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Edited version of private advice
Authorisation Number: 1012626287974
Ruling
Subject: Foreign income tax offset
Question and answer
Are you entitled to a foreign income tax offset for the charges imposed on Country Y income?
Yes.
This ruling applies for the following periods
Year ending 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
The scheme commences on
1 July 2012
Relevant facts and circumstances
You are a resident of Australia for taxation purposes.
You own a rental property in country Y.
You lodge a Country Y tax return each year.
Two of the charges are specifically mentioned in the Country Y Double Tax Agreement and three are not.
These charges are applied on certain income, as well as on capital gains.
These charges are collected through the Country Y tax return and are added to the already calculated tax payable.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 770-10
Income Tax Assessment Act 1997 Section 770-15
International Tax Agreements Act 1953 Section 5
Reasons for decision
You are entitled to a foreign income tax offset for foreign income tax paid (subject to limitations) on an amount that is included in your assessable income. Foreign income tax includes a tax that is subject to an agreement under the International Tax Agreements Act 1953 (Agreements Act).
In determining the availability of a foreign income tax offset it is necessary to consider not only the income tax laws but also any applicable tax treaties contained in the Agreements Act.
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 Country Y Agreement is listed in section 5 of the Agreements Act.
The Country Y agreement operates to avoid the double taxation of income received by residents of Australia and country Y. Article X (1) of the country y Agreement states the existing taxes to which the Agreement shall apply. Country y taxes that are specifically identified within the Country y Agreement include:
• income tax
• widespread social security contributions and
• contributions for the reimbursement of the social debt.
The charges are not specifically identified within the French Agreement as taxes to which the Agreement applies. However, Article X (2) of the Country y Agreement states, 'This Convention shall also apply to any identical or substantially similar taxes which are subsequently imposed by a Contracting State in addition to, or in place of the existing taxes to which this Convention applies.'
The 'social charges' listed above are considered to be 'substantially similar' to the country Y 'income tax' and the 'social security contributions' identified within Article X (1)(b) of the French Agreement. Therefore, you can take these social charges into account when determining your entitlement to a Foreign Income Tax Offset.