Edited version of private advice

Authorisation Number: 1052156577765

Date of advice: 18 August 2023

Ruling

Subject: Foreign source income

Question

Will the Commissioner allow you to return your Country A foreign source income on a Country A income year basis on your Country B income tax return?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 2020

Relevant facts and circumstances

You are a resident of Country A for taxation purposes.

Your tax returns are prepared by a tax agent.

Country B income tax year begins on a different date to Country A's income year.

Your Country A tax agent needs to have access to your Country B income tax returns before they can prepare your Country A returns. This is so that they can obtain the correct income share of Country B income.

As your Country B income tax returns are lodged by an agent, a tax agent lodgment exemption is available. As a result, the due date of your returns is deferred from several months into the following income year to the last day of the following income year.

Your Country A tax agent has difficulties lodging your tax return in the required timeframe for the following reasons:

•                     the necessary information in the required timeframe is not available due to the statutory requirements of foreign jurisdictions

•                     monetary data for Country B income is provided in Country B currency and needs to be converted into Country A dollars

•                     information for the period from 1 January to 30 June of the relevant Country A income year is not available for your Country B income until the following Country A income year

•                     Country B's tax system allows a deferral of lodgment until 31 December if a tax agent lodges a tax return on behalf of the taxpayer. Therefore, Country A's tax advisor is not able to obtain the information in time for lodgment of returns in Country A.

You receive income from Country B consisting of income shares from partnerships.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Reasons for decision

Summary

The Commissioner will allow you to return your Country B foreign source income on a Country B income year basis on your Country A income tax return.

Detailed reasoning

For income tax purposes, an individual taxpayer will usually be required to include amounts of foreign income derived during Country B's income year in their Country A income tax return.

Where an individual's foreign source accounts are prepared on a basis other than an income year ending on 30 June, it is recognised that there can be difficulties in dissecting income for the purposes of returning income on a strict Country A income year basis.

The Commissioner has issued 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. IT 2498 addresses the issue of foreign income and expenses returned for an Australian year of income where foreign accounts and/or tax apply on a different basis.

Paragraph 39 of IT 2498 states the following:

... individual taxpayers who are required to prepare foreign source income accounts on a basis other than a year ending 30 June and who can demonstrate difficulties in dissecting the income/expenses for the purposes of returning on a strict Australian income year basis in relation to a year of income, may be permitted to return the foreign source income in his or her Australian return for that year of income on the relevant foreign income year basis....

Application to your circumstances

You receive foreign source income from Country B. The income year in Country B ends on 31 December. As a result of regulatory and reporting requirements imposed by the relevant foreign tax authorities, you face significant difficulty in obtaining information in relation to the foreign income within a suitable timeframe to include in your tax return for Country A by your lodgment due date.

From the information provided the Commissioner accepts that your circumstances fall within those outlined in IT 2498 and will allow you to return the foreign sourced income on a Country B year basis on your Country A tax return.

You should continue to include Country A source income and other foreign income subject to a final withholding tax that can be readily returned on a Country A income year basis in your income tax return on the basis of the Country A income year.

If the difficulties which have warranted you being allowed to return foreign income on the foreign income year basis cease to exist, you will be required to return the foreign sourced income on the Country A year of income basis