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not assessable income.
Subsection 6-20 (1) of the ITAA 1997 provides that an amount of ordinary or statutory income is exempt income if it is made exempt from income tax by a provision of this Act or another Commonwealth law.
Section 11-15 of the ITAA 1997 lists those provisions which are exempt income if derived by certain entities. Included in this list are sections 295-390 and 295-385 of the ITAA 1997, which deal with exempt current pension income of superannuation funds from assets used to meet current pension liabilities and superannuation fund income from segregated current pension assets.
You stated that your total foreign income was included in the assessable income however; X% of your foreign income is exempt current pension income.
Exempt current pension income is exempt income due to a provision listed in section 11-15 of the ITAA 1997. Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income it is not assessable income. Therefore, the percentage of foreign income that is exempt current pension income would not be assessable income.
Under subsection 770-10(1) of the ITAA 1997 a foreign income tax offset is only available for an amount of foreign income tax paid in respect of an amount that is included in your assessable income for the year. Since you stated that X% of your foreign income is exempt income, X% of your foreign income is not assessable income.
Accordingly, you are not entitled to 100% of the foreign tax paid as foreign income tax offset when X% of your foreign income is exempt income and hence not assessable income. You are only entitled to the same percentage of foreign tax paid in respect of the foreign income that is not exempt and therefore included in the assessable income under subsection 770-10(1) of the ITAA 1997.
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