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Edited version of private advice
Authorisation Number: 1051656698142
Date of advice: 07 April 2020
Ruling
Subject: Foreign income tax offset
Questions and answers
- Will you be entitled to a Foreign Income Tax Offset (FITO) under Division 770 of the Income Tax Assessment Act 1997 in respect of foreign tax paid?
Yes.
- Will you be entitled to claim the FITO in the Australian income year in which you include an amount in your assessable income in respect of the disposal of your Australian property?
Yes.
Based on the facts you have supplied, you will be entitled to claim a FITO in respect of the foreign tax paid in respect of your Australian real estate property. Further, as it is not required that the foreign income tax be paid in the same income year as the sale of your Australian properties, you will be entitled to claim a FITO for the foreign tax paid in the future Australian income year(s) when you sell your Australian property.
This ruling applies for the following period:
Income year ending 30 June 2020
The scheme commences on:
1 July 2019
Relevant facts and circumstances
You are an Australian and foreign country citizen.
You have been tax resident in a foreign country for several years. You are not currently a resident of Australia for taxation purposes. Your intention at this point is to relocate to Australia and become a resident of Australia for tax purposes in the near future.
You own Australian residential real estate which is Taxable Australian Property (TAP) for the purposes of section 855-20 of the Income Tax Assessment Act 1997 (ITAA 1997).
The Australian property in question includes properties which you own 100% and other properties which you own a part interest:
- A property is currently on the market to be sold. If this property is not sold within the near future, you will attempt to sell the property after you become a resident of Australia.
- Another property you plan to live in upon your return to Australia.
- Another property you part own you plan to sell your interest to the other owner soon after becoming tax resident of Australia.
At the time you depart the foreign country and cease to be a tax resident, you will be liable for tax under the domestic tax law of that country. You will be required by them to pay capital gains tax (CGT) in respect of your Australian property at the time you become non-resident of the foreign country for tax purposes.
The foreign tax is calculated based on the value of a taxpayer's worldwide assets and therefore you will be required to pay the tax in respect of the capital gains on your Australian residential property accruing from the date you commenced tax residency in the foreign country to the date you cease tax residency there. You would be required to pay this tax in the foreign country in the income year in which your tax residency there ceases.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 855-20
Income Tax Assessment Act 1997 Section 770-10
Income Tax Assessment Act 1997 Section 770-15