GIM12230 - Double taxation relief: foreign tax on investment income: accounting periods beginning on or after 1 April 2000: section 804C ICTA 1988: the first limitation: example
Suppose there are two items of income on which foreign tax falls to be allowed as credit:
- A 1000 from which foreign tax of 150 has been deducted; and
- B 2000 to which foreign tax including underlying tax of 800 (40%) is attributable.
The relevant items of incoming and outgoings are
| Premiums | 16000 |
|---|---|
| Investment income* | 4000 |
| Acquisition costs & investment management expenses | 500 |
| Other expenses | 1500 |
| Claims & incurred in technical provisions | 15500 |
| Case I profit | 2500 |
*Note - if the total income is nil, the fraction to be applied to the expenses in respect of item A of 1000 is 1000/3000, and the fraction to be applied to the expenses in respect of item B of 2000 is 2000/3000.
- Total income is 20000 (16000 + 4000)
- The fraction to be applied to the expenses in respect of item A of 1000 is 1000/20000. The fraction to be applied to the expenses in respect of item B of 2000 is 2000/20000.
- Total relevant expenses are 16000 (500 + 15500).
- Fraction of total relevant expenses attributable to item A is 16000 x 1/20 = 800
- Fraction of total relevant expenses attributable to item B is 16000 x 1/10 = 1600
- Item A relevant income after applying the first limitation is 1000 – 800 = 200
- Item B relevant income after applying the first limitation is 2000 – 1600 = 400