Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas.
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Court confirms ATO's position on foreign income tax offsets
The ATO has welcomed the decision of the High Court to basically uphold the decision of the Full Federal Court in a case which the ATO won, in relation to foreign income tax offsets ('FITO').
An Australian tax resident had sold some US investments and paid US tax on the gains.
The taxpayer was then basically taxed on half of those gains in his assessable Australian income (i.e., the gains were eligible for the CGT discount in Australia).
The taxpayer included the whole of the US tax paid in his FITO to offset against his Australian income tax.
However, when determining the FITO available, the ATO only allowed the proportion of the US tax paid that related to the capital gain included in his
Australian assessable income.
The Full Federal Court affirmed the ATO’s position.
“This decision reminds taxpayers that they can only claim the foreign income tax offset to the extent that the capital gain is assessable in Australia, rather than the full amount assessed in a foreign jurisdiction,” Deputy Commissioner Tim Dyce said.
“We believe that others may have similarly incorrectly claimed the foreign income tax offset. Now is the time to review any claim and make any necessary voluntary amendments as we intend to commence compliance activity on this issue in the near future.”
Employer's requirements and the deductibility of WREs
Some employees may wonder whether a work-related expense (or 'WRE') becomes deductible merely because their employer specifically requires the employee to incur the expense.
Importantly, the ATO's recent draft ruling on the deductibility of work-related expenses reiterates that an employer’s requirements do not determine the question of deductibility.
Specifically, a number of examples contained in the draft ruling confirm that a WRE expense may be deductible without an employer requiring the expenditure. For example, a taxpayer incurring expenditure in relation to a course directly connected to their current employment (without their employer’s specific support) may still be in a position to claim self-education deductions.
Alternatively, expenses may be non-deductible despite an employer’s specific directions, such as a restaurant requiring its waiters to dress in ‘black and whites’, or support such as where an employer encourages a dental practice receptionist to undertake a ‘Certificate in Dental Assisting’ so as to open up a new career opportunity.