What are the changes to the law?
The law has been changed to allow you to apply any remainder of your foreign income tax offset (FITO) for an income year against your liability to pay Medicare levy. If any remains after that, you can also reduce any liability to pay the Medicare levy surcharge for that income year. Your foreign income tax offset is first applied against your tax payable before it is applied to your Medicare liabilities.
This applies regardless of whether Australia has a tax treaty with the foreign country in which the tax was paid.
The changes apply for 2008-09 and after.
How does this differ from the previous law?
Previously, your foreign income tax offset could only be applied against your liability to pay Medicare levy and Medicare levy surcharge if the foreign income tax offset arose from paying tax in a country with which Australia had a tax treaty.
This view was confirmed in ATO Interpretive Decision ATO ID 2011/75Allowance of credit for tax paid in Papua New Guinea, against Australian tax payable, including Medicare Levy, published 23 September 2011.
What about flood levy?
For 2011-12 only, if you paid foreign tax in a country with which Australia has a tax treaty, you were entitled to a further credit, in the form of a foreign income tax offset, against your liability to pay the temporary flood and cyclone reconstruction levy (flood levy) imposed on that foreign income. Your foreign income tax offset is first applied against your tax payable, then your Medicare liabilities, and any remaining offset will be applied against your flood levy liability.
Are you exempt from paying Medicare?
Paying tax in a foreign country does not exempt you from the Medicare levy. However, you are entitled to apply any excess foreign income tax offset against your Medicare liabilities, which may reduce or eliminate the amount of Medicare payable. The excess is the amount remaining after first applying the foreign income tax offset against your tax payable.
When will the ATO system be updated?
ATO systems have been updated and have applied the foreign income tax offset against the Medicare levy and Medicare levy surcharge in all individual tax returns lodged or amended from July 2012.
Will the ATO amend your assessment?
The ATO conducted a bulk amendment process in November 2012 to amend as many 2009 to 2011 assessments as possible. You may have already received an amended assessment for one or more years.
The law has changed to allow the ATO to amend assessments where the time limit for amending has expired, and to apply any remaining foreign income tax offset against Medicare liabilities.
The ATO will conduct another bulk amendment process later this year to amend as many remaining 2009 to 2011 assessments as possible that we were not able to amend in November 2012.
You do not need to do anything to be included in the next bulk amendment process.
If you are included in the ATO’s next bulk amendment process, you will receive a letter stating which years we are amending.
The ATO will not be able to amend assessments as part of the next bulk amendment process if any of the following apply:
- The ATO does not have a valid and current address for you.
- Your assessment has already been amended or is in the process of being amended – no further action is required as any excess foreign income tax offset will be applied against your Medicare liabilities.
- You have claimed a credit for tax paid by the trustee at label 13S on the supplementary section of your tax return. You can ask the ATO to amend the trustee assessment and the beneficiary assessment.
- You were listed as a non-resident on our system – non-residents are generally not eligible to claim the foreign income tax offset.
The ATO will pay interest on amendments that result in a refund.
When to expect your amended assessment
The ATO have now completed most amendments that were included in the bulk amendment process conducted in November 2012.
The ATO will provide further advice later this year about the next bulk amendment process. You will receive a letter prior to the amendment process commencing.
If you currently use e-tax or lodge a paper return the ATO will send your letter to your postal address. Your amended notice of assessment and statement of account will go to your postal address.
How do you amend an assessment?
If your assessment was not included in our November 2012 bulk amendment process, and you do not wish to wait for the next bulk amendment process, you can ask the ATO to amend your assessment.