Discussion:Foreign Tax Credit - Australia Fiscal Year
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| 3 February 2007 | |
| New Client. Resident Alien. Citizen of Australia. Client tells me that Australians file tax returns on a fiscal year - July 1, 2005 through June 30, 2006. To calcualte the foreign tax credit would I use the foreign taxes paid during the periord 7/1/2005 - 6/30/2006?
or would I use the period 7/1/2006 - 6/30/2007 or would I use taxes paid in the calendar year 2006? I understand that I would convert to US dollars at the conversation rate at the date tax payments were made. If I use the calendar year than the payments may not equal the actual tax liability when the Australian tax return is completed. Any commets would be appreciated. Thanks | |
| 3 February 2007 | |
| You use the taxed PAID cash basis for the US TP unless the TP is under an accrual basis of tax which I doubt they are. If payments are received or constructively received, no matter if they are in Australia or not, they are taxable in 2006 if received in 2006. Hope this helps!! | |
Death&Taxes (talk|edits) said: | 3 February 2007 |
| That is interesting, Sandy. A client, a partner/member of a MMLLC, received his foreign income through his K-1, and filed returns in England and the US. The Big Four firm had us use accrual on the 1116 to give him credit for the English taxes paid. This was a weird situation where the LLC was on a 7/31 fiscal and he paid the tax on the return for Great Britain on the year ending the following April 5th(?). Naturally we could not file our return until October. | |
| 3 February 2007 | |
| WOW D&T...so you had a fiscal year LLC in the US with foreign income also taxed on a separate fiscal year? I still would have picked up the income (unless accrual based LLC in US) as of the date my US fiscal return was ending. If however, the taxes were not paid until AFTER the fiscal year of the foreign taxes are applied, then it would be the next fiscal year.
I read the post as if there were foreign taxes paid throughout the year that the client could take credit for. If it is a one time tax (income tax) then my answer would change....they would only take the credit for the taxes actually PAID in their 12/31/06 year end. If taxes were actually PAID, then they would be a foreign tax credit in 2006....or do you not agree? Just want some information if I am misunderstanding of any of this :) | |
Death&Taxes (talk|edits) said: | 3 February 2007 |
| Cash basis taxpayers can make a binding election to take credit for all qualified taxes in the year they accrue Reg. 1.905-1(a). Makes sense. Sandy moves to London, makes tons of money between February and November, returns to the States and then is taxed in Merrie Old for the following April 5th, but if she uses cash basis, she has no foreign income in that ensuing year. This may tell us what to do above. | |
| 4 February 2007 | |
| Publication 514 gives me the answer. "You can claim the credit for a qualified foreign tax in the tax year in which you pay it or accrue
it"."Even if you use the cash method of accounting, you can choose to take a credit for foreign taxes in the year they accrue". The tax year refers to the tax year for which your U.S. return is filed, not the tax year for which your foreign return is filed. Your comments were helpful. Thanks | |
| 4 February 2007 | |
| I always use cash unless accrual saves more money, because once you elect accrual you can not switch back to cash. Try it both ways, and see which saves the most. | |
| 4 February 2007 | |
| For Australia, I always use accrual so that I don't have to keep track of when each cash payment was made. I can simply take the amounts off the Australian tax returns and prorate the income and the taxes for the fiscal years between the calendar years. | |
| 6 February 2007 | |
| Hi there. I am still not clear on the answer above:
I am a US citizen living abroad. I move now to Australia in a few days. I have always been using the accrued method to calculate my foreign tax credit. Now I am moving to Australia where the tax year is the fiscal year ending as of June 30. Using the accrued method (as I do): Can I for the US tax year 2007 only accrue taxes until June 30 (the Australian tax year) or until December 31? Or will what is accrued following June 30 go towards my US 2008 filing? I am not clear and so is my tax adviser. Can someone help with an easy to understand answer? thanks. | |
| 6 February 2007 | |
| December 31st for US taxes; you will (if you have always accrued the taxes on your US return) continue to accrue them. US is calendar year based, so you will accrue them throughout 2007 and take them for 2007 :) | |
| 7 February 2007 | |
| Thank you so much, Sandy. Are you absolutely positive? Is there any written information which I could use besides publication 514? My tax expert said that 514 might be misleading. | |
| 7 February 2007 | |
| This may not be the answer you want. However, a US calendar-year individual who has previously elected to claim foreign tax credit on the accrual basis, can only claim credit in a given year (say 2007 in ALGOAS's case) for foreign taxes for which the legal liability (under foreign law) accrues in calendar 2007. For Australia that would seem to be only taxes included in the Australian tax year ending on June 30 2007. Australian taxes arising after June 30 2007 would not accrue (in the legal sense) until June 30 2008, and could only be claimed in the US 2008 return. This comes up frequently in the UK where the tax year ends on the 5th of April. The only "out" I'm aware of is not to have made the accrual election in the first place. | |
| 7 February 2007 | |
| Feghal is 100% correct. There may of course be FTC carryovers you can use, otherwise electing the accrual method will prove costly until 2009 when you can carryback from the 2008 return. | |
| 7 February 2007 | |
| Thanks Ferghal. I didn't know this, but after looking at it more, I agree. For Australia, it would generally be better to use the cash basis. | |
| 15 August 2011 | |
| I still don't understand from this discussion: if you just have fiscal-year tax returns from Australia (or other foreign countries), how would you report the income in the calendar-year U.S. tax return? (assuming you don't have exact data on the payment dates etc) Is there any IRS publication that addresses this matter? | |
