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Edited version of your written advice

Authorisation Number: 1051299496659

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You cannot rely on this edited version in your tax affairs. You can only rely on the advice that we have given to you or to someone acting on your behalf.

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Date of advice: 25 October 2017

Ruling

Subject: Foreign maintenance support payment

Question 1

Is your lump sum spousal support payment received through your Mediation Agreement in Country A assessable income in Australia?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 2018

The scheme commences on:

1 July 2017

Relevant facts and circumstances

You are an Australian Citizen.

You have been living in Country A for X years.

You are a permanent resident of Country A.

You are a foreign resident of Australia for tax purposes.

You have two dependent children.

You are currently going through a mediation agreement in Country A with your ex-spouse.

As part of the Mediation Agreement, you will receive a lump sum payment for cover X years of spousal support.

You will transfer this lump sum payment to your Australian bank account.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 51-30

Income Tax Assessment Act 1997 Section 51-50

Reasons for decision

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are a foreign resident, your assessable income includes only income derived from an Australian source.

As you are a foreign resident, you are not assessed on foreign sourced income. The source of income in situations where the source of income is from a contract, the courts commonly look to the contract as the real source of the income. Your spousal support payment is sourced in Country A and is therefore not assessable in Australia under subsection 6-5(3) of the ITAA 1997.

Additionally, income will not be included in assessable income if the amount is exempt income.

A periodic payment to a spouse or child, which is in the nature of maintenance, is exempt from tax. The maintenance payment is exempt from income tax only if it is made:

By an individual (the maintenance payer) or is attributable to a payment made by the maintenance payer; and

Although the payment in this case is not periodic, the payment was made in lieu of periodic maintenance payments. The fact that you received the spousal maintenance payment in a lump sum does not change the nature of the payment. The spousal maintenance payment is exempt from income tax in accordance with section 51-50 of the ITAA 1997 and therefore is not assessable income under section 6-5 of the ITAA 1997.

However, any interest accrued on your Australian bank account, is assessable in Australia at foreign resident income tax rates.

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