Are you entitled to claim a FITO?
Yes. This ruling applies for the following period : Income year ended 30 June 20YY The scheme commenced on: 1 July 20YY
You have lived overseas for X years. You arrived back in Australia with your spouse in MM 20YY. You and your spouse are both residents of Australia for tax purposes from the date of your arrival in Australia. You and your spouse own a residential property in a foreign country from which you derive assessable income. Your spouse also derived income from another source. You and your spouse both filed tax returns in a foreign country for the calendar year 20YY (the foreign country's tax year). You both paid income tax there on your foreign income. You have provided copies of your 20YY foreign country income tax assessments in support of this. You will declare your foreign income in your Australian income tax returns for the income year of the ruling
Income Tax Assessment Act 1997 section 6-5 Income tax assessment Act 1997 subsection 770-10(1) Income tax assessment Act 1997 subsection 770-15(1)
Summary As residents of Australia for tax purposes, your foreign income is included in your assessable income for Australian income tax purposes. You are both entitled to claim the FITO for the income tax paid in the foreign country on your foreign income, subject to any applicable limit. Detailed reasoning Assessable income Section 6-5 of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Dividends, salary and wages, as well as interest earned on bank accounts, are examples of ordinary income that would generally be included in a resident Australian taxpayer's assessable income. Your foreign income is ordinary income and so is assessable under section 6-5 of the ITAA 1997. The 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. The offset is for the income year in which your assessable income included an amount in respect of which you paid foreign income tax - even if you paid the foreign income tax in another income year. Application to your circumstances Where income is taxed in a foreign country you may be eligible for a FITO in Australia, but only if certain conditions are met. You can claim a tax offset for the foreign tax you have paid on income or capital gains that are included in your assessable income. You do this in your Australian tax return. In some circumstances, the offset is subject to a limit. To be entitled to a foreign income tax offset: • you must have actually paid an amount of foreign income tax
• the income or gain on which you paid foreign income tax must be included in your assessable income for Australian income tax purposes. Differences between the Australian and foreign tax systems may mean you pay foreign income tax in a different income year from that in which the income or gain is included in your assessable income for Australian income tax purposes. You could have paid the foreign tax in an earlier or later income year. However, the offset can only be claimed after the foreign tax is paid. You have both paid income tax in the foreign country on your foreign income. As resident taxpayers, this income will also be included in your assessable income for Australian income tax purposes. Therefore, you are both eligible to claim the FITO in the income year of the ruling for the income tax paid in the 20YY foreign country tax year, subject to any applicable limit.