Private ruling: Foreign Income Tax Offsets: dividend, interest and capital gain from assets situated in the Country A by a dual resident of Australia and the Country A
Date of advice: 17 May 2018
Published: August 2018
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the foreign income tax offset (FITO) on dividend income paid by Country A companies and derived by me limited to 15% of the gross amount of the dividends derived? | A1: Yes | Q2: Is the FITO on interest income derived by me from sources in the Country A limited to 10% of the gross amount of the interest derived? | A2: Yes | Q3: Am I entitled to a FITO in respect of capital gains that are also subject to Country A tax? | A3: No

Relevant facts and circumstances: You are a resident of Australia for Australian income tax purposes. You are a citizen of the Country A and, on this basis, a resident of the Country A for their tax purposes. Your permanent home is in Australia. You, as an Australian resident for Australian income taxation purposes were assessed on your Country A sourced dividend income, interest income and capital gain. You, as a Country A citizen and Country A tax resident for their tax purposes, were assessed on your Country A sourced dividend income, interest income and capital gain.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 770-10(1) | International Tax Agreements Act 1953 Section 4 | Schedule 2, Article 1(3) | Schedule 2, Article 10(2) | Schedule 2, Article 11(2) | Schedule 2, Article 22(2)


Detailed Reasoning: Subsection 770-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where the assessable income of a resident contains foreign income and foreign tax has been paid on that income, a FITO will be allowed. | In determining Australia’s obligation to provide offset relief under its domestic law for foreign taxes paid on foreign income, it is necessary to consider not only the income tax laws but also any applicable Double Tax Agreement contained in the International Tax Agreements Act 1953 (Agreements Act) . | Section 4 of the Agreements Act incorporates the Income Tax Assessment Act 1936 (ITAA 1936) and ITAA 1997 with the Agreements Act so that the Acts are read as one. | Schedule 2 to the Agreements Act contains the double tax convention signed between Australia and the Country A (Country A Convention) in 1983 and the amending Protocol which entered into force in May 2003 and operates to avoid double taxation and prevent fiscal evasion on income received by Australian and Country A residents. | Paragraph 3 of Article 1 of the Country A Convention and amending Protocol provides that, notwithstanding any provision of the Country A Convention and amending Protocol, with some exceptions that are not relevant to this case, a Contracting State may tax its residents and individuals electing under its domestic law to be taxed as residents of that State, and by reason of citizenship may tax its citizens, as if the Country A Convention and amending Protocol had not entered into force. Australia, as the country of residence of the taxpayer, also has a taxing right under the Country A Convention and amending Protocol to tax the dividends, interest income, and capital gain under Australian taxation law. | Article 22(2) of the Country A Convention and amending Protocol provides that Country A tax paid under the law of the Country A and in accordance with this Convention in respect of income derived from sources in the Country A by a person who, under Australian law relating to Australian tax, is a resident of Australia shall be allowed as a credit against Australian tax payable in respect of the income. However, the Article specifically excludes, for the purposes of such credit, Country A tax imposed in accordance with paragraph 3 of Article 1 solely by reason of Country A citizenship. | Article 10(2) of the Country A Convention and amending Protocol provides that the tax charged on the dividends shall not exceed 15% of the gross amount of the dividends. This applies irrespective of whether a higher rate of Country A tax has been imposed on the Australian resident by sole reason of their Country A citizenship. Accordingly, you are entitled to a FITO of up to 15% of the gross amount of the dividend derived by you. | Article 11(2) of the Country A Convention and amending Protocol provides that the tax charged on the interest shall not exceed 10% of the gross amount of the interest. This applies irrespective of whether a higher rate of Country A tax has been imposed on the Australian resident by sole reason of their Country A citizenship. Accordingly, you are entitled to a FITO of up to 10% of the gross amount of interest derived by you. | Australia is not obliged to provide relief from double taxation pursuant to Article 22 of the Country A Convention and amending Protocol for the tax paid in the Country A on the capital gain made from the sale of a Country A asset by an Australian resident who is also a Country A citizen. Accordingly, you are not entitled to a FITO in respect of the Country A sourced capital gain derived by you.