ATO Interpretative Decision

ATO ID 2002/640 (Withdrawn)

Income Tax

Assessability of monthly compensation payments from Chile
FOI status: may be released
  • This ATO ID is withdrawn. A Double Tax Agreement (DTA) came into force between Australia and the Republic of Chile on 8 February 2013. Article 18 of the DTA applies to these pension payments, being income according to ordinary concepts, granting taxing rights to Australia when the taxpayer is a resident of Australia for taxation purposes.
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Status of this decision: Decision withdrawn 19 April 2018.
CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.


Are monthly compensation payments from Chile received by an Australian resident taxpayer included in assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?


Yes. The monthly compensation payments from Chile are ordinary income and assessable under section 6-5 of the ITAA 1997.


The taxpayer is an Australian resident for income tax purposes.

The taxpayer is in receipt of monthly compensation payments paid under a law passed by the Chilean Government - law number 19234 'Ley de reconocimiento al Exonerado Politico' (Law of Recognition to the Politically Exonerated).

The taxpayer receives the monthly compensation payments because they lost their job during the 1973 Chilean political coup. The amount of pension the taxpayer receives is the equivalent of the pension the taxpayer would have received if they had continued working until retirement age.

Reasons for Decision

Subsection 6-5(2) of the ITAA provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year. Ordinary income has generally been held to include 3 categories, namely income from rendering personal services, income from property and income from carrying on a business.

Other characteristics of income that have evolved from case law include receipts that:

Are earned
Are expected
Are relied upon, and
Have an element of periodicity, recurrence or regularity.

The taxpayer's monthly compensation payment is expected (and perhaps relied upon) as their entitlement to the payment arises under the 'Ley de reconocimiento al Exonerado Politico'. It has an element of recurrence and regularity as it is paid monthly.

An amount paid to compensate for loss generally acquires the character of that for which it is substituted (Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540; (1952) 5 AITR 443; (1952) 10 ATD 82). The monthly amount is paid to the taxpayer to compensate the taxpayer for the loss of employment and the corresponding loss of a retirement pension and can also be characterised as income.

Accordingly, the monthly compensation payments received by the taxpayer are considered ordinary income and are assessable under section 6-5(2) of the ITAA 1997.

Note: there is no double tax agreement between Australia and Chile.

Date of decision:  15 May 2002

Year of income:  Year ended 30 June 2000 And later years

Legislative References:
Income Tax Assessment Act 1997
   section 6-5

Case References:
Federal Commissioner of Taxation v. Dixon
   (1952) 86 CLR 540
   (1952) 5 AITR 443
   (1952) 10 ATD 82

Foreign pension income
Compensation income
Workers compensation

Business Line:  Small Business/Individual Taxpayers

Date of publication:  6 June 2002

ISSN: 1445-2782

  Date: Version:
  15 May 2002 Original statement
You are here 19 April 2018 Withdrawn