ATO Interpretative Decision

ATO ID 2001/5 (Withdrawn)

Income Tax

Income tax: Exempt Foreign Income
FOI status: may be released
  • This ATO Interpretative Decision is withdrawn from the database because it contains a view in respect of section 27CD of the Income Tax Assessment Act 1936 which does not apply after the 2006 - 2007 income year. Despite its withdrawal from the database, this ATO Interpretative Decision continues to be a precedential view in respect of decisions for income years up to, and including, the 2006 - 2007 income year.
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Status of this decision: Decision Withdrawn 3 July 2009
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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.


Whether the taxpayer's compensation from the British Government for loss of employment in Hong Kong is assessable income in Australia.


The compensation payment is not assessable income.


The taxpayer was employed by the British Government (BG) in the Overseas Civil Service (OCS) and employed as a public servant in Hong Kong by the Hong Kong Government (HKG). Due to an international agreement, Hong Kong was to be transferred to China on 1 July 1997 so the taxpayer left the employment with the HKG in 1996.

The taxpayer is eligible for statutory compensation under the Hong Kong (Overseas Public Servants) (Retirement and Compensation) Order 1996 (UK). The compensation is 5 annual payments, starting in November 1996. The BG will meet any liability to UK income tax. An agreement has been reached with UK Inland Revenue so that the payments do not have to be declared as taxable income in the UK

Reasons For Decision

The payment is made in consequence of the termination of employment therefore it needs to be determined if it is an eligible termination payment (ETP) for Australian tax purposes. The definition of an ETP, as defined in subsection 27A(1) of the Income Tax Assessment Act 1936 (the Act) excludes an 'exempt non-resident foreign termination payment' - paragraph 27A(1)(ka) of the definition of ETP.

An 'exempt non-resident foreign termination payment' is defined in subsection 27A(1) of the Act to include a payment made otherwise than from a superannuation fund in consequence of the termination of the taxpayer's employment, where the payment would, apart from paragraphs (ka) and (ma) of the definition of ETP, be an ETP. The employment must have been in a foreign country as the holder of an office or in the capacity of an employee and the payment must relate to a period of employment where the taxpayer was a non-resident of Australia.

The taxpayer's payment satisfies these criteria. It is being made as a result of the termination of employment. The compensation is being paid from consolidated revenue, not from a superannuation fund. The payment relates to service as an employee for a period when the taxpayer was a non-resident of Australia. The annual payment is therefore an 'exempt non-resident foreign termination payment', is not an ETP and is excluded from assessable income by section 27CD of the Act.

Section 23AG does not apply - see definition of foreign earnings in subsection 23AG(7).

There are no capital gains tax implications.

Date of decision:  26 March 1997

Legislative References:
Income Tax Assessment Act 1936
   section 27CD
   section 23AG
   subsection 25(1)
   paragraph 26(e)
   subsection 27A(1)

Compensation income
Exempt income
Foreign income
Hong Kong

Business Line:  Small Business/Individual Taxpayers

Date of publication:  4 June 2001

ISSN: 1445-2782

  Date: Version:
  26 March 1997 Original statement
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