Foreign Income Tax Offset Calculator

Eligible Foreign Tax and Income

For ordinary assessable income, count foreign income tax the client paid or is treated as having paid on income or gains included in their Australian assessable income. Withholding paid on the client’s behalf can qualify. If Australia assesses only part of the income, count only the tax attributable to that part.

Use the income year in which Australia includes the income. If the client pays the foreign tax later, they can amend the Australian return for that year once it is paid. Exclude any foreign tax the client can get back, even if they have yet to receive the refund. Also exclude any amount they did not bear because of foreign tax relief and any excess above the applicable treaty rate. Foreign penalties and interest are excluded. The Australian Taxation Office (ATO) guide to foreign income tax offsets explains which payments count.

Convert the income, deductions and eligible tax paid to Australian dollars before using the calculator. The ATO exchange rate rules explain when to use the prevailing rate and when an average rate applies. Keep the conversion and payment evidence with the tax working.

Calculate the Australian FITO Limit

Use the simplified method if the client intends to claim $1,000 or less. Enter the eligible foreign tax paid and the calculator caps the claim at $1,000. A client with more eligible tax can choose to claim only $1,000. To claim more, use the full limit.

1. Take the Australian income tax with all assessable income included. Add the Medicare levy and Medicare levy surcharge where payable. Disregard tax offsets, penalties and interest. For 2014/15 to 2016/17, also include any Temporary Budget Repair Levy payable.
2. Recalculate those Australian tax amounts after excluding assessable amounts on which qualifying foreign tax was paid and any other non-Australian-source income or gains. Recalculate the applicable Medicare amounts and any Temporary Budget Repair Levy on the adjusted figures.
3. Add back allowable non-debt deductions reasonably related to the excluded income. Apportion shared deductions so the domestic share stays in the working. Also add back debt deductions attributable to an overseas permanent establishment and any deducted foreign-loss component the ATO method excludes.
4. If a current-year non-commercial business loss was deferred, add its foreign component back to net foreign income. If the adjusted amount is zero or negative, choose Simplified. The offset is the lower of eligible foreign tax and $1,000. If the adjusted amount is positive, subtract it from taxable income when recalculating tax. If the client has a net foreign business loss, they need other assessable foreign income on which they paid foreign income tax to qualify. See the ATO’s deferred business loss example.
5. Subtract the recalculated Australian tax from the tax with all income. The full foreign income tax offset (FITO) limit is the greater of the difference and $1,000.

The calculator uses the two supplied Australian tax figures. The breakdown shows the net income removed from the income and deduction figures you enter. Apply any deferred loss adjustment in your recalculated tax figure. The Australian income tax calculator can help check ordinary income tax arithmetic. Use the client’s tax working for any Medicare levy surcharge.

Tax on special attributed income under sections 23AI or 23AK can increase the limit under separate rules. Use the ATO guide for that calculation.

Read the Allowable and Unused Amounts

The allowable foreign tax offset is the smaller of the eligible foreign tax and the limit for the chosen method. Foreign tax above claim is the difference between eligible tax and that allowable amount.

The offset is non-refundable. It reduces Australian income tax still payable after other applicable non-refundable offsets. Any balance of the offset can reduce the Medicare levy, then the Medicare levy surcharge. For 2014/15 to 2016/17, any remaining offset can then reduce the Temporary Budget Repair Levy, where payable.

The ATO neither refunds excess foreign tax nor carries it into a later income year. The same applies to any part of the allowable offset left once Australian tax reaches zero. See the ATO guidance on applying the foreign income tax offset.

Keep the offset working with the tax documents in the loan file. The full-doc loan guide lists the documents lenders use to verify income.

Worked Foreign Income Tax Offset

Both examples use 2025/26 Australian resident rates and a 2% Medicare levy, with no surcharge. In each case the adjusted taxable income equals full taxable income less the excluded income, plus the related deductions added back.

Example 1 With a Restricted Claim

The calculator opens with $100,500 taxable income, including $12,400 of foreign income and $1,900 of related deductions. Removing the income and adding back the deductions leaves $90,000. Income tax and Medicare levy are $20,938 plus $2,010 with all income, or $17,788 plus $1,800 after adjustment.

Enter $22,948 for tax with all income and $19,588 for recalculated tax. The $3,360 difference is the full limit. With $4,080 in eligible foreign tax, the allowable offset is $3,360 and $720 exceeds the claim.

Example 2 With a Full Claim

From $97,400 taxable income, remove $8,400 of foreign income and add back $1,250 of related deductions. That leaves $90,250. Income tax and Medicare levy are $20,008 plus $1,948 with all income, or $17,863 plus $1,805 after adjustment.

Enter $21,956 and $19,668 as the two Australian tax amounts. The difference gives a $2,288 limit. With $1,780 in eligible foreign tax, the allowable offset is $1,780 and no foreign tax exceeds the claim.