Private ruling: Adoption of foreign income year basis for returning foreign income
Date of advice: 31 October 2016
Published: February 2017
Ruling period: Year ended 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner allow you to return your foreign sourced income in the relevant foreign income year basis on your Australian income tax return? | A1: Yes | Q2: Will the Commissioner allow you to declare X months' foreign income in your next Australian income tax return? | A2: Yes

Relevant facts and circumstances: You are a resident of Australia for taxation purposes. You have investments in Country X. The majority of your taxable income is from your Country X's investment portfolio. Your Country X's investment portfolio includes interest, dividend and capital gains. Your Australian source income is from your interest bearing accounts. You include all your Country X's income in your Australian income tax return. The income year for Country X is different to Australian income year. You have Country X's advisors to prepare your information to comply with the Country X's income year. Your Country X's advisors also provide interim reports to meet Australian tax reporting requirements with an additional cost. The cost is becoming very excessive. There are significant difficulties in tracking and dissecting the Country X's financial information and correctly identifying the foreign tax credits applicable to your Country X's income. It is difficult for you to acquire information for your Australian income tax return from your Country X's advisors in a timely manner. You have already lodged your 20XX income tax return based on Australian income year.

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 income 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 the 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. … In your case, you are in receipt of Country X's foreign source income consisting of interest, dividend and capital gains. The income year for Country X is different to Australian income year. There are significant difficulties in tracking and dissecting Country X's financial information and correctly identifying the foreign tax credits applicable to your Country X's income. It is difficult for you to acquire information for your Australian income tax return from your Country X's advisors in a timely manner. From the information provided the Commissioner accepts that your circumstances fall within those outlined in the IT 2498 and will allow you to return the foreign sourced income on Country X's income year basis on your Australian tax return. 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. Paragraph 44 and 45 of the IT 2498 discusses the situation where the taxpayer no longer needs to change the reporting period. Appropriate adjustments will be required in that situation to ensure that foreign income derived by the taxpayer in the intervening period between the end of the preceding foreign income year and the commencement of the relevant Australian income year are taken into account for Australian tax purposes. Comparatively, it is reasonable to make appropriate adjustments when the taxpayer first adopts a foreign income year basis. In your case, you have already lodged your 20XX income tax return based on Australian income year. The first X months' foreign income has already been included in your 20XX income tax return. It is reasonable for you to only declare the rest X months' Country X's income in your 20XX Australian income tax return. It is also necessary for you to keep appropriate records to show that your Country X's income has been fully reported in either the 20XX or the 20XX Australian tax return. In addition, if your circumstances no longer warrant the changed reporting period you will be required to apply appropriate adjustments under paragraph 44 and 45 of the IT 2498.