Understanding When a Taxpayer Can Claim a FITO
Burton’s case revolved around whether a taxpayer faced double taxation when only receiving a partial FITO for taxes paid in the USA on a capital gain partly assessable in Australia. According to S.770-5, the FITO provisions aim to relieve double taxation when:
Foreign income tax is paid on amounts included in assessable income.
Without these provisions, the taxpayer would pay Australian income tax on the same amounts.
FITO serves as the mechanism to prevent double taxation. Under S.770-10(1), a taxpayer is entitled to a tax offset for foreign income tax if:
The tax was paid on an amount included in their assessable income for the year.
If the amount is partly non-assessable non-exempt income and partly assessable income, only the proportionate share corresponding to the assessable income counts towards the tax offset.
The definition of 'foreign income tax' broadly encompasses taxes imposed by foreign laws substantially equivalent to Australian income tax. This includes taxes on income, profits, gains (income or capital), or any other tax covered by a double tax agreement (S.770-15(1)).
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