Edited version of private advice

Authorisation Number: 1051768933329

Date of advice: 20 October 2020

Ruling

Subject: Foreign income tax offset

Question

Is your income derived from your Country A employer between the dates of early 20XX and late 20XX eligible for Foreign Income Tax Offset (FITO)?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are a resident of Australia for taxation purposes.

You were working for your Country A employer from early 20XX until late 20XX while in Australia. You commenced in this position on XX/month/20XX, working remotely from Australia until you could arrange travel to Country A.

You will pay tax on income derived between early 20XX until late 20XX in Country A.

During this period of remote work, you deferred remuneration for your work.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 770-10

Income Tax Assessment Act 1997 Section 770-15

Income Tax Assessment Act 1997 Section 770-70

Agreement between the Government of the Commonwealth of Australia and the Government of Country A for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to taxes on Income (The Country A Convention)

Reasons for decision

A taxpayer whose assessable income in Australia is also subject to foreign income tax and who has, or is deemed to have, paid the foreign income tax in the income year may be entitled to a foreign income tax offset (FITO) in Australia.

The concept of 'foreign income tax' is intended to cover foreign taxes imposed on a basis that is substantially equivalent to income tax imposed under Australian law. 'Foreign income tax' is defined in section 770-15 of the Income Tax Assessment Act 1997 (ITAA 1997) as a tax imposed by a law other than an Australian law that is:

·         tax on income; or

·         tax on profits or gains, whether of an income or capital nature; or

·         any other tax, being a tax that is subject to an agreement having the force of law under the International Tax Agreements Act 1953.

The foreign country Double Tax Agreements (DTA's) are contained under the International Tax Agreements Act 1953.

In considering whether an amount withheld from a taxpayer's salary is a 'foreign income tax', it is necessary to consider the basis on which the amount is withheld and any future benefit the taxpayer might derive in respect of the withheld amount. Substantial, although not exact, equivalence to Australian income tax is required.

Any tax covered by a relevant country's DTA is necessarily a 'foreign income tax'.

In your case Country A does have a double tax agreement with Australia and Article XX of that DTA specifically addresses a tax on income.

You will pay tax on the income from early 20XX until late 20XX in Country A, and as a resident of Australia you will also pay tax on this income in Australia.

You are therefore entitled to a FITO for the taxes paid in Country A.