Chartered Accountants ANZ does not support the Commissioner’s preliminary view outlined in the TD 2019/D10 Income tax: can capital gains be included under subparagraph 770-75(4)(a)(ii) of the Income Tax Assessment Act 1997 when calculating the foreign income tax offset limit?. The outcome of the Australian Taxation Office (ATO)’s interpretation of existing law under TD 2019/D10 is not aligned with the clear overarching policy of the provision relating to relief against double taxation on amounts subject to both Australian and foreign income tax.

The limit on the amount of tax offset available is not determined solely by the Australian tax payable on amounts taxed in a foreign country. It should also clearly encompass the Australian tax payable on amounts not taxed in a foreign country if such amounts nevertheless had a foreign source.

It is contrary to this policy to suggest that foreign sourced capital gains can never be taken into account in determining this limit merely because the capital gains tax regime aggregates multiple capital gains and losses and applies concessions to determine one assessable amount being a net capital gain. It would lead to artificial differences if a taxpayer could obtain a better outcome because a foreign sourced gain is assessable as ordinary income on revenue account and therefore assessable in its own right.

Further, TD 2019/D10 does not provide any support for the ATO’s assertion that a net capital gain inherently cannot have a source, with this point being what the ATO’s conclusion ultimately turns on in TD 2019/D10.  We believe the context of the income tax legislation leads to a contrary conclusion on this point.