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Taxation Ruling

IT 2437


Income tax : foreign tax credit system - foreign taxes eligible for credit against australian income tax

Attention Please note that the PDF version is the authorised version of this ruling.

FOI status: May be released

PREAMBLE

New Division 18 of the Income Tax Assessment Act (inserted by the Taxation Laws Amendment (Foreign Tax Credits) Act 1986 and first applicable to assessments for the year of income commencing 1 July 1987) provides for the granting of credits in respect of foreign tax. Subsection 160AF(1) provides that a resident taxpayer, whose assessable income includes foreign income on which the taxpayer has paid foreign tax, is entitled to a credit against the Australian tax payable of the amount of that foreign tax, up to the amount of Australian tax payable on the foreign income.

2. Subsection 6AB(2) specifies in general terms the nature of the foreign taxes for which credit is allowable. First, the tax must be imposed by the law of a foreign country, whether it be at national, state, local or other government level (subsection 6AB(6)). Secondly, it must be either :

.
 a tax imposed upon income or upon profits or gains, whether of an income or capital nature;
.
 a tax deemed, under section 160AFC, to have been paid in respect of a dividend (i.e., underlying foreign company tax on profits out of which a dividend is paid by a related foreign company to an Australian resident company); or
.
 a tax subject to a comprehensive taxation agreement to which Australia is a party and having the force of law under the Income Tax (International Agreements) Act 1953.

3. However, the subsection specifically excludes from its ambit a foreign tax that is a unitary tax, as defined in subsection 6AB(6). (A further Ruling concerning unitary taxes is proposed.)

4. The law does not identify specific taxes of particular countries as being either creditable or not creditable; that has been left to be determined by the application of the above criteria on a case by case basis.

5. Essentially, foreign tax must be imposed on a basis substantially equivalent to that on which the Income Tax Assessment Act operates. That is, it must be imposed on the basis of a taxpayer's net income or gains, whether of an income or capital nature, or be a withholding tax on outgoing payments (imposed as a final tax and not be later creditable against the ultimate foreign tax liability of the taxpayer) similar to the Australian withholding tax on the gross amount of outgoing dividends and interest payments. This has been the basis which has been used in the past to measure whether a foreign tax qualifies as a tax that would render an Australian resident recipient of the income upon which it is imposed eligible for the exemption from Australian tax provided by paragraph 23(q) of the Assessment Act.

6. In order to assist taxpayers to more readily understand which foreign taxes are creditable for purposes of the foreign tax credit system a list of creditable foreign taxes is set out in this Ruling. The taxes included in the list will be creditable whether imposed on an assessment basis or by way of a final withholding tax.

7. The list is not exhaustive and will be revised when enquiries in relation to the nature of certain other foreign taxes presently under examination have been finalised and in the light of experience gained in administration of the new provisions. The list will also need to be updated periodically as a consequence of changes in other countries' taxes and as other foreign taxes are admitted as creditable taxes. Future Rulings to be issued on this basis will be in the form of an updated consolidated list of creditable taxes (rather than a series of lists to supplement that set out in this Ruling). It will, however, contain the usual reference to earlier Rulings on the topic. Consideration is to be given to the inclusion in the future Rulings of further points of principle which may clarify the status of particular types of foreign taxes and the development of a list of non-creditable taxes so as to assist taxpayers where the creditability of a particular tax is doubtful.

8. Taxpayers who seek credit for foreign taxes not identified in the following list (or in the subsequent Rulings) should supply details of those taxes in the relevant income tax returns. The details to be provided should include :

.
 the precise title of the tax;
.
 the title of the law under which the tax is imposed;
.
 whether the tax is levied by a national, state or local authority and the name of that authority; and
.
 a description of the nature of the tax and the basis for its implementation.

9. Return forms for the 1987/88 and subsequent years of income, or accompanying instructions, will also provide information concerning the details to be supplied. Decisions as to whether particular foreign taxes not included in this Ruling (or in subsequent Rulings) are creditable taxes under the foreign tax credit system will be taken in National Office. Branch Offices should therefore refer enquiries received, or claims in returns, in relation to such taxes to National Office for consideration and advice. It would assist with the processing of returns if taxpayers were to supply relevant details to National Office as soon as a liability to pay such a foreign tax becomes apparent.

RULING

10. Subject to the provisions of Division 18 of Part III of the Income Tax Assessment Act, a taxpayer will be entitled to a credit against Australian tax payable on foreign income for the following foreign taxes paid in respect of that income :

 ARGENTINA
 Income tax (Impuesto a las ganancias)
 Tax on casual gains (Impuesto sobre los beneficios eventuales)
 AUSTRIA
 Income tax (Einkommensteuer)
 Corporation tax (Korperschaftsteuer)
 Tax on Interest Yields (Zinserstragsteuer)
 Directors' tax (Aufsichtsratsabgabe)
 Tax on commercial and industrial enterprises (Gewerbesteuer), only where levied on a basis other than capital or the sum of wages
 BANGLADESH
 Income tax
 BELGIUM
 Individual income tax (impot des personnes physiques/personen belasting)
 Corporate income tax (impot des societes/vennootschapsbelasting)
 Income tax on legal entities (impot des personnes morales/rechtspersonenbelasting) Income tax on non-residents (impot des non-residents/belasting der nietverb-lijfhouders)
 including the prepayments, the surcharges on these taxes and prepayments, and the communal supplement to the individual income tax.
 BRAZIL
 Income tax (Imposto de renda)
 Withholding tax on pure income, e.g. interest or dividends
 Supplementary tax (Imposto suplementar), where charged on dividends or branch profits arising in Brazil Payments to the development funds PIN and PIS (programa de integracao nacional/social) and MOBRAL (Fundacao moviments brasileiro de alfabetizacao)
 BRUNEI
 Income tax
 Petroleum income tax
 BURMA
 Income tax
 CANADA
 Federal:
 Income taxes imposed by the Government of Canada
 Provincial:
 ALBERTA
 Provincial income tax
 BRITISH COLUMBIA
 Provincial income tax
 Mining tax
 Mineral resource tax
 Logging tax
 MANITOBA
 Provincial income tax
 NEW BRUNSWICK
 Provincial income tax
 Mining tax
 NEWFOUNDLAND
 Provincial income tax
 Mining tax
 NOVA SCOTIA
 Provincial income tax
 Mining tax
 ONTARIO
 Provincial corporation tax on company profits
 Provincial income tax on individuals
 Mining tax
 PRINCE EDWARD ISLAND
 Provincial income tax
 QUEBEC
 Provincial corporation tax on company profits
 Provincial income tax on individuals
 Mining tax
 Logging tax
 SASKATCHEWAN
 Provincial income tax
 Mining royalty tax
 CHILE
 Income tax (Impuesto a la renta)
 Additional tax (Impuesto adicional)
 Additional tax (Tasa adicional)
 CHINA
 Individual income tax
 Income tax concerning joint ventures with Chinese and foreign investment
 Income tax concerning foreign enterprises
 Local income tax
 CYPRUS
 Income tax
 Special contributions under Law 55 of 1974 and subsequent annual extensions
 CZECHOSLOVAKIA
 Tax on profits (Dan ze zisku)
 Artists' tax (Dan z prijmu literarni a umelecke cinnosti)
 DENMARK
 Income taxes to the State and to the municipalities (indkomstskatterne til staten og til kommunerne)
 FINLAND
 State income tax
 Communal tax
 Church tax
 Tax withheld at source from non-residents' income
 FRANCE
 Income tax and corporation tax including any withholding tax, prepayment (precompte) or advance payment with respect to the aforesaid taxes.
 FRENCH POLYNESIA (TAHITI)
 Corporation tax (Impot sur les benefices des societes)
 Territorial solidarity tax (Prelevement territorial de solidarite)
 Extraordinary solidarity tax (Prelevement exceptionnel de solidarite)
 FIJI
 Income tax (including basic tax and normal tax)
 Non-resident dividend withholding tax
 Interest withholding tax
 Royalty withholding tax
 Dividend tax
 Land sales tax
 GERMAN DEMOCRATIC REPUBLIC
 Corporation tax (korperschaftsteuer)
 Trade tax (Gewerbesteuer) to the extent that it is computed by reference to trading profits
 Wages tax (Lohnsteuer)
 GERMANY (FEDERAL REPUBLIC)
 Income tax (Einkommensteuer) including the surcharge (Erganzungsabgabe) thereon
 Corporation tax (korperschaftsteuer) including the surcharge (Erganzungsabgabe) thereon
 Trade tax (Gewerbesteuer) only where it is levied on a basis other than capital or pay-roll
 GREECE
 Income tax, including schedular or analytical tax
 HONG KONG
 Tax on earnings, profits and interest, comprising:
 - salaries tax
 - profits tax
 - interest tax
 HUNGARY
 Income taxes (a jovedelemadok)
 Profit taxes (a nyeresegadok)
 Enterprises special tax (a vallalati kulonado)
 Contribution to communal development (a kozsegf-ejlesztesi hozzajarulas)
 Levy on dividends and profit distributions of commercial companies (a kereskedelmi tarsasagok osztalek es nyereseg kifizetesei utani illetek)
 INDIA
 Income tax, including any surcharge thereon
 Income tax and super tax levied by States on agricultural income
 Surtax imposed on chargeable profits of companies
 INDONESIA
 Income tax (pajak pendapatan)
 Company tax (pajak perseroan)
 Withholding tax on interest, dividends and royalties (pajak atas bunga, dividen dan royalty)
 IRELAND
 Income tax
 Corporation tax
 Capital gains tax
 ITALY
 Individual income tax (Imposta sul reddito delle persone fisiche )
 Corporate income tax (Imposta sul reddito delle persone giuridiche) even if they are collected by withholding taxes at source
 Local tax on income (Imposta locale sui redditi)
 Communal tax on capital appreciation of real property (Imposta comunale sull incremento di valore degli imm (INVIM)), where charged on a capital gain also chargeable in Australia.
 ISRAEL
 Income tax (including capital gains tax)
 Company tax
 Tax on gains from the sale of land under the Land Appreciation Tax Law
 JAPAN
 Income tax
 Corporation tax
 Enterprise tax, so far as payable on profits or income
 Local (Prefectural or municipal) inhabitant taxes, so far as payable on profits, income or chargeable gains from sources in Japan
 KENYA
 Income tax
 REPUBLIC OF KOREA
 Income tax
 Corporation tax
 Inhabitant tax
 Defence tax, where charged by reference to income tax or corporation tax.
 LUXEMBOURG
 Income tax on individuals (Impot sur le revenu des personnes physiques)
 Tax on fees of directors of companies (Impot sur les tantiemes)
 Corporation tax (Impot sur le revenu des collectivites)
 Tax on the total amount of wages and salaries (Impot commercial communal Y compris limpot sur le total des salaries), except in so far as it is computed on a basis other than profits.
 MACAU
 Complementary tax on income (Imposto complementar de rendimentos)
 MALAYSIA
 Income tax and excess profit tax
 Supplementary income taxes (i.e. tin profits tax, development tax and timber profits tax)
 Petroleum income tax
 Real property gains tax
 MALTA
 Income tax, including prepayments of tax, whether made by deduction at source or otherwise
 MEXICO
 Income tax
 Federal District tax on income from capital (Impuesto sobre productos de capitales)
 Federal District surcharge, in so far as charged on the tax above
 MONACO
 Tax on profits (Impot sur les benefices)
 NETHERLANDS
 Income tax (Inkomstenbelasting)
 Wages tax (Loonbelasting)
 Corporation tax (vennootschapsbelasting)
 Dividend tax (Dividend belasting)
 NEW ZEALAND
 Income tax
 Excess retention tax
 NORWAY
 National tax on income (Inntektsskatt til staten)
 County municipal tax on income (Inntektsskatt til fylkeskommunen)
 Municipal tax on income (Inntektsskatt til kommunen)
 National contributions to the Tax Equalisation Fund (Fellesskatt til Skattefordelingsfondet)
 National tax relating to income from the exploration for and the exploitation of submarine petroleum resources and activities and work relating thereto, including pipeline transport of petroleum produced (Skatt til staten vedrorende inntekt og formue i forbindelse med undersokelse etter og utnyttelse av undersjoiske petroleumsforekomster og dertil knyttet virksomhet og arbeid, herunder rorledningstransport av utvunnet petroleum)
 National dues on remuneration to non-resident artistes (avgift til staten av honorarer som tilfaller kunstnere bosatt i utlandet)
 Seamen's tax (Sjomannsskatt)
 PAKISTAN
 Income tax
 Super tax
 PAPUA NEW GUINEA
 The Income tax imposed under the law of Papua New Guinea, including:
.
 salary or wages tax;
.
 additional profits tax upon taxable additional profits from mining operations;
.
 additional profits tax upon taxable additional profits from petroleum operations;
.
 specific gains tax upon taxable specific gains; and
.
 dividend withholding tax upon taxable dividend income.
 PHILIPPINES
 Income tax imposed by the Government of the Republic of the Phillipines
 POLAND
 Income tax (podatek dochodowy)
 Tax on wages and salaries (podatek ad wynagrodzen)
 Surcharge on the income tax or on the tax on wages or salaries (podatek wyrownawczy)
 PORTUGAL
 Agricultural tax (Imposto sobre a industria agricola)
 Industrial tax (Contribuicao industrial)
 Tax on income from capital (Imposto de capitais)
 Professional tax (Imposto profissional)
 Complementary tax (Imposto complementar)
 Tax on capital gains (Imposto de mais-valias)
 Any surcharges on the preceding taxes
 ROMANIA
 Tax on incomes derived by individuals and corporate bodies (Impozitul pe veniturile realizate de persoane fizice si juridice)
 Tax on the profits of joint companies constituted with the participation of some Romanian economic organisations and some foreign partners (Impozitul pe beneficiile societatilor mixte constituite cu participare romana si straina)
 Tax on income realised from agricultural activities (Impozitul pe veniturile realizate din activitati agricole)
 SINGAPORE
 Income tax
 SOLOMON ISLANDS
 Income tax
 SOUTH AFRICA
 Normal tax (the general income tax)
 Non-resident shareholders' tax
 Undistributed profits tax
 Non-residents' tax on interest
 SPAIN
 Individual income tax (Impuesto sobre la renta de las personas fisicas)
 Company tax (Impuesto sobre sociedades)
 Local taxes on income
 SRI LANKA
 Income tax
 SWEDEN
 State income tax including sailors' tax and coupon tax
 Tax on undistributed profits of companies and the tax on distribution in connection with reduction of share capital or the winding-up of a company
 Tax on public entertainers
 Communal income tax
 SWITZERLAND
 The Federal, cantonal and communal taxes on income (total income, earned income, income from capital, industrial and commercial profits and other items of income)
 TAIWAN
 Business income tax
 Personal income tax
 Withholding tax on interest
 Withholding tax on dividends
 THAILAND
 Income tax
 Petroleum income tax
 TURKEY
 Income tax, including withholding or "stoppage" tax where charged on net profits
 Corporation tax, where charged on net profits
 TUVALU
 Income tax
 UNITED KINGDOM
 Income tax (including surtax)
 Corporation tax
 Capital gains tax
 UNITED STATES OF AMERICA
 Federal :
 Federal income taxes imposed by the Internal Revenue Code, but excluding the accumulated earnings tax and the personal holding company tax
 State :
 As detailed below, but note that any state tax which may be construed as a unitary tax (as defined by subsection 6AB(6) of the Australian Income Tax Assessment Act) is not creditable
 ALABAMA
 Income tax on individuals
 General income tax
 ALASKA
 General income tax
 ARIZONA
 General income tax
 ARKANSAS
 Income tax
 CALIFORNIA
 Bank and corporation income tax
 Excise (income) tax, except where it represents a minimum levy
 Personal income tax
 Insurance companies tax on marine insurance companies
 COLORADO
 General income tax
 Excise (income) tax
 CONNECTICUT
 Corporation business tax where it is charged on income
 DELAWARE
 Corporation income tax
 Personal income tax
 DISTRICT OF COLUMBIA
 Individual and corporate income tax
 FLORIDA
 Corporation income tax
 GEORGIA
 General income tax
 HAWAII
 General income tax
 IDAHO
 General income tax
 ILLINOIS
 Income tax
 Corporate replacement income tax (personal property replacement tax)
 IOWA
 General income tax
 KANSAS
 Income tax
 KENTUCKY
 General income tax
 LOUISIANA
 General income tax
 MAINE
 Corporate income tax
 Personal income tax
 MARYLAND
 Income tax
 MASSACHUSETTS
 Corporate excise (income) tax, where charged on net income
 Personal income tax
 MICHIGAN
 Income tax
 Single business tax
 MINNESOTA
 Income tax
 MISSOURI
 Income tax
 MONTANA
 Corporate income tax (licence)
 Personal income tax
 NEBRASKA
 Personal income tax
 NEW HAMPSHIRE
 Business profits tax
 NEW JERSEY
 Corporation franchise tax except where it represents a minimum levy or is charged on amounts other than net income
 Insurance companies tax on marine insurance companies
 Personal income tax
 NEW MEXICO
 Income tax
 NEW YORK CITY
 Earnings tax on non-residents where it is charged on salaries
 Financial corporation tax where it is charged on income
 General corporate (income) tax, where charged on net income
 Personal income tax on residents where it is charged on salaries
 NEW YORK STATE
 Personal income tax
 Unincorporated business tax
 Corporation franchise tax, except where it represents a minimum levy, is a charge based on capital, or is charged on amounts other than net income
 NORTH CAROLINA
 General income tax
 Financial institutions excise tax, except where it represents a minimum levy
 NORTH DAKOTA
 General income tax
 OHIO
 Corporation franchise tax when charged on net income
 Income tax (Canton, Cincinatti, Cleveland, Columbus and Toledo)
 Net profits tax (Cleveland)
 OKLAHOMA
 General income tax
 OREGON
 Corporate (excise) income tax
 Personal income tax
 PENNSYLVANIA
 Corporate net income tax except where it is charged on amounts other than net income
 Personal income tax
 Philadelphia net profits and wages tax
 Philadelphia city tax
 RHODE ISLAND
 Business corporate tax where charged on net income
 SOUTH CAROLINA
 Income tax
 TENNESSEE
 Corporate excise (income) tax
 UTAH
 Corporation franchise tax when charged on net income
 VERMONT
 Corporate income tax
 Personal income tax
 VIRGINIA
 Direct corporate income tax
 Personal income tax
 WISCONSIN
 Corporate franchise tax
 Income tax
 U.S.S.R.
 Income tax on foreign legal persons
 Income tax on the population
 WESTERN SAMOA
 Income tax
 YUGOSLAVIA
 Tax on income of a basic organisation of associated labour
 Tax on a worker's personal income
 Tax on personal income derived from independent exercise of agricultural activity
 Tax on personal income derived from independent exercise of economic activity
 Tax on personal income derived from independent exercise of professional activity
 Tax on personal income derived from copyrights, patents and technical innovations
 Tax on revenue derived from capital and capital rights
 Tax on total revenue of citizens
 Tax on income of a foreign person engaged in economic and professional activities
 Tax on compensation obtained by a foreign person from investments in a domestic organisation of associated labour
 Tax on income of a foreign person carrying out investment projects
 Tax on revenue of a foreign person carrying on passenger and cargo transport.

COMMISSIONER OF TAXATION

30 July 1987

References

ATO references:
NO  87/782-4
BO  AF.4188/5/1

Date of effect:
Immediate

Subject References:
FOREIGN TAX CREDIT SYSTEM - CREDITABLE FOREIGN TAXES

Legislative References:
6AB(2)
6AB(6)
160AF

 


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