Private ruling: Adoption of foreign income year basis for returning foreign income
Date of advice: 23 May 2019
Published: July 2019
Ruling period: Year ended 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Will the Commissioner allow you to return your Country Y foreign sourced income on a country Y 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 X XXXX year end. You derive about 62% of your income from a foreign source. A significant portion of your taxable income consists of country Y investment income from a number of foreign companies. This income comprises the following: ● Rental income ● Dividends ● Interest ● Capital gains ● Capital losses You experience the following difficulties returning your foreign income on an Australian income year basis: 1) You own a number of rental properties in country Y and the information you receive from your country Y real estate agent is prepared to a year end date of X XXXX. This information does not allow you to accurately dissect the income and expenses in line with the Australian financial year. Further to this, your Country Y accountant can only provide details on the income and expenses earned after X XXXX at the end of the following country Y financial year. This delay means your Australian tax agents do not have adequate time to assess the information and accurately prepare your income tax return in a timely manner. 2) You hold a significant portion of your investments in a Country Y managed fund. Once again, the fund only prepares a year end statement to X XXX. The information from X to 30 June is not provided until the following year end statement (which is after the lodgement date of your Australian tax return). 3) You experience difficulty in determining the value of the Foreign Income Tax Offset(FITO) you are entitled to for your Country Y income in the Australian income year. A FITO can only be claimed when tax has been paid in a foreign country. You cannot obtain information that accurately dissects the FITO between country y and Australian financial years.

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 Country Y is X 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.