No full FITO on US gains as CGT discount "excludes" part of gain : taxpayer in Burton has a case. Part 1

The Federal Court (McKerracher J) decision in Burton v FCT [2018] FCA 1857 (reported at 2018 WTB 50 (1621]) is a test case. While the ATO succeeded at first instance, the decision is on appeal to the Full Federal Court. There is a good chance the dispute will go to a special leave application to the High Court. The key issue is whether the Australian resident taxpayer can obtain full credit (foreign income tax offset (FITO)) under s 770-10(1) (with ss 770-70 and 770-75) for the US tax paid on a US capital gain. The ATO position and adopted by McKerracher J. was that the taxpayer can only have 50% credit for the tax paid in the US because Australia's CGT discount rule operates to only include 50% of the foreign gain in the resident taxpayer's (Australian] assessable income. This article, Part 1 of a 3-part series, briefly outlines the facts of Burton, and asserts that the taxpayer was defeated solely on the basis of the mechanism Australia chose to implement its concession for long-term capital gains. The rest of the article provides an outline of s 102·5(1). and commences to address the question. is s 102-5(1) Just another assessable income provision or is it a special type of assessable income provision? This question is important because the provision creating the entitlement to the FITO refers to an inclusion in assessable income: s 770-10(1).