How to claim foreign income tax offset
– An Australian resident taxpayer earning foreign income?
At a glance:
– A tax offset can be claimed for an amount of foreign tax paid on foreign income, subject to a limit.
– Ensure that you claim the right amount of foreign income tax offset.
– Contact us if you require any clarification or advice.
To be entitled to a foreign income tax offset (FITO), the following conditions must be met:
- The foreign tax must be foreign income tax;
- The taxpayer must have paid, or be deemed to have paid the foreign income tax; and
- The income or gain on which the foreign tax was paid must be included in their assessable income for Australian tax purposes.
A taxpayer is treated as having paid foreign income tax where the tax has been paid by someone else on the taxpayer’s behalf under an arrangement with the taxpayer or under the law relating to that tax.
Actual FITO up to $1,000 can be claimed but for more than $1,000 the FITO limit needs to be calculated.
The FITO limit is the difference between:
The amount of income tax payable for the income year, including Medicare levy and Medicare levy surcharge and disregarding penalties, interest and any tax offsets; and
The amount of income tax that would be payable if the taxable income only included Australian-sourced income, subject to certain assumptions.
A tax offset is not available for certain types of foreign tax, such as inheritance taxes, annual wealth taxes and taxes based on production.
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– Taxpayers are entitled to the full amount of foreign tax paid exceeding $1,000 only if it is under the FITO limit.