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Ruling

Subject: FSI - year of derivation

Question and answer

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

Yes

This ruling applies for the following period

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commenced on

1 July 2011

Relevant facts

You are a resident of Australia for tax purposes.

Your tax returns are prepared by a tax agent.

You receive foreign income from a number of investments and your income is derived from interest, dividends, capital gains and capital losses.

Your investments are in joint names with your spouse.

Your tax agent has difficulty obtaining information relating to your foreign income from foreign advisors in a timely manner in order to prepare your Australian tax return by 30 June. Reasons provided include:

· Foreign authorities have strict regulatory and reporting requirements

· Difficulty in dissecting foreign income for numerous companies which lengthens the time to prepare your Australian tax return

· Waiting on foreign advisors to provide information regarding the foreign income. This then has to be reviewed by your Australian tax agent in order to accurately reflect the information on your Australian tax return

· Your numerous listed and unlisted foreign investments are accounted for on a 31 December year end basis

· You have difficulty lodging your Australian returns in a timely manner due to the time it takes for the information to be reported to your Australian tax agent from your foreign accountants.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Rulings and Determinations

Taxation Ruling IT 2498 (ATO view)

Reasons for decision

Taxation Ruling IT 2498 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. The ruling provides guidelines as to the acceptable methods of declaring foreign income in Australian tax returns. It addresses the particular problems encountered with foreign tax years being on a different basis to that of the Australian tax year ended 30 June.

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

It has also been recognised 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.

For reasons of practical administration it has therefore been accepted that the foreign source income may be shown by the taxpayer in his or her Australian return on the relevant foreign income year basis. That is, the taxpayer could include in his or her Australian income tax return the foreign source income of the foreign income year which ends within the relevant Australian income year.

Paragraph 39 from IT 2498 states the following:

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 foreign sourced income which has a calendar year reporting and tax period. Your tax agent has provided a number of reasons why they have difficulty in dissecting the income from your numerous foreign investments to include in your Australian tax return. The reasons provided are:

· Foreign authorities have strict regulatory and reporting requirements

· Difficulty in dissecting foreign income for numerous companies which lengthens the time to prepare your Australian tax return

· Waiting on foreign advisors to provide information regarding the foreign income. This then has to be reviewed by your Australian tax agent in order to accurately reflect the information on your Australian tax return

· Your numerous listed and unlisted foreign investments are accounted for on a 31 December year end basis

· You have difficulty lodging your Australian returns in a timely manner due to the time it takes for the information to be reported to your Australian tax agent from your foreign accountants.

Conclusion

You are permitted to return foreign income on the basis of the foreign income year for the years ended 30 June 2012 and 2013.

If the difficulties which warranted you being permitted to return foreign income on the foreign income year basis no longer exist, you will be required for the future to return foreign income on the Australian year of income basis.