1011830575579 | Legal database

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Edited version of private ruling

Authorisation Number: 1011830575579

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Ruling

Subject: Foreign income - compensation payment

Question

Is the weekly compensation payment you receive from country A assessable in Australia?

Yes.

This ruling applies for the following periods

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commenced on

1 July 2008

Relevant facts

You are a resident of Australia for tax purposes.

You are a country A Citizen.

You injured your back while working in country A for which you receive weekly compensation payments.

You will receive the payments until age 65.

Country A have not taxed the payments since you arrived in Australia.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-1

Income Tax Assessment Act 1997 subsection 6-5 (1)

Income Tax Assessment Act 1997 subsection 6-10(2)

Income Tax Assessment Act 1997 subsection 6-10(4)

Reasons for decision

Section 6-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that assessable income consists of ordinary income and statutory income. Ordinary income is income according to ordinary concepts. Statutory income is income which is included in your assessable income by a provision or statute of the tax law.

Section 6-5(2) of the ITAA 1997 provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Section 6-10 of the ITAA 1997 provides that a taxpayer's assessable income includes statutory income amounts that are not ordinary income but are included in assessable income by another provision. The assessable income of an Australian resident includes statutory income from all sources, whether in or out of Australia.

Your liability to tax is determined by your residency status. As you are an Australian resident for tax purposes, your assessable income includes income from all sources in Australia and elsewhere. Consequently, the income from your compensation payment is included in your assessable income in Australia.

Pensions and other similar periodic income replacement payments have the character of ordinary income.

In determining liability to tax on foreign sourced income received by an Australian resident taxpayer it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act).

Australia has a tax treaty with country A (the country A agreement) which operates to avoid the double taxation of income received by Australian and country A residents.

In your case it is necessary to establish how your weekly compensations payments are categorised for the purposes of Australia's tax treaty.

Taxation Determination TD 93/151 deals with how periodic workers compensation payments made by Comcare are characterised for the purposes of Australia's tax treaty.

TD 93/151 considers that Comcare payments are fixed periodical payments and that they are pensions within the ordinary meaning of that term and therefore falls within the Pensions Articles for the purposes of Australia's tax treaty.

While the payments you are receiving are not paid by Comcare, they are similar to Comcare payments in that they are fixed periodical payments made in consideration of injury or loss sustained. As such the payments you are receiving are considered to be a pension for the purposes of the country A.

An Article of the country A Agreement provides that pensions (including government pensions) and annuities sourced in country A and paid to a resident of Australia are taxable only in Australia.

Consequently the weekly compensations payments made to you are a pension for the purposes of the country A Agreement and are taxable only in Australia.

Therefore, the payments you receive are ordinary income and are assessable under subsection 6-5(2) of the ITAA 1997.

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