To count towards a tax offset, foreign income tax must be imposed under a law other than an Australian law and be:
- a tax on income
- a tax on profits or gains, whether of an income or capital nature, or
- any other tax that is subject to an agreement covered by the International Tax Agreements Act 1953 (Agreements Act).
The foreign income tax includes taxes similar to Australian withholding tax that is imposed in place of a tax on the net amount of income.
(For examples, refer to Taxes imposed by Australia's major trading partners for which a foreign income tax offset is available.)
The foreign income tax must be correctly imposed under the relevant foreign law and in accordance with any tax treaty the country has with Australia. For example, if country A is limited under a tax treaty to taxing interest derived in that country by an Australian resident to 10% but imposes a domestic tax rate of 25% for interest derived by all foreign residents, only 10% of the tax counts towards the tax offset. The taxpayer would need to seek a refund of the balance (that is, 15%) from country A's tax authority.
The foreign income tax may be imposed at a supra-national, national, state/provincial or local/municipal level. An example of a supra-national tax is that imposed by the European Union on pensions paid to its former employees.
Foreign taxes not included
The following types of foreign tax do not count towards a foreign income tax offset:
- inheritance taxes
- annual wealth taxes
- net worth taxes
- taxes based on production
- credit absorption taxes - that is, a tax that is payable only because the taxpayer or another entity is entitled to foreign income tax offset in Australia
- unitary taxes - that is, a tax on income, profits or gains of a company derived from sources within the country where the tax is imposed that takes into account income, losses, outgoings or assets of the company (or of an associated company) derived, incurred or situated outside that country, except where the tax only takes those factors into account:
- if such an associated company is a resident of the foreign country for the purposes of the law of the foreign country, or
- for the purposes of granting any form of relief in relation to tax imposed on dividends received by one company from another company.
Penalties, fines and interest do not qualify as foreign income tax.
If you are unsure about whether a specific foreign tax is a foreign income tax, you can write to us and request a private binding ruling.
Taxes imposed by Australia's major trading partners for which a foreign income tax offset is available
A foreign income tax offset may be available for the foreign taxes listed below. This list is not exhaustive nor, except for India, does it include local or state taxes.
Argentina
Income tax (Impuesto a las ganancias)
Canada
Income taxes imposed by the Government of Canada under the Income Tax Act.
China
Income tax
France
Income tax and corporation tax, including any related withholding tax, prepayment (precompte) or advance payment.
Germany
Income tax (einkommensteuer)
Corporation tax (korperschaftsteuer)
India
Income tax, including any surcharge
Capital gains tax
Non-resident withholding tax
State government imposed taxes on various agriculture incomes
Italy
Individual income tax (l'imposta sul reddito delle persone fisiche)
Corporate income tax (l'imposta sul reddito delle societ , formerly l'imposta sul reddito delle persone giuridiche)
Japan
Income tax
Corporation tax
New Zealand
Income tax
Non-resident withholding tax
Tax on profits from property sales
Singapore
Income tax
South Africa
Normal tax
Secondary tax on companies (due to be replaced with a withholding tax on dividends)
Withholding tax on royalties.
South Korea
Income tax
Corporations tax
Inhabitant tax
United Kingdom
Income tax
Capital gains tax
Corporations tax
United States
Federal income taxes imposed by the Internal Revenue Code