Recent Case Highlights Risks of Claiming FITO for Capital Gains – Burton's Case Continues
In a recent case, the Commissioner adjusted a taxpayer's Foreign Income Tax Offset (FITO) claims related to capital gains. The Commissioner's stance was that since the capital gains were discounted by 50%, only 50% of the tax paid in the USA should count towards FITO. Consequently, the taxpayer's assessments were amended, partially denying the FITOs claimed.
For the 2011 income year, 50% of the FITO claimed was denied due to the capital gains being reduced by 50% under the CGT general discount. In the 2012 income year, over 50% of the FITO claim was denied, considering unrelated capital losses of the taxpayer and the CGT general discount.
The taxpayer objected to these amendments, but the Commissioner disallowed them based on the ATO's interpretation of when an entitlement to a FITO arises under S.770-10(1). According to the ATO's view, if only 50% of a foreign capital gain is included in the assessable income due to the CGT discount, then only 50% of the foreign income tax counts towards the FITO.
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