Edited version of private advice

Authorisation Number: 1051759187584

Date of advice: 08 October 2020

Ruling

Subject: Adoption of foreign income year basis for returning foreign income

Question

Will the Commissioner allow you to return foreign sourced income on the relevant foreign income year on your Australian income tax return?

Answer

Yes

Having regard to your circumstances and giving consideration that you are resident of Australia for income tax purposes in conjunction with your Australian income tax reporting obligations and lodging an annual income tax return in country X the Commissioner will allow you to return foreign source income for the relevant foreign income year on your Australian income tax return. Further information is available in Taxation Ruling IT 2498 Income Tax: foreign tax credit system: currency translation of foreign income: trading stock and depreciable plant: basis of returning foreign income: capital gains/losses

This ruling applies for the following periods:

Year ending 30 June 2021

Year ending 30 June 2022

Year ending 30 June 2023

Year ending 30 June 2024

The scheme commences on:

1 July 2020

Relevant facts and circumstances

You are a resident of Australia.

Your tax returns are prepared by a tax agent.

You receive a significant amount of Partnership income from country X.

Your tax agent stated they have difficulty obtaining information relating to your Partnership income in a timely manner in order to prepare your Australian tax returns by your due date. This is due to the information not being available to finalise as a result of regulatory and reporting requirements imposed by country X authorities.

Your country X advisors then need time to collate and report that information to your Australian tax agent that is accounted for on country X tax year basis. Your Australian tax agent then needs time to convert that information to Australian dollars and contemplate the relevant Australian tax implications.

You state that the need to disclose your country X income on a 30 June year end basis considerably lengthens the time required to prepare your Australian tax return as it involves:

—  Dissecting country X partnership income from their tax year end to determine the income that relates to the period A - B. This involves arbitrary allocation and may not always reflect the true pattern in which you derived your assessable income once adjusted for a 30 June year end.

—  Waiting on country X advisors to provide information with regard to country X income for the period B to C. Following the receipt of this information (which is always after B of the following income year), you need to review it and contemplate the country Y income tax implications in order to accurately reflect the information on your country Y tax return. This involves arbitrary allocation and may not reflect the true pattern in which you derived your assessable income once adjusted for a 30 June year end.

—  Allocating country X tax paid between financial years in order to calculate the correct FITO. The current approach involves assuming that tax is paid evenly throughout the year, and then allocating tax paid over Australian income tax year. This is further complicated by the legislative requirement in section 770- 10 of the Income Tax Assessment Act 1997, to only claim a FITO when tax has been paid in the foreign jurisdiction, which can sometimes occur after the 30 June income tax year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5