Currently, labels on the income tax returns for reporting foreign income contain only "net income" and "gross income" for various income types. This hides the amount of deductions claimed against foreign income, and in case of individuals - against each income type. It also appears to overly complicate the reporting because the deductions need to be apportioned from D labels for individuals and/or subtracted from income before entering numbers at item 20 on the individual income tax return.
It may be more pragmatic and transparent to report gross foreign income, then report deductions in relation to this income in a set of separate labels and a net figure to be included in assessable income reported in its own label. This is the approach taken to virtually all other income types, consider dividend income at item 11 and dividend deductions at item D8. Which is as simple as Assessable Income - Deductions = Taxable Income.
This will increase transparency and readability of the income tax returns and eliminate a set of "hidden" deductions due to the reporting of net income figures.
Attached are images of relevant items on individual and SMSF income tax returns.
When one considers subdivision 36-A ITAA97 and the rules for exempt pension income for a complying superannuation fund, then the net reporting becomes even more cumbersome.
Consider when a superannuation fund is partly in a pension phase and partly in an accumulation phase, investments are almost exclusively held overseas and they generated a net loss for the financial year.
Hi Denys
Thanks for your suggestion in relation to additional labels on the personal income tax return and SMSF income tax return to report foreign income.
The Board understands that, in general, the ATO aims to only collect or asks for data where there is an identified need. This is done to minimise the reporting burden on taxpayers as much as possible as well as minimise the administrative costs associated with making changes to the income tax return.
In relation to your suggestion, the Board understands that from an administration perspective the ATO only needs the net figures to help determine the tax payable and that the administrative cost of additional labels to the income tax return is likely to outweigh the benefits in this instance.
However, the Board is interested in any other examples you might have or comments in relation to the number of returns you encounter around this issue.
In addition, the Board is interested in seeking the views of others within the Sounding Board community as to the benefit of this proposal and relative priority this matter might have in order to warrant further investigation.