Private ruling: Foreign income year reporting basis
Date of advice: 1 December 2023
Published: 29 January 2024
Ruling period: Year ended 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner allow you to return the foreign sourced business income you derive in a foreign country on a foreign income year basis in your Australian income tax return? | A1: Yes. Taxation Ruling IT 2498 Income Tax: foreign tax credit system: currency translation of foreign income: trading stock and depreciable plant: basis of returning foreign income: capital gains/losses (IT 2498) states that it is recognised that where an individual taxpayer's foreign source accounts have been prepared on a basis other than the year ended 30 June, difficulty can be experienced in dissecting the income for the purposes of returning on a strict Australian income year basis. Specifically, paragraph 39 of IT 2498 states: ... individual taxpayers who are required to prepare foreign source income accounts on a basis other than a year ending on 30 June and who can demonstrate difficulties in dissecting the income/expenses for the purposes of returning on a strict Australian income year basis in relation to a year of income may be permitted to return the foreign source income in his or her Australian return for that year of income on the relevant foreign income year basis. Where that basis is accepted, the foreign income derived during the foreign income year, and the foreign tax assessed and paid in respect of that income, would be treated as substituting for the foreign income derived by the taxpayer, and the foreign tax paid in respect thereof, during the relevant Australian year of income. From the information provided, the Commissioner accepts that your circumstances fall within those outlined in IT 2498 and will allow you to return your foreign sourced business income on a foreign income year basis in your Australian income tax return.

Relevant facts and circumstances: You are a resident of Australia for taxation purposes. Your tax returns are prepared by a tax agent. You inherited a business in a foreign country. You will retain and run the business while still residing in Australia. You own the business in your own name rather than through a company or trust structure. The business receives income from several sources. You will use a tax agent in the foreign country to deal with your taxation obligations in that country. The tax year of the foreign country runs from 1 January to 31 December.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5