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.
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 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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