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Foreign Income Tax Offset Calculator Australia

How the Foreign Income Tax Offset works

If you're an Australian resident for tax purposes, your worldwide income is assessable in Australia. The Foreign Income Tax Offset (FITO) prevents double taxation by giving you a credit for foreign tax already paid on the same income. The offset is the LESSER of: foreign tax paid (translated to AUD), OR the Australian tax attributable to that foreign income.

The 'Australian tax attributable' calculation uses an apportionment formula: Australian tax on (AU income + foreign income) minus Australian tax on AU income alone. If the foreign country's tax rate is lower than your Australian marginal rate, you get the full foreign tax credit and pay top-up tax in Australia. If the foreign country's tax rate is higher (think Germany on dividends, Japan on rental income), the excess foreign tax is lost — Australia doesn't refund it and you can't carry it forward.

For taxpayers with total foreign income tax of $1,000 or less in the year, you can claim the FITO without the apportionment cap calculation — just the foreign tax paid. Above $1,000 the cap applies. Tax treaty positions can override the FITO outcome in specific cases (especially for pensions, royalties, or dividends from treaty countries) — for those, the treaty article governs.

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Methodology & sources

Calculates FITO as the lesser of foreign tax paid (in AUD equivalent) and Australian tax attributable to foreign income. The 'attributable' figure is calculated by the marginal-difference method: AU tax on total assessable income minus AU tax on Australian-source income alone. Doesn't model the $1,000 simplified de minimis exception (you can claim the full FITO without apportionment if total foreign tax is under $1,000), tax treaty overrides for specific income types, foreign tax on the same income split across multiple countries, or the Conduit Foreign Income rules for trusts and corporates. General information only.

How the Foreign Income Tax Offset works

Australian tax residents are taxed on their worldwide income. Where another country has already taxed that same income, the Foreign Income Tax Offset (FITO) prevents you being taxed twice — it credits the foreign tax you actually paid against your Australian tax bill on that income.

The $1,000 shortcut

If your total foreign income tax paid for the year is $1,000 or less, you can simply claim the full amount as an offset with no further calculation. Above $1,000 you must work out the offset limit: the difference between your actual Australian tax and the Australian tax you would pay if the foreign income (and related deductions) were excluded. Your offset is capped at that figure.

A worked example

Say you earn $90,000 in Australia plus $20,000 of foreign rental income, on which you paid $6,000 of foreign tax. If the Australian tax attributable to that $20,000 works out to $6,400, your offset is the full $6,000. But if the foreign country taxed it at a higher rate than Australia would — say $8,000 — your offset is capped at the Australian amount, and the excess is not refundable and cannot be carried forward. That asymmetry is the single most important thing to understand about FITO.

What counts as foreign income tax

It must be a tax on income actually paid (not merely assessed), by you, and it must correspond to Australian income tax. Foreign social security levies, penalties and taxes refunded to you generally don't qualify. Amounts are converted to Australian dollars using the exchange rate at the time of payment or an average rate the ATO accepts.

Frequently asked questions

Do tax treaties change this? Yes — Australia's double-tax agreements can limit which country may tax particular income and at what rate, sometimes letting you reclaim foreign tax at source instead of relying on the offset.

What if I'm a temporary resident? Temporary residents are generally taxed only on Australian-sourced income and certain foreign employment income, so FITO applies more narrowly.

Does this apply to foreign pensions? Often yes, though some foreign pensions are exempt or concessionally treated under a treaty — worth confirming before claiming.