Edited version of your written advice

Authorisation Number: 1051338018079

Date of advice: 13 February 2018

Ruling

Subject: Foreign Income Tax Offset (FITO)

Question

Are you entitled to a Foreign Income Tax Offset (FITO) for tax paid in Country Y on your behalf on dividends on shares in an Australian company?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2018

The scheme commenced on:

01 July 2017

Relevant facts and circumstances

You are a resident of Australia for taxation purposes.

You are the beneficiary of a discretionary trust

You will receive dividends from shares in an Australian company.

The Trustee of the trust is taxed on the dividend income in Country Y.

Relevant legislative provisions:

Income Tax Assessment Act 1936 Section 6B (2A)

Income Tax Assessment Act 1936 Section 36

Income Tax Assessment Act 1997 Subdivision 770-B

Income Tax Assessment Act 1997 Subsection 770-10(1)

Income Tax Assessment Act 1997 Section 770-15

Income Tax Assessment Act 1997 Section 770-130

Reasons for decision

Subsection 770-10(1) of the ITAA 1997 provides that where a taxpayer has paid foreign income tax on an amount that is included in their assessable income, a tax offset will be allowed.

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. Hence, the income tax paid in Country y by the trust will be foreign income tax for the purposes of section 770-10 of the ITAA 1997.

The trustee of the trust will pay tax on the income in Country y on dividends you are beneficially entitled to.

Section 770-130 of the ITAA 1997 applies to treat a taxpayer as having paid foreign income tax in circumstances where the tax is actually paid by someone else. It, relevantly, provides:

770-130(1) This Act applies to you as if you had paid an amount of foreign income tax in respect of an amount (a taxed amount) that is all or part of an amount included in your ordinary income or statutory income if you are covered by subsection (2) or (3) for an amount of foreign income tax paid in respect of the taxed amount.

770-130(3) You are covered by this subsection for an amount of foreign income tax paid in respect of the taxed amount to the extent that:

(a) The taxed amount is taken, because of section 6B of the Income Tax Assessment Act 1936 (the 1936 Act ), to be attributable to another amount of income of a particular kind or source; and

(b) Foreign income tax has been paid in respect of the other amount of income; and

(c) The taxed amount is less than it would have been if that tax had not been paid.

As noted above, subsection 6B(2A) of the ITAA 1936 applies to deem the income to be attributable to a Country y source. Paragraph (a) of subsection 770-130(3) of the ITAA 1997 is therefore satisfied.

Although the tax is paid by the trustee of the Trust, which is treated as a taxable entity in Country y, but fiscally transparent in Australia, it is paid in respect of the same income included by Australian law under section 6-5 of the ITAA 1997, in the beneficiaries assessable income. Paragraph (b) of subsection 770-130(3) of the ITAA 1997 is therefore satisfied.

Lastly, the taxed amount is less than it would have been had Country Y tax not been paid and so paragraph (c) of subsection 770-130(3) of the ITAA 1997 is satisfied.

You are entitled to a FITO under section 770-10 of the ITAA 1997 for the tax paid by the trustee of the trust in country Y.