Non-US Investing • [Australia] Is my accountant wrong or did I screw up?

I know nothing in detail about how Australian taxes work in practice. All the above from details in the tax treaty and from experience of how it works in other countries. I suppose I might be wrong, and Australia could be an extreme outlier here, but if it were I suspect we'd have heard about that here by now.

TedSwippet, thank you for your clear response about this -- your reasoning from the tax treaties matches my practical experience as an Australian taxpayer with how the ATO deals with tax offsets for withheld foreign taxes for foreign income (e.g. withheld US taxes on dividends from US-listed securities).

For reference to anyone else reading this thread, here is ATO's document that explains to Australian taxpayers how they are meant to calculate this: calculate your FITO (foreign income tax offset) or offset limit (ato.gov.au)

• if you've paid up to AUD $1000 in foreign income taxes, the ATO lets you claim the total amount as a non-refundable tax offset ("FITO") for your Australian taxes ; but
• if you've paid more than AUD $1000 in foreign income taxes, you need to do a complicated calculation to figure out the maximum tax offset you're allowed to claim.

The max offset calculation is complicated, but I believe the function of the calculation aligns with TedSwippet's "Australia is bound to credit you for 15% against your Australian tax (at least, to the extent that your Australian tax exceeds that 15%)" --- the maximum tax offset is limited to the amount of taxes that would have been applied to the foreign income if there were no foreign taxes and that income was taxed according to your usual Australian income tax.

E.g. suppose you were paid dividends for some US-listed security, and US withheld 50% taxes on those dividends, but your Australian marginal tax rate for that income would have been 37.5% if it were Australian-sourced income, then you can claim 37.5% of that income as a foreign income tax offset to your Australian income taxes, but the ATO isn't going to give you a tax offset for the portion of the foreign taxes that are in excess of what the Australian taxes would have been --- unless your total FITO amount is $1000 or less -- in which case they let you take a short cut and claim the full amount and avoid all the complex calculations for a small amount of money!

Statistics: Posted by pseudoiterative — Thu Aug 15, 2024 4:43 pm — Replies 3 — Views 511

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