Are you entitled to claim a foreign income tax offset (FITO) for the payments you have paid in Country Z?
No. This ruling applies for the following periods : Year ended 30 June 20XX Year ended 30 June 20XX The scheme commenced on: 1 July 20XX
You were a resident of Australia for taxation purposes for the relevant income years. During the relevant income years, you worked in Country Z earning salary and wages. You worked for an employer in Country Z. You were required to make a payment in Country Z, and this came out of your pay.
Income Tax Assessment Act 1997 Division 770
Foreign income tax offset The foreign income tax offset (FITO) rules are designed to protect you from the double taxation that may arise where you pay foreign tax on income that is also taxable in Australia. This is achieved by allowing you to claim a tax offset where you have paid foreign tax on amounts included in your assessable income. The FITO rules are contained in Division 770 of the Income Tax Assessment Act 1997 (ITAA 1997). Country Z provides a scheme where people in work in Country Z make payments towards the scheme. The payments are called contributions and certain benefits are only payable if you meet the contribution conditions. The scheme is administered by a Country Z government department. Where a person makes a compulsory contribution to a levy which will be used to provide benefits for that person in the future, that contribution is more akin to a payment for services than a payment of tax. For instance, if a contributor contributes to an unemployment fund and is entitled to unemployment benefits as a result of making those contributions, the contributions have the character of compulsory insurance instead of a tax.
It is possible that some taxpayers may never qualify for benefits under the scheme as they may never become unemployed, incapacitated, attain old age or they may never have a large family. However, if (after satisfying all the relevant conditions) a contributor is entitled to a benefit in return for the contributions, those contributions would be more appropriately regarded as compulsory insurance premiums. They are payments which are made in return for being insured against the happening of a future event. They are not regarded as the payment of tax. Therefore, contribution payments are not considered to be a foreign tax paid when working out entitlement to a foreign income tax offset.