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Foreign Tax Credits apportion where tax calendar differs

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Hi all,

I have a question on handling foreign income at tax time - specifically how to apportion foreign tax credits already paid.

I was a non-resident for a few years living abroad and have recently repatriated back to Australia. I have some foreign shares and bank accounts still - so am receiving some interest and dividend payments offshore, plus possible capital gains in the future.

 

There is a tax treaty in effect, so double taxation should not be an issue - foreign taxes already paid on the income will be an offsetting credit to any Australian tax liability on the foreign income. However, I am a bit confused how to actually manage the foreign tax credits given that there is a 6-month difference between the tax calendars of the two countries (Jan-Dec versus July to June). My reading of the ATO website states that I can only include the foreign tax credit when it has actually been PAID.

 

So, Oz EOFY 2019 the situation will be:

  • Foreign Tax already paid on 2018 Q3 and Q4 foreign interest and dividends
  • 2019 Q1 & Q2 foreign income will not have any tax paid until Jan 2020 (well after filing deadline)

 

How is this best handled with the ATO? Options I can think of are:

  • Option 1: Submit a tax return initially with only 2018 Q3 & Q4 foreign tax credits included, then early 2020 file an amended tax return that includes the credits from 2019 Q1 & Q2?
  • Option 2: more simply just roll the paid foreign tax credits into the next applicable Oz tax return. i.e. just include 2019 Q1 and Q1 credits in the 2019/2020 Australian return, even though the associated income was not applicable to that financial year.

Anything I am missing?

Sorry for a long post! Any guidance appreciated.

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Former Community Support

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Hi @micka_smith,


Thank you for your patience.


You are correct about not claiming a foreign tax credit (FTC) until the tax has been paid.


Option one is possible, i.e. lodge 2019 income tax return and declare the income but claim no FTC.  Then request an amendment when the FTC has been paid. 

 

Option 2 is not allowable as it would be claiming the FTC in the wrong (Australian) income year and the FTC would be claimed without the corresponding income. 


Another option would be to request an extension to lodge the 2019 income tax return or lodge via a tax professional.


I hope this helps, SueO

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Former Community Support

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Hi @micka_smith,

 

Welcome to our Community.

 

We are seeking some additional information from a specialist area and will respond asap.

 

Thanks, SueO

Most helpful response

ATO Certified Response

Former Community Support

Replies 1

Hi @micka_smith,


Thank you for your patience.


You are correct about not claiming a foreign tax credit (FTC) until the tax has been paid.


Option one is possible, i.e. lodge 2019 income tax return and declare the income but claim no FTC.  Then request an amendment when the FTC has been paid. 

 

Option 2 is not allowable as it would be claiming the FTC in the wrong (Australian) income year and the FTC would be claimed without the corresponding income. 


Another option would be to request an extension to lodge the 2019 income tax return or lodge via a tax professional.


I hope this helps, SueO

Newbie

Replies 0

Thank you very much for the guidence and narrowing down the options Smiley Happy.

I think I will indeed consult a tax professional rather than attempting this myself via MyTax... at least for this first time!

Filing two lodgements each year (if going the amendment path) sounds a touch onerous but may be the best option, as ill have a similar problem on the US side. Depends perhaps on how long I can defer a lodgment .

Thanks again.