Edited version of private advice

Authorisation Number: 1051797922907

Date of advice: 11 February 2021

Ruling

Subject: Foreign income tax offset (FITO)

Question

Will you be entitled to a Foreign Income Tax Offset (FITO) under Division 770 of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of your excess contributions charge (ECC)?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are a resident of Australia for taxation purposes.

You lodged Australian income tax returns for the years of the ruling.

In these returns, you declared the salary/wage income you earned in a foreign country.

You paid income tax in the foreign country on that income.

You claimed FITO for the income tax paid on your foreign income. You had excess (unused) FITO.

You have been charged ECC in the income years of the ruling.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 Subsection 770-15(1)

Income Tax Assessment Act 1997 Subsection 293(1)

Income Tax Assessment Act 1936

Income Tax Rates Act

Reasons for decision

FITO

Subsection 770-10(1) of the ITAA 1997 provides that a person is entitled to a FITO for foreign tax paid in respect of an amount that is included in the person's assessable income in a year of income.

Subsection 770-15(1) of the ITAA 1997 gives the meaning of foreign income tax as a tax that is imposed by a law other than Australian law and is a tax on income.

FITO reduces your income tax payable, which includes Medicare levy and Medicare levy surcharge. Once your tax payable has been reduced to nil, any unused foreign income tax offset is not refunded to you, nor can it be carried forward to later income years.

In your case, your FITO reduced your income tax and Medicare levy liabilities to nil in both the income years of the ruling. You were left with unused FITO in both years.

ECC

Section 293(1) of the ITAA 1997 states that you are liable to pay Division 293 tax if you have taxable (excess) superannuation contributions for an income year. In your case, you had excess contributions in both the income years of the ruling and were charged ECC in both years.

The ECC is not an Australian income tax. It is a charge imposed on excess superannuation contributions. Income tax is imposed under Division 6 of the ITAA 1997 whereas ECC is imposed under Division 293 of the ITAA 1997. We are not allowing the FITO against the ECC because FITO can only be used to reduce income tax payable (including Medicare levy and the surcharge) and ECC is not income tax.

Therefore, you are not entitled to use the unused portion of your FITO to offset against your ECC.