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Untaxed capital gains excluded from FITO limit calculation

Untaxed capital gains excluded from FITO limit

As discussed by Fabian Fedele and Richard Wilkins, restrictions on including untaxed capital gains may result in reduced foreign income tax offset under a ATO draft determination.


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The Australian Taxation Office (ATO) has released Draft Taxation Determination 2019/D10 (Draft TD 2019/D10) in which it has expressed the view that those capital gains on which no foreign income tax has been paid are not eligible to be included under subparagraph 770-75(4)(a)(ii) of the Income Tax Assessment Act 1997 when calculating the foreign income tax offset (FITO) limit.

This approach could restrict the amount of foreign income tax available as a FITO where foreign income taxes have been paid.

The purpose of the FITO limit calculation

The FITO provisions aim to ensure that taxpayers avoid double taxation by providing a tax offset for foreign income tax paid. However, in broad terms, the intention of the FITO limit is to restrict the foreign income tax eligible for a FITO to the amount of income tax payable if the foreign sourced income was only included in Australian assessable income as the top slice of income.

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