Private ruling: Adoption of foreign income year basis for returning foreign income
Date of advice: 12 June 2019
Published: July 2019
Ruling period: Year ended 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020 | Year ending 30 June 2021 | Year ending 30 June 2022
Date scheme commenced: 1 July 2017

Ruling: Q1: Will the Commissioner allow you to return your Country Y foreign sourced income on an income year basis on your Australian income tax return? | A1: Yes.

Relevant facts and circumstances: You are a resident of Australia for taxation purposes. Your tax returns are prepared by a tax agent. Your tax agent has difficulty obtaining information relating to your Country Y foreign income in a timely manner in order to prepare your Australian tax returns by your due date. This is due to the information not being available to finalize as a result of regulatory and reporting requirements imposed by the relevant foreign authorities. Your country Y tax accountants need time to collate and report information in relation to a XXX XXXX year end. You derive XX% of your income from a foreign source. This income comprises the following: Your Australian tax advisors have significant difficulty in obtaining information in relation to your Country Y income for the full year ended 30 June from your Country Y tax accountants in a timely manner, particularly income relating to the period between 1 January and 30 June. This is due to the information not being available in the required timeframes as a result of regulatory and reporting requirements imposed by Country Y authorities. Your Country Y tax accountants require time to collate and report information in relation to a XX XXXX year end. Due to lodgement extensions provided in Country Y, the Country Y tax returns may not be finalised for months following XX XXXXX. Once they are finalised, they are then provided to your Australian tax agent. Who then require time to convert the information provided to Australian dollars, contemplate the relevant Australian tax implications and apply an arbitrary allocation of the foreign income and foreign tax paid over the year. You receive a distribution from a Country Y resident trust, the distribution is determined on a XX XXXXX year end basis. You also hold an investment in a managed fund, the fund has Country Y investments of which interest, dividends and capital gains are calculated on a XX XXXXX year end basis. Country Y funds and companies are often not required to report information relating to that calendar year to their investors/shareholders until X XXX of the following calendar year. Your Country Y accountants then need time to collate and report that information in your Country y tax return. You are only able to provide such information to your Australian tax agent, for use in preparing your Australian income tax return after you receive your Country Y income tax return. Once your agents receive the information, they need time to dissect the income into the relevant periods, convert the relevant amounts to Australian dollars, and to contemplate the relevant Australian tax implications which include determining the appropriate amount of foreign income tax offsets to be claimed in the Australian tax year ended 30 June.

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

Reasons for decision: Summary: The general rule is that for income tax purposes an individual taxpayer will be required to disclose in his or her Australian tax return the amount of foreign income derived during the Australian financial year. It has been recognised in the past 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. The Commissioner has issued 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 which addresses the issue of foreign income and expenses to be returned for an Australian year of income where foreign accounts and/or tax apply on a different 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 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. ... You are in receipt of Country Y foreign source income. The income year ending for the country y is XX XXXX. As a result of regulatory and reporting requirements imposed by the relevant foreign tax authorities you face significant difficulty in obtaining information in relation to the foreign income within a suitable timeframe to include in your Australian tax return by your lodgement due date. From the information provided the Commissioner accepts that your circumstances fall within those outlined in IT 2498 and will allow you to return the foreign sourced income on a Country Y income year basis on your Australian tax return. Australian source income, and other foreign income (such as dividends or interest) that is subject to a final withholding tax and can be readily returned on an Australian income year basis, would continue to be shown in the taxpayer's return on the basis of the Australian income year. If the difficulties which have warranted you being allowed to return foreign income on the foreign income year basis cease to exist, you will be required to return the foreign sourced income on the Australian year of income basis.

Distributions from a Country Y resident Trust | Capital gains derived from a investment portfolio