Private ruling: Foreign Income Tax Offset
Date of advice: 23 March 2017
Published: August 2017
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Question and Answer | Are you entitled to a foreign income tax offset for the amount of income tax deducted from your country A superannuation and pension? | No.

Relevant facts and circumstances: You are a resident of Australia for taxation purposes. You are in receipt of superannuation and state pension payments from country A. Income tax and another tax are deducted from your payments. Assumption(s) None made

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 770 | International Tax Agreements Act 1953 Paragraph Sch20-Art25(1) | International Tax Agreements Act 1953 Sch20-Art2.

Reasons for decision: Summary: The foreign income tax offset (FITO) rules are designed to protect you from the double taxation that may arise where you pay foreign tax on income that is also taxable in Australia. This is achieved by allowing you to claim a tax offset where you have paid foreign tax on amounts included in your assessable income. The FITO rules are contained in Division 770 of the Income Tax Assessment Act 1997 (ITAA 1997). Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Pensions are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997. | Detailed Reasoning - Tax Treaty: In determining liability to Australian tax on foreign sourced 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 International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations). Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Irish Agreement is listed in section 5 of the Agreements Act. The country A agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The country A Agreement operates to avoid the double taxation of income received by Australian and country A residents. Article # of the country A Agreement provides that pensions and annuities paid to a resident of Australia shall be taxable only in Australia. Accordingly, as you are a resident of Australia for taxation purposes, the pensions you receive from country A are assessable only in Australia, therefore, you are not entitled to a foreign income tax offset.