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Edited version of your written advice
Authorisation Number: 1012802863241
Ruling
Subject: Foreign Income Tax Offset
Question and answer
Are you entitled to a Foreign Income Tax Offset (FITO) for social security charges paid overseas?
No.
This ruling applies for the following periods:
Year ended 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
Year ending 30 June 2018
The scheme commenced on:
15 July 2013
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You are a resident of Australia for taxation purposes.
You work for an overseas employer.
You work in various countries.
You have paid social security charges in a number of countries.
Social Security charges are not mentioned in any of the Treaty's governing taxation with Australia.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 770-15
Income Tax Assessment Act 1997 Section 770-70
Reasons for decision
A taxpayer whose assessable income in Australia is also subject to foreign income tax and who has, or is deemed to have, paid the foreign income tax in the income year may be entitled to a foreign income tax offset (FITO) in Australia.
The concept of 'foreign income tax' is intended to cover foreign taxes imposed on a basis that is substantially equivalent to income tax imposed under Australian law. 'Foreign income tax' is defined in section 770-15 of the Income Tax Assessment Act 1997 (ITAA 1997) as a tax imposed by a law other than an Australian law that is:
• tax on income; or
• tax on profits or gains, whether of an income or capital nature; or
• any other tax, being a tax that is subject to an agreement having the force of law under the International Tax Agreements Act 1953.
The foreign country DTA's are contained under the International Tax Agreements Act 1953.
In considering whether an amount withheld from a taxpayer's salary is a 'foreign income tax', it is necessary to consider the basis on which the amount is withheld and any future benefit the taxpayer might derive in respect of the withheld amount. Substantial, not exact, equivalence to Australian income tax is required.
Any tax covered by a relevant country's DTA is necessarily a 'foreign income tax'.
In interpreting the wording of the tax treaty, the Commissioner accepts in Taxation Ruling TR 2001/13 that it is appropriate to have reference to the OECD Commentary on the Model Tax Convention on Income and Capital (Condensed Version 2005) (the OECD Model Commentary).
The OECD Commentary on this paragraph provides that:
'Social security charges or any other charges paid where there is a direct connection between the levy and the individual benefits to be received shall be excluded from the list of taxes covered by the Convention, and
It is immaterial on behalf of which authorities such taxes are imposed; it may be the State itself or its political subdivisions or local authorities (constitutes States, regions, provinces, department, cantons, district etc).'
In your case the social security charges are not taxes covered by the any of the relevant Conventions, as they are social security charges paid where there is connection between the tax or levy and the intended benefits to the individual.
You are therefore not entitled to a FITO for the social security charges you have paid in the overseas countries.
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