Draft guidance directs that capital gains are not to be included in FITO limit
A draft taxation determination has been issue by the ATO to clarify that capital gains are not included when calculating the foreign income tax offset (FITO) limit.
TD 2019/D10 says the FITO limit calculation involves a comparison between Australian tax actually payable and the Australian tax that would be payable if certain income, and deductions reasonably related to that income, were disregarded. Generally, the higher the amount of income captured, the higher the FITO limit.
The draft determination states that if a taxpayer made a capital gain in respect of which you have not paid any foreign income tax, no amount in respect of that capital gain will be included. The ATO states that amounts are included if they are amounts of “ordinary” or “statutory” income from a source “other than an Australian source”.
But it adds that a net capital gain does not have a source. “It is a product of capital gains and capital losses made during the income year from Australian and non-Australian sources, the application of unapplied net capital losses from earlier income years, and applicable discounts.” […]