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Edited version of your written advice
Authorisation Number: 5010048923868
Date of advice: 20 March 2018
Ruling
Subject: Foreign income tax off set
Question
Are you eligible to apply a foreign income tax offset Australian income tax on income sourced in the United States and taxed in the US because you are a US citizen?
Answer
No
This ruling applies for the following periods:
Period ending 30 June 2015
Period ending 30 June 2016
Period ending 30 June 2017
Period ending 30 June 2018
The scheme commences on:
1 July 2014
Relevant facts and circumstances
You are a citizen of country X.
You relocated to Australia in 200X.
You and your spouse are now permanent residents of Australia.
You and your spouse currently rent a home in Australia.
Your employer is an Australian company.
Your employers’ parent company is in country X
You are required by your company to work for a minimal time each year in country X
You are required to lodge tax returns in both countries.
You have been assessed in country X on the number of days you have worked in the country. The income earnt while in country X has been treated as country X sourced income.
You have been taxed twice on that income without a credit being allowed for the taxes paid in Australia.
Your employer in Australia and the parent company in country X do not claim a deduction in the in country X for the salary expense.
Country X have exercised their right under Article 1 (3) of the double tax agreement to disregard the relevant Article 15, and taxed you on the income you have earned while working in country X
Relevant legislative provisions
Section 6-5(3) Income Tax Assessment Act 1997 (ITAA 1997)
Section 770-75 of the ITAA 1997
Subsection 6(1) Income Tax Assessment Act 1936 (ITAA 1936)
Section 4 and 5 of the International Tax Agreements Act 1953
United States Convention
Reasons for decision
Generally speaking, if you are a resident for taxation purposes in Australia, your assessable income includes the ordinary income you derived directly or indirectly from all Australian sources during the income year, as stated in subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997).
However, in determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.
Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).
Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The United States Convention is listed in section 5 of the Agreements Act.
The United States convention operates to avoid the double taxation of income received by residents of Australia and the United States.
Article 1 (3) states that:
As you are a citizen of country X, country X can tax citizens on any income that is considered sourced in that country.
We then need to consider further Articles in the double tax agreement that state that double taxation shall be avoided.
As the country X taxation in question was imposed in accordance with paragraph (3) of Article 1 no Foreign Income Tax Offset is required in Australia under Article 22 (2).
Further in Article 22 of the agreement paragraph (4) contains a provision for avoiding double taxation of a country X citizen who is a resident of Australia.
We believe that this means that credit allowable in country X would by definition include the Australian tax on the income sourced and taxed country X because of your citizenship.
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