Topics on claiming foreign income tax offsets (7)

Taxpayer's Appeal Outcome Explained

After the initial ruling, the taxpayer appealed to the Full Federal Court, making similar arguments. They claimed that:

1. The capital gains should have been considered part of their assessable income before applying capital losses and the general discount.
2. Alternatively, they argued that the full US tax paid on each gain should be counted "in respect of" the corresponding net capital gain.
3. They also suggested that according to Article 22(2) of the DTA, Australia should credit the full US tax paid against the Australian tax.

However, the Full Federal Court upheld the previous decision, denying the taxpayer a full Foreign Income Tax Offset (FITO) under S.770-10(1) for the US tax paid on the discounted capital gains. Regarding Article 22(2) of the DTA, the majority of the court dismissed the appeal, stating there was no inconsistency with S.770-10(1). Only one judge dissented from this decision.

High Court's Decision:

On 14 February 2020, the High Court rejected the taxpayer's application for special leave to appeal the Full Federal Court's decision in Burton's case. This confirmed the Full Federal Court's ruling that foreign income tax paid on a foreign capital gain only contributes to the FITO calculation if the capital gain is assessable in Australia.

Conclusion:

The High Court's refusal means the decision stands, affirming the ATO's position on how foreign income tax is treated concerning foreign capital gains in Australia.

For further assistance, you can reach out to Tax Ideas Accountants & Advisers at

+61 2 83181545 or book an appointment via live calendar.

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