Private ruling: Foreign Income Tax Offset
Date of advice: 17 June 2016
Published: August 2016
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Question and answer | Are you entitled to a Foreign Income Tax Offset (FITO) for the x% tax paid by the Limited liability Company (LLC) in the foreign country? | No. | Are you entitled to a FITO if y% has been withheld on the dividend paid to the SMSF by the LLC in the foreign country? | Yes.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The fund intends on investing Country Y. The fund will set up a LLC in Country Y. The fund will be the sole shareholder of the LLC in country Y. The LLC will pay tax on the investment income derived in Country Y to the Country Y tax authorities. The LLC will pay the fund a dividend and will withhold x% to pay to the Country Y tax authorities. The LLC is not a transparent entity in the foreign country.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 770-15 | Income Tax Assessment Act 1997 Section 770-70

Reasons for decision: Summary: A taxpayer whose assessable income in Australia is also subject to foreign income tax and who has, or is deemed to have, paid the foreign income tax in the income year may be entitled to a foreign income tax offset (FITO) in Australia. The concept of 'foreign income tax' is intended to cover foreign taxes imposed on a basis that is substantially equivalent to income tax imposed under Australian law. 'Foreign income tax' is defined in section 770-15 of the Income Tax Assessment Act 1997 (ITAA 1997) as a tax imposed by a law other than an Australian law that is: • tax on income; or • tax on profits or gains, whether of an income or capital nature; or • any other tax, being a tax that is subject to an agreement having the force of law under the International Tax Agreements Act 1953. The fund is not entitled to a FITO for the x% tax paid by the LLC in country Y on the investment income. The LLC is not a fiscally transparent entity for Country Y tax purposes and therefore the fund has not paid the x% tax on the investment income in Country Y. The fund is entitled to a FITO up to the limit of z% when withholding tax is paid from the dividend paid by the LLC to the fund.