Edited version of private advice

Authorisation Number: 1052159199067

Date of advice: 22 August 2023

Ruling

Subject: Adoption of foreign income year basis for returning foreign income

Question 1

Will the Commissioner allow you to return your foreign sourced income on a foreign income year basis on your Australian income tax return?

Answer

Yes

Question 2

Will the Commissioner allow you to return your X age pension on a foreign income year basis on your Australian income tax return?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XY

Year ended 30 June 20XZ

The scheme commenced on:

20XX

Relevant facts and circumstances

You are a tax resident of Australia.

You are required to lodge an income tax return which includes your foreign sourced income.

Your tax return is prepared by an Australian tax agent, who has difficulty lodging them in the required timeframe as the necessary information is not available in a timely manner due to the statutory requirements of foreign jurisdictions which includes but is not limited to, due dates of tax return lodgement. Your tax agent must convert monetary data into Australian dollars, review the information and apply the Australian tax law.

You derive foreign income from X which is comprised of

•                     a share of income from Entity generating business income, and

•                     X age pension, which is derived monthly.

You also receive rental income from a property located in Y.

The X and Y financial year ends on DDMM therefore your foreign sourced income consists of data from two X and Y income tax years.

The Y rental property is managed by an agent who provides the accounts after the end of the Y financial year.

Your share of income from Entity is determined at the X year end basis after the financials are approved. Your tax agent requires access to the X income tax returns to obtain your correct share of income of the Entity. These returns are prepared only after all income and deductions are collated by the X accountants.

As you engage a X tax advisor for the preparation of your X income tax return, a tax agent lodgement exemption is available. The exemption defers the due date of the income tax return from the fifth month after the income year (DDMM) to the last day of the year after the income tax year (DDMM).

While your tax agent may be able to obtain information for the period between DDMM to DDMM including the relevant X income tax return in the required timeframe, information for the period from DDMM to DDMM will not be available at the time of the preparation of the Australian income tax return.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Reasons for decision

Question 1

The general rule is that for income tax purposes an individual taxpayer will be required to disclose in his or her Australian tax return the amount of foreign income derived during the Australian financial year.

It has been recognized in the past that where an individual taxpayer's foreign source accounts have been prepared on a basis other than the year ended 30 June, difficulty can be experienced in dissecting the income for the purposes of returning on a strict Australian income year basis.

The Commissioner has issued Taxation Ruling IT 2498 Income Tax: foreign tax credit system: currency translation of foreign income: trading stock and depreciable plant: basis of returning foreign income: capital gains/losses (IT 2498) which addresses the issue of foreign income and expenses to be returned for an Australian year of income where foreign accounts and/or tax apply on a different basis.

Specifically, paragraph 39 of IT 2498 states:

... individual taxpayers who are required to prepare foreign source income accounts on a basis other than a year ending 30 June and who can demonstrate difficulties in dissecting the income/expenses for the purposes of returning on a strict Australian income year basis in relation to a year of income, may be permitted to return the foreign source income in his or her Australian return for that year of income on the relevant foreign income year basis. ...

You are in receipt of X and Y foreign source income. The income year ending for X and Y is DDMM. As a result of regulatory and reporting requirements imposed by the relevant foreign tax authorities you face significant difficulty in obtaining information in relation to the foreign income within a suitable timeframe to include in your Australian tax return by your lodgment due date.

From the information provided the Commissioner accepts that your circumstances fall within those outlined in IT 2498 and will allow you to return the foreign sourced income on a foreign income year basis on your Australian tax return.

Australian source income, and other foreign income (such as dividends or interest) that is subject to a final withholding tax and can be readily returned on an Australian income year basis, would continue to be shown in the taxpayer's return based on the Australian income year.

Question 2

The Commissioner will not allow you to return your X age pension on a foreign income year basis on your Australian income tax return as you derive your X age pension monthly, and there are no apparent difficulties in returning the amounts on a strict Australian income year basis.

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