Foreign Income Tax Offset and the Actuary Percentage – Simple Fund 360 Knowledge Centre

Overview

This article explains how Simple Fund 360 calculates the Foreign Tax Offset (FITO), including the different treatment when the amount is more than $1,000 or less than $1,000. This article will also explain how it delas with exempt income due to an actuary percentage.

Details

The ATO has advised that the percentage should always be applied to the FITO. This is because the associated foreign income that leads to the offset is not fully assessable. Therefore the full amount of the FITO cannot be claimed.

The ATO refers to Section 770-10 of the ITAA 1997, which covers entitlement to the Foreign Income Tax Offset. Click here for further details.

Excerpt from Section 770-10: You are entitled to a *tax offset for an income year for *foreign income tax. An amount of foreign income tax accounts towards the tax offset for the year if you paid it in respect of an amount that is all or part of an amount included in your assessable income for the year.

The system will use the formula below to calculate the Foreign Income Tax Offset (FITO) applicable.

FITO applicable = Foreign income tax offset entered in transactions * (1 - Actuary Percentage).

If you are claiming a foreign income tax offset of more than $1000, you have to work out your foreign income tax offset limit. For more information, click here.

In this case, Simple Fund 360 adheres to the following formula:

[Gross foreign income of section B label D1 x 0.15] x (1-tax free percentage)

Scenario

Although foreign credits have been recorded in the fund, the Foreign Income Tax Offset (FITO) calculated by Simple Fund 360 is understated. The fund is a pension fund.

If the fund is in the Accumulation phase only, the calculations remains the same. The only difference is that the actuary percentage does not apply in the formula.

Detailed Examples

When FITO is less than $1000

The following example relates to a fund claiming a foreign income tax offset of up to $1000

Actuary Percentage of 70% and

Screen_Shot_2020-02-14_at_11.07.35_am.png

Foreign Income Tax Credits of $100.

Screen_Shot_2020-02-14_at_11.05.59_am.png

By applying the actuary percentage, $70 of the Foreign income tax credits can NOT be claimed (70% x $100 = $70)

Therefore the system will only identify $30 of the FITO as eligible to be claimed.

Screen_Shot_2020-02-14_at_11.04.53_am.png

When Fito is more than $1000

Reconciling the Claimable Foreign Tax Offset Limit

In the example below, a fund has a Foreign Income Tax Offset larger than $1000, the fund has also received an actuary percentage of 75%
The two reports we recommend generating when reconciling the Foreign Tax Offset;

Create Entries Report
Tax Reconciliation Report

1. Generate the Tax Reconciliation Report, following that then locate C1 - Foreign income tax offset. Then calculate the Total Foreign Credits prior the adjustment.

2. Once the Total Foreign Credits have been located, proceed to determine the Claimable Foreign Offset by using Total Foreign Credits x (1-Actuary Percentage).

The Claimable Foreign Tax Offset is shown in the Create Entries Report.

Reconciling the Foreign Tax Offset (Label C1)

To figure out how the Foreign Tax Offset (Label C1) is calculated within the software, please generate the Create Entries Report. The formula used is,
Gross Foreign Tax Offset Limit * 0.15 = Foreign Tax Offset (Label C1)

Reconciling the adjustment for the Foreign Income Tax Offset

To understand how Simple Fund 360 gets to the adjustment for the Foreign Income Tax Offset. Please generate the Tax Reconciliation Report. The system uses the following formula,
Total Foreign Income Offset - Total Foreign Credits = Adjustment

*The Total Foreign Offset Limit can be found within the Create Entries Report