In the case of Burton v FCT [2018] FCA 1857, the taxpayer appealed against the Commissioner's decision to partially deny their Foreign Income Tax Offset (FITO) claims for 2011 and 2012. The dispute arose because the taxpayer believed that not allowing them to include the full amount of US tax paid on their capital gains led to double taxation.
The Commissioner argued that double taxation only occurs when a taxpayer pays both foreign tax and Australian tax on the same amount. Since the part of the capital gains not included in assessable income (due to capital losses and CGT discount) wasn't taxed in Australia, it couldn't be doubly taxed.
The main question for the Court was whether the taxpayer had paid US tax "in respect of" an amount included in their assessable income, as per section 770-10(1). The taxpayer argued that since the capital gains were part of their assessable 'net capital gain', the full US tax paid should count towards their FITO claims to avoid double taxation.
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