How Do I Claim a Credit for Foreign Tax Paid?

This is harder than it may first appear at first glance…

  • First, you are allowed a tax credit for foreign tax actually physically paid by the time your Australian tax return claiming this credit is lodged.
  • Second you can only claim a credit for tax paid on the income actually included in the Australian tax return in question.
  • Third there are specific rules as to which exchange rate needs to be applied to convert the foreign tax paid in to Australian dollars.
  • Finally very rarely do tax years of the countries coincide, requiring further pro-rating of the income.

So as you can see this is not for the fainthearted, but luckily something we deal with every day.

The whole process is made slightly more clunky as often the foreign tax is not finalised, or paid in full, when the Australian return is lodged, requiring your Australian return to be amended once your foreign return is finalised.

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