1 Will the Commissioner allow you to return your foreign sourced income on a foreign income year basis on your Australian income tax return?
1 Yes. This ruling applies for the following periods : Year ended 30 June 20YY Year ending 30 June 20YY Year ending 30 June 20YY Year ending 30 June 20YY Year ending 30 June 20YY The scheme commenced on: DD MM YYYY
You are a resident of Australia for taxation purposes. You are required to lodge an income tax return which includes your foreign sourced income. Your tax return is prepared by an Australian tax agent, who has difficulty lodging them in the required timeframe as the necessary information is not available in a timely manner due to the statutory requirements of foreign jurisdictions which includes but is not limited to, due dates of tax return lodgement. Your tax agent must convert monetary data into Australian dollars, review the information, and apply the Australian tax law. The Country Z income year ends on a different date than the Australian financial year. A portion of your total income consists of foreign income from Country Z. This income comprises a number of different sources. Your Country Z tax accountants require time to collate and report information in relation to the Country Z year end. Due to lodgement extensions provided in Country Z, the Country Z tax returns may not be finalised for several months. Once they are finalised, they are then provided to their Australian tax agent.
They are only able to provide such information to their Australian tax agent, for use in preparing their Australian income tax return after they receive their Country Z income tax return. Once their agents receive the information, they need time to dissect the income into the relevant periods, convert the relevant amounts to Australian dollars, and to contemplate the relevant Australian tax implications which include determining the appropriate amount of foreign income tax offsets to be claimed in the Australian tax year ended 30 June.
Income Tax Assessment Act 1997 section 6-5
The general rule is that, for income tax purposes, an individual taxpayer will be required to disclose in their Australian tax return any amount of foreign income derived during the Australian income year which ends on 30 June. It has been recognized in the past that where an individual taxpayer's foreign source accounts have been prepared on a basis other than the year ended 30 June, difficulty can be experienced in dissecting the income for the purposes of returning on a strict Australian 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) which addresses the issue of foreign income and expenses to be returned for an Australian year of income where foreign accounts and/or tax apply on a different basis. Specifically, paragraph 39 of IT 2498 states:
'... 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'. You are in receipt of Country Z foreign source income. The income year ending for Country Z is a different date than Australia. 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 Australian tax return 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 foreign income year basis on your Australian tax return.
Australian source income, and other foreign income (such as dividends or interest) that is subject to a final withholding tax and can be readily returned on an Australian income year basis, would continue to be shown in the taxpayer's return based on the Australian 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 Australian year of income basis.