Private ruling: Foreign dividends and foreign income tax offset
Published: August 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Question and answer | Are you entitled to a foreign income tax credit in relation to your Country X dividend income? | No.

Relevant facts and circumstances: You are an Australian resident for tax purposes. You own shares in a Country X public listed company. You own less than 10% of the issued shares. The company has paid Country X tax on the profits out of which the dividends were paid. The dividend received from the Country X company has an attached tax credit of one-ninth of the dividend. You have not personally paid any Country X tax on the divided income. No withholding tax has been withheld.

Relevant legislative provisions: International Tax Agreements Act 1953 Schedule 1. | Income Tax Assessment Act 1997 Division 770.

Reasons for decision: Summary: Schedule 1 to the International Tax Agreements Act 1953 contains the tax treaty between Australia and the Country X (the Country X Convention). The Country X Convention operates to avoid the double taxation of income received by Australian and Country X residents. The Country X Convention provides that, subject to the provisions of the laws of Australia, a credit against Australian tax payable shall be allowed for Country X tax paid (in accordance with the law of Australia) where tax has been paid under Country X law and in accordance with the Country X Convention. Division 770 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a foreign income tax offset for foreign tax that a taxpayer has paid on income that is included in the taxpayer's assessable income. In your case, you have received divided income from a public listed Country X resident company. Although the company paid Country X tax on the profits out of which the dividends were paid, you have not personally paid any Country X tax on the dividend. Therefore, you have not paid tax under Country X law and you are not entitled to any foreign income tax offset in Australia under division 770 of the ITAA 1997 in relation to this dividend income.