Superannuation: foreign tax credits - tax paid by overseas superannuation fund

If a payment is made from an off-shore superannuation fund to a resident taxpayer and that payment is included in the taxpayer's assessable income under section 27CAA of the Income Tax Assessment Act 1936 (ITAA 1936), will a credit be allowed under section 160AF of the ITAA 1936 for tax paid by the fund in the foreign country?

No. A credit will not be allowed under section 160AF of the ITAA 1936 for tax paid by the fund in the foreign country because the taxpayer did not pay the tax and was not personally liable for that tax.

The taxpayer intends transferring their superannuation entitlement from an eligible non-resident non-complying superannuation fund (an overseas fund) to a resident complying superannuation fund (an Australian fund).

The overseas fund has paid some tax on the fund income.

Subsection 160AF(1) of the ITAA 1936 provides that a resident taxpayer, whose assessable income includes foreign income on which the taxpayer has personally paid foreign tax, is entitled to a credit against the Australian tax payable of the amount of that foreign tax, up to the amount of Australian tax payable on the foreign income.

In this case, the taxpayer has not paid any foreign tax on that income, nor were they personally liable for that tax.

Subsection 6AB(3) of the ITAA 1936 deems a taxpayer to have been personally liable for, and to have paid foreign tax, where the taxpayer has derived foreign income and the tax on that income has effectively been paid on the taxpayer's behalf: • by another person under an arrangement with the taxpayer, or under the tax law of the foreign country; • by a trust estate if the taxpayer is a beneficiary; • by a partnership if the taxpayer is a partner; • by deduction; or • by the taxpayer's spouse, where the tax is levied on, and paid by, the taxpayer's spouse.

In this case, the tax paid by the overseas fund was not in relation to the amount that will be assessable to the taxpayer under section 27CAA of the ITAA 1936.

The taxpayer is not entitled to a foreign tax credit.