Private ruling: Eligibility for the foreign tax credit offset for Australian source ESS income taxed in Country A.
Date of advice: 21 December 2015
Published: March 2016
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you eligible for an Australian foreign income tax offset on Australian sourced income that has been taxed in both Australia and Country A? | A1: 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. You worked in Country A for a company for a number of years. You moved to Australia to work for a related company. You became a temporary resident of Australia for Australian income tax purposes. You participated in an Employee Share Scheme (ESS) while working in Country A and were granted ESS interests while a resident of Country A. A portion of these ESS interests vested while you were resident in Australia. The tax authorities in Country A taxed you on your entire ESS holdings using the difference between the market value of the underlying shares and the exercise price of your ESS interests one month prior to departure as the basis for determining your tax liability. A portion of these ESS interests relate to your employment in Australia and this portion is assessable in Australia. The amount of the assessable portion is based on the proportion of the ESS holdings for the period you were a temporary resident of Australia, over the entire period of ownership, as set out in the ESS Calculation Statement. The ESS Calculation Statement and Country A tax returns as supplied form part of this ruling.

Relevant legislative provisions: Division 770 of the Income Tax Assessment Act 1997 (ITAA 1997) | Subdivision 83A-C of the ITAA 1997 | Article 11 & 12 of the Australia Country A Double Tax Agreement (Australian Treaty Series 1969 No 14)

Reasons for decision: Summary: You are entitled to a foreign income tax offset for Country A tax you have paid on gains derived from an ESS interest that are also included in your Australian assessable income for that income year, to the extent that the same gain is being taxed twice. There is no credit for tax paid in Country A on gains that are not taxed in Australia. | Detailed Reasoning - Detailed reasoning: Article 11 of the Australia- Country A Double Tax Agreement places a limitation on the right of the non-residence country to tax remuneration. However, in your case, Country A has subjected your ESS interests to tax at a time when you were a resident of Country A. Therefore, the Double Tax Agreement does not limit Country A's right to tax these ESS interests. Under subsection 770-10(1) if the ITAA 1997, you are entitled to a foreign income tax offset for foreign income tax on an amount that is included in your taxable income. You have already paid tax on this income in Country A. Therefore, Australia will allow you a foreign income tax offset for the Country A tax paid for the reasons outlined in Class Ruling CR 2013/9 about ACE Insurance employees who were in a similar situation. The offset will only be available to amounts taxed in both countries, and the amount of the foreign income tax that counts towards the foreign income tax offset is subject to the foreign income tax offset limit. Where you are claiming a foreign income tax offset of more than $1,000, you must calculate their foreign income tax offset limit. If the amount of the foreign income tax offset exceeds the limit, then the tax offset must be reduced by the amount of the excess to the amount of the limit. Any foreign income tax paid in excess of the limit is not available to be carried forward to a later income year and cannot be refunded to the participant.