What changes affect the calculation of foreign tax credits?
To calculate a foreign tax credit, it is necessary to work out the foreign income for each class of assessable foreign income, less certain deductions (note 8). For income years commencing on or after 1 July 2001, the calculation of net foreign income (that is, foreign income less deductions) is no longer reduced by debt deductions, to the extent that those debt deductions are not attributable to an overseas permanent establishment (note 9). This amendment means that a taxpayer’s net foreign income amount may be higher than previously, because it is no longer reduced by debt deductions. This potentially increases the foreign tax credit allowable.
