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Australia: Foreign income tax offset limit, untaxed capital gains

Australia: Foreign income tax offset limit

The Australian Taxation Office (ATO) released a draft taxation determination that may result in reduced foreign income tax offset.


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The ATO draft determination (Draft TD 2019/D10) expresses a position that 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 when foreign income taxes have been paid.

The FITO provisions aim to provide 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.

Read an October 2019 report prepared by the KPMG member firm in Australia

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