Edited version of private advice

Authorisation Number: 1052023245261

Date of advice: 25 August 2022

Ruling

Subject: Foreign wounds pension

Question

Are the payments you receive exempt income under section 11-15 of the Income Tax Assessment Act 1997?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You moved to Australia with your family on a subclass 100 visa and are an Australian resident for tax purposes

When you previously lived in Country A, you were injured during army officer training.

You were awarded compensation under a compensation scheme

Due to the nature of your injuries, you were awarded both one-off lump sum payments, and monthly payments for life.

The payments are calculated as a percentage of the salary you were on at the time of injury, and that percentage is determined by the type and severity of the injury, the monthly payments are also amended by age.

The payments are made under specific legislation

The compensation scheme is a no-fault compensation scheme

Relevant legislative provisions

Income Tax Assessment Act 1997 section 11-15

Income Tax Assessment Act Item 5, subsection 52-114(3)

Income Tax Assessment Act 1997 section 53-10

Reasons for decision

Section 11-15 of the ITAA 1997 lists provisions dealing with income which may be exempt from tax in Australia. Included in this list is section 53-10 of the ITAA 1997 which concerns wounds and disability pensions.

Item 5 of section 53-10 provides that wounds and disability pensions are wholly exempt from tax in Australia provided that the payment is:

•         of a kind specified in section 641 of Act A of Country A, and

•         similar in nature to payments that are exempt under Divisions 52 or 53 of the ITAA 1997

A kind specified in Country A Act

The Act in Country A lists the types of wounds and disability pension that are tax exempt from taxation.

Satisfying the first limb of item 5 in section 53-10 requires looking to the act in Country A. The Act in Country A states that wounds pensions are exempt and benefits established by an order under another Act in Country A are also exempt income.

That other Act specifies that an order may be made by the Secretary of State which provide benefits for illness or injury which is attributable to service in the armed forces or reserve forces.

The introductory text to the order that establishes the Compensation Scheme you are paid under, states the Secretary of State exercised the powers in the Act to make the Order.

Therefore, satisfying the Acts in Country A which in turn satisfies the first limb of item 5 of section 53-10 of the ITAA 1997.

Similar in nature to payments that are exempt under Divisions 52 or 53 of the ITAA 1997

Division 52 and 53 of the ITAA 1997 covers various types of payments, including compensation for permanent impairment at subsection 52-114(3) Item 5. Additionally, as explained above, Division 53 covers wounds and disability pensions under section 53-10. As the payment received by you is of a similar nature to payments exempt under Division 52 or 53 of the ITAA 1997, the second limb of section 53-10 is satisfied.

Accordingly, as the payments you received under the Armed Forces and Reserve Forces (Compensation Scheme) Order 2011 (UK) satisfies the requirement in section 53-10 of the ITAA 1997, the payments are exempt from income tax.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).