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Topics on claiming foreign income tax offsets (10)

Written by Ideas Group | Nov 19, 2020 11:45:27 PM

 

ATO Ruling on FITO Calculation for Untaxed Foreign Capital Gains

The Australian Taxation Office (ATO) has provided clarity on how Foreign Income Tax Offsets (FITO) are calculated when there are untaxed foreign capital gains. Here's a breakdown of the ruling:

FITO Entitlement and Limitation:

  1. Basis of FITO Claim: The amount of FITO a taxpayer can claim for an income year depends on the foreign income tax paid on amounts included in their assessable income for that year.

  2. Limits on Offset Amount: However, there are circumstances where there's a limit on the offset amount, as outlined in S.770-70 and S.770-75.

Variation in FITO Entitlement:

  1. Foreign Income Tax ≤ $1,000: If the foreign income tax paid is $1,000 or less, the FITO claim equals the amount of foreign income tax paid.

  2. Foreign Income Tax > $1,000: If the foreign income tax paid exceeds $1,000, the taxpayer faces two options:

    • Claim a FITO of $1,000: Although this means wasting the benefit of the excess foreign income tax paid (as it's not refundable or carried forward), in some cases, it may reduce compliance costs.
    • Claim an offset up to the FITO limit: This limit ensures that the taxpayer cannot claim more than the Australian income tax payable due to double-taxed income.

Conclusion:

Understanding FITO calculation is crucial for taxpayers with untaxed foreign capital gains. It's essential to assess whether the foreign income tax paid falls below or exceeds $1,000 and choose the most advantageous option within the FITO limitations.

For further clarification or assistance with FITO calculations, feel free to contact Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment using our live calendar.
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