Guide to foreign income tax offset rules 2023

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Eligibility and rules for the FITO

Check if you can claim a foreign income tax offset (FITO), how to calculate the amount and what rules apply.

Eligibility and rules for the FITO

Check if you are eligible for FITO and the rules that apply for entitlement.

When the FITO applies

Check if you meet the conditions for a FITO to apply to you.

Calculate your FITO or offset limit

How to work out your FITO or offset limit if the offset amount is more than $1,000.

Record keeping for FITO

Check the records you need to keep to support a claim for the FITO.

Foreign income tax paid by a controlled foreign company

Check your eligibility for FITO if you have attributed foreign income and the controlled foreign company pays the tax.

Special circumstances

Find out if there are special circumstances for eligibility and the FITO limit for your entity or income type.

Attachment A: Countries and other jurisdictions that have a tax treaty with Australia

A list of the countries and jurisdictions that have a tax treaty with Australia.

Eligibility and rules for the FITO

If you have assessable income from overseas, you must declare it in your Australian income tax return. If you have paid foreign tax in another country, you may be entitled to an Australian foreign income tax offset, which provides relief from double taxation.

These rules apply for income years that start on or after 1 July 2008. Different rules apply for income periods up to 30 June 2008; see How to claim a foreign tax credit 2007-08 (NAT 2338).

You may be entitled to claim a tax offset for the foreign tax you have paid on income, profits or gains (including gains of a capital nature) that are included in your Australian assessable income. In some circumstances, the offset is subject to a limit.

To be entitled to a foreign income tax offset:

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you must have actually paid , or be deemed to have paid, an amount of foreign income tax , and

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the income or gain on which you paid foreign income tax must be included in your assessable income (or your non-assessable non-exempt (NANE) income under section 23AI or 23AK of the Income Tax Assessment Act 1936 (ITAA 1936 )) for Australian income tax purposes.

Differences between the Australian and foreign tax systems may lead to you paying foreign income tax in a different income year from that in which the income or gain is included in your income for Australian income tax purposes. You might 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.

If you paid foreign income tax after the year in which the related income or gains have been included in your Australian tax return, you can claim the offset by requesting an amended assessment for that year. You have up to 4 years to request an amendment to your assessment from the date you paid the foreign income tax. You should also request an amendment if there is an increase or reduction in the amount of foreign income tax you paid that counts towards the offset.

The foreign income tax offset applies to foreign income tax imposed on all forms of income, profits and gains (including gains of a capital nature) and to all taxpayers, whether individuals or other entity types.

While the offset mainly applies to Australian resident taxpayers, in the limited circumstances where the foreign income of a foreign person or non-resident is taxed as assessable income in Australia, they may be able to claim the offset.

In very limited circumstances, foreign tax imposed on Australian source income may count towards a foreign income tax offset.

From 1 January 2019, Australia's new hybrid mismatch rules may operate to deny deductions or include amounts in assessable income where certain requirements are met. This may impact your tax return.

Calculating the offset

You claim the foreign income tax offset in your income tax return.

If claiming an offset of $1,000 or less, you only need to record the actual amount of foreign income tax paid that counts towards the offset (up to $1,000).

If claiming a foreign income tax offset of more than $1,000, you will first need to work out your foreign income tax offset limit .

The offset is calculated in a different way for Australian resident individuals in receipt of the Joint Petroleum Development Area (JPDA) income as an employee under the Timor Sea Maritime Boundaries Treaty with Timor-Leste.

Before you calculate your net income, you must convert all foreign income, deductions and foreign tax paid to Australian dollars.

All types of income are treated the same for the purposes of working out the foreign income tax offset.

Record keeping

To claim a foreign income tax offset, you will need to keep adequate records of your foreign income and tax paid.

Attributed foreign income

If you have interests in a foreign entity, your share of its income may be attributed to you for income tax purposes, even if the income has not yet been distributed.

If you have attributed foreign income , you may be entitled to a foreign income tax offset for foreign income tax, income tax, or withholding tax paid by a controlled foreign company (CFC) in which you hold an interest.

References

ATO references:
NO QC 72280