Recent case highlights dangers with claiming a FITO for capital gains – Burton’s case
In Burton’s case, the Full Federal Court considered whether an Australian resident taxpayer was allowed to include the full amount of US tax paid on capital gains made on the sale of US investments in calculating his FITO claim, where only part of the capital gains was assessable in Australia due to the application of capital losses and the CGT general discount.
Broadly, the relevant background to Burton’s case is as follows:
- For the 2011- and 2012-income years, Mr Burton (‘the taxpayer’), an Australian resident for tax purposes, was presently entitled to capital gains from the disposal of three investments held in the US by his Australian discretionary trust.
- The taxpayer was personally liable for (and paid) US tax on the capital gains. Tax was paid on the whole of the capital gains, at a concessional rate of 15% for those arising from the sale of long-term investments, and at the ordinary tax rate of 35% in all other cases.
- The capital gains were also taxed concessionally in Australia. That is, only half the capital gains (net of capital losses) were assessable at the taxpayer’s full marginal tax rate, due to the CGT general discount applying. The taxpayer was also entitled to a FITO and, in this regard, he claimed all of the tax paid in the USA, as a credit against his Australian tax.