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Edited version of your written advice
Authorisation Number: 1051225429699
Date of Advice: 22 May 2017
Ruling
Subject: Foreign Income Tax Offset
Question and answer
Are you entitled to receive a foreign income tax offset in relation to the foreign tax paid in country A on your salary?
Yes.
This ruling applies for the following period:
Year ended 30 June 2017
The scheme commenced on:
1 July 2016
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.
Your employer is based in country A and you pay country A tax on your income.
You work in the country B office of your employer.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 770-10
Income Tax Assessment Act 1997 Subsection 770-10(1)
Income Tax Assessment Act 1997 Section 770-75
Income Tax Assessment Act 1997 Subsection 770-75(1)
Income Tax Assessment Act 1997 Subsection 770-75(2)
Reasons for decision
Subsection 770-10(1) of the Income tax Assessment Act 1997 (ITAA 1997) provides that a person is entitled to a foreign income tax offset (FITO) for foreign tax paid in respect of an amount that is included in the person's assessable income in a year of income. It is not necessary that the payment of foreign income tax actually occurs in the claim year.
To determine the amount of FITO in any particular year, a person must first calculate the total foreign income tax paid on amounts included in their assessable income for the year.
You will need to include your country foreign income in your Australian tax return.
The tax offset has the effect of reducing the Australian tax that would otherwise be payable on the double-taxed amount. A FITO is a non-refundable tax offset.
The FITO rules do not allow for the carry forward of excess foreign tax. This means that all available FITO will need to be utilised in the year in which they arise. There will be no opportunity to carry them forward for use against future Australian tax on foreign income.
Furthermore, there is a FITO limit. Where the total foreign income tax paid by a person is less than or equal to $1,000, the person is not required to calculate the FITO, i.e. the person's FITO will equal the foreign income tax paid on amounts included in the their assessable income.
Where the total foreign income tax paid is more than $1,000, the person can choose to offset only $1,000 of foreign tax (and not formally calculate the FITO entitlement) or calculate the offset limit to determine the maximum FITO entitlement under section 770-75 of the ITAA 1997.
You are entitled to a FITO for the tax paid on your income in the country A.
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