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Edited version of private advice
Authorisation Number: 1012676103329
Ruling
Subject: Foreign dividends and foreign income tax offset
Question and answer
Are you entitled to a foreign income tax credit in relation to your Country X dividend income?
No.
This ruling applies for the following period:
Year ended 30 June 2014
The scheme commenced on:
1 July 2013
Relevant facts and circumstances
You are an Australian resident for tax purposes.
You own shares in a Country X public listed company.
You own less than 10% of the issued shares.
The company has paid Country X tax on the profits out of which the dividends were paid.
The dividend received from the Country X company has an attached tax credit of one-ninth of the dividend.
You have not personally paid any Country X tax on the divided income.
No withholding tax has been withheld.
Relevant legislative provisions:
International Tax Agreements Act 1953 Schedule 1.
Income Tax Assessment Act 1997 Division 770.
Reasons for decision
Schedule 1 to the International Tax Agreements Act 1953 contains the tax treaty between Australia and the Country X (the Country X Convention). The Country X Convention operates to avoid the double taxation of income received by Australian and Country X residents.
The Country X Convention provides that, subject to the provisions of the laws of Australia, a credit against Australian tax payable shall be allowed for Country X tax paid (in accordance with the law of Australia) where tax has been paid under Country X law and in accordance with the Country X Convention.
Division 770 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a foreign income tax offset for foreign tax that a taxpayer has paid on income that is included in the taxpayer's assessable income.
In your case, you have received divided income from a public listed Country X resident company. Although the company paid Country X tax on the profits out of which the dividends were paid, you have not personally paid any Country X tax on the dividend.
Therefore, you have not paid tax under Country X law and you are not entitled to any foreign income tax offset in Australia under division 770 of the ITAA 1997 in relation to this dividend income.