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Edited version of your written advice
Authorisation Number: 1012891559329
Date of advice: 8 October 2015
Ruling
Subject: Foreign Income Tax Offset
Question and answer
Are you able to claim your Foreign Income Tax Offset (FITO) for the full financial year without amending your Australian income tax return?
No.
This ruling applies for the following periods:
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
The scheme commenced on:
1 July 2014
Relevant facts and circumstances
You own a rental property in a foreign country.
You lodge tax returns in the foreign country and pay income tax on your rental property.
The foreign country income tax year ends on 31 December.
The Australian income tax year ends on 30 June.
You are entitled to claim a FITO on your Australian tax return for tax already paid on your foreign country tax return.
You wish to claim the entire FITO from your foreign country tax return in the one Australian financial year instead of splitting it over 2 years.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5(2)
Income Tax Assessment Act 1997 section 770-10
Income Tax Assessment Act 1997 section 770-15
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether inside or outside of Australia.
Rental income is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.
Subsection 770-10(1) of the ITAA 1997 allows for a FITO for an income tax year for foreign income tax paid in respect of an amount that is included in assessable income.
Section 770-15 of the ITAA 1997 defines foreign income tax to include a tax on income that is imposed by a law other than an Australian law. A note to section 770-15 of the ITAA 1997 states that foreign income tax includes only that which has been correctly imposed under the foreign law.
In your case you are an Australian resident for tax purposes who has paid tax in a foreign country under foreign country law on assessable income earned in that country.
As stated in section 770-10 of the ITAA 1997 to be entitled to a FITO you must have actually paid an amount of foreign income tax, and the income or gain on which you paid foreign income tax must be included in your assessable income for Australian income tax purposes.
The foreign country income tax year runs from January to December with lodgement due by mid-April the following year, and the Australian income tax year runs from July to June with lodgement due by 31 October. To claim the FITO for the 2015 Australian tax period (ending in June 2015) you need to have paid the foreign income tax for the 2015 foreign tax period (ending in December 2015), which is after the Australian income tax lodgement due date.
A private ruling is merely an interpretation of the law, it does not give the commissioner the discretion to change how the law applies to your circumstances.
Therefore to receive the FITO you will need to lodge an amendment to your Australian income tax return and split the foreign tax credits between income tax years. You can lodge an amended assessment within 4 years of paying foreign income tax that counts towards your tax offset.