Allocation of foreign tax credits

Can an amended foreign tax credit determination be issued after four years from the date of the original determination to change the amount of foreign tax credits available to the taxpayer where an amended assessment has changed the Australian tax payable on foreign income.

Yes. An amended foreign tax credit determination can be issued after four years from the date of an original determination where the Australian tax payable on the foreign income has changed as a result of an amended assessment.

The Australian tax payable on foreign income on which the taxpayer has claimed foreign tax credits has changed as a result of an amended assessment.

Subsection 160AK(2) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that: An amendment of a determination is not to be made after the end of 4 years after the original determination date except to correct an error in calculation or a mistake of fact or in consequence of an adjustment, credit or refund of Australian tax or foreign tax.

Where four years has lapsed, one of the grounds to amend a foreign tax credit determination is if it is made '...in consequence of an adjustment, credit or refund of Australian tax'.

The phrase 'in consequence of' is not defined and so takes its ordinary meaning. The Macquarie Dictionary , 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW defines consequence as 'the act or fact of following as an effect or result upon something antecedent'.

Although the Macquarie dictionary implies two possible meanings to the phrase - a causal connection, or a 'following on' connection - it seems the courts prefer the later interpretation in the context of legislation.

For example in Reseck v. Federal Commissioner of Taxation (1975) 133 CLR 45, 75 ATC 4213; (1975) 5 ATR 538 Jacobs J rejected the notion that the words 'in consequence of' (as it appeared in subsection 26(d) of the ITAA 1936) import causation. Rather it connotes 'following on'. A similar interpretation was applied by Toohey J in Director-General of Social Services v. Hangan (1982) 45 ALR 23 when interpreting section 140 of the Social Services Act (at 33).

On either interpretation - whether on the wider 'following on' interpretation or the narrower 'causal' interpretation - the amendment of a foreign tax credit determination to vary the foreign tax credit entitlement of a taxpayer following the amendment of an assessment would be in consequence of an adjustment, credit or refund of Australian tax. The nexus between the amendment of the determination and the adjustment of Australian tax would be sufficiently clear and direct to satisfy the requirements of subsection 160AK(2) of the ITAA 1936.

This outcome is consistent with the general foreign tax credits regime, where credits are allowed to avoid the double taxation of Australian residents on their foreign income. The amount of foreign tax credits that are allowed is the lesser of foreign tax paid or Australian tax payable on a foreign income (see section 160AO of the ITAA 1936). Where an assessment is amended such that additional foreign income is included in assessable income and the Australian tax payable on foreign income is increased, taxpayers are able to claim the credit for the foreign tax paid on that foreign income provided that the terms of section 160AO are satisfied.