Edited version of private advice

Authorisation Number: 1051752813023

Date of advice: 14 September 2020

Ruling

Subject: International issues - foreign income tax offset

Question 1

Are you entitled to a Foreign Income Tax Offset (FITO) under Division 770 of the Income Tax Assessment Act 1997 (ITAA 1997) in the income year ended 30 June 2019 for Country X income tax paid on your Country X earnings?

Answer

Yes

Question 2

Are you entitled to a FITO under Division 770 of the ITAA 1997 in the income year ended 30 June 20X2 for the high income contribution paid on your Country X earnings?

Answer

Yes

This ruling applies for the following period:

Income year ended 30 June 20X2

The scheme commences on:

1 July 20X1

Relevant facts and circumstances

You earned income in Country X.

You included the income in your Country X income tax return for the Country X income year ended 31 December 20X2.

Your Country X income tax notice shows that you are liable to pay Country X income tax. Your Country X income tax notice also shows that you are liable to pay Country X's high income contribution.

You are a resident of Australia for income tax purposes. You included the Country X income in your Australian income tax return for the income year ended 30 June 20X2.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 770

Income Tax Assessment Act 1997 section 770-10

Income Tax Assessment Act 1997 section 770-15

International Agreements Act 1953 section 4

International Agreements Act 1953 section 5

Reasons for decision

Question 1

A taxpayer is entitled, under subsection 770-10(1) of the ITAA 1997, to a FITO in respect of foreign income tax paid on an amount that is included in their assessable income. It provides:

770-10 Entitlement to foreign income tax offset

(1)          You are entitled to a *tax offset for an income year for *foreign income tax. An amount of foreign income tax counts towards the tax offset for the year if you paid it in respect of an amount that is all or part of an amount included in your assessable income for the year.

Note 1: The offset is for the income year in which your assessable income included an amount in respect of which you paid foreign income tax - even if you paid the foreign income tax in another income year.

...

The foreign income tax must have been paid by the taxpayer, but it is not necessary that the payment of the foreign income tax actually occurs in the relevant income year.

The term 'foreign income tax' is defined in section 770-15 of the ITAA 1997, which provides:

770-15 Meaning of foreign income tax, credit absorption tax and unitary tax

(1)          Foreign income tax means tax that:

(a) is imposed by a law other than an *Australian law; and

(b) is:

(i) tax on income; or

(ii) tax on profits or gains, whether of an income or capital nature; or

(iii) any other tax, being a tax that is subject to an agreement having the force of law under the International Tax Agreements Act 1953.

Note: Foreign income tax includes only that which has been correctly imposed in accordance with the relevant foreign law or, where the foreign jurisdiction has a tax treaty with Australia (having the force of law under the International Tax Agreements Act 1953), has been correctly imposed in accordance with that tax treaty.

...

Therefore, 'foreign income tax' is any tax that is imposed by a law other than an Australian law and is a tax on income, profits or gains, 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 Agreements Act).

In the circumstances, you have paid Country X income tax on your Country X earnings. Country X income tax is a tax on income and is therefore foreign income tax to which a taxpayer may be entitled to a FITO pursuant to subsection 770-10 of the ITAA 1997.

You are therefore entitled to a FITO under Division 770 of the ITAA 1997 in the income year ended 30 June 20X2 in respect of the Country X income tax imposed on your Country X earnings.

Question 2

A taxpayer is entitled, under subsection 770-10(1) of the ITAA 1997, to a FITO in respect of foreign income tax paid on an amount that is included in their assessable income.

The high income contribution is imposed by the laws of Country X, which is a law other than an Australian law. The high income contribution is levied on income and is collected in a similar manner to income tax. It is therefore a tax on income, profits or gains within the meaning of section 770-15 of the ITAA 1997. Additionally, the high income contribution is also a tax subject to an agreement having the force of law under the Agreements Act.

Accordingly, you are entitled to a FITO under section 770-10 of the ITAA 1997 in the income year ended 30 June 2019 in respect of the high income contribution you paid on your Country X earnings.

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