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Edited version of your private ruling
Authorisation Number: 1011972253803
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Ruling
Subject: Income from Transport Accident Commission
Questions and Answers
Are the compensation payments you receive from the Transport Accident Commission (TAC) assessable to you in Australia?
No
Are you entitled to a refund of the tax which has been withheld by the TAC as shown on your payment summary?
Yes
This ruling applies for the following periods:
Year ended 30 June 2010
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
The scheme commences on:
1 July 2009
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You are under 18 years of age.
Your parent, an Australian citizen, was killed in an accident in the 20XX-XX income year.
You and your other parent live in Country A.
You and your other parent are not residents of Australia for tax purposes.
You receive fortnightly payments from the Transport Accident Commission (TAC). Tax has been withheld from the payments.
The TAC follows Victorian legislation called the Transport Accident Act 1986.
Relevant legislative provisions
Income Tax Assessment Act 1936 Subsection 6(1).
Income Tax Assessment Act 1936 Subsection 98(1).
Income Tax Assessment Act 1936 Subsection 102AC(2).
Income Tax Assessment Act 1936 Paragraph 102AE(2)(a).
Income Tax Assessment Act 1997 Subsection 6-5(2).
Income Tax Assessment Act 1997 Subsection 6-5(3).
Income Tax Assessment Act 1997 Subsection 6-5(4).
International Tax Agreements Act 1953.
Reasons for decision
Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a foreign resident taxpayer includes ordinary income derived directly or indirectly from all Australian 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:
o are earned
o are expected
o are relied upon, and
o have an element of periodicity, recurrence or regularity.
Taxation Determination TD 92/133 states that periodic payments made under an accident or compensation legislation to dependent children of deceased persons are considered to be a pension and are taxed at normal rates.
Therefore as the Transport Accident Commission has paid you a recurring payment in the form of a pension, the payment is assessable under subsection 6-5(3) of the ITAA 1997.
Double tax agreement
In determining liability to Australian tax on Australian sourced income received by a foreign resident, 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 and Country A have a tax treaty in place for the avoidance of double taxation.
Section 4 of the Agreements Act incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).
Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Country A Agreement (which is the double tax treaty between Australia and Country A) is listed in section 5 of the Agreements Act.
The Country A Agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The Country A Agreement operates to avoid the double taxation of income received by residents of Australia and Country A.
An article in the Country A Agreement provides that pensions paid to a resident of Country A shall be taxable only in Country A.
Therefore a resident of Country A for tax purposes is assessable on their Australian pension income under subsection 6-5(3) of the ITAA 1997.
This means that a resident of Country A will need to inform the relevant payer of the Australian pension of their residency status such that tax will not be withheld from their Australian pension.
In your case you will need to inform the TAC that you are a resident of Country A and the income is not assessable in Australia. Thus tax should not be withheld in Australia from the payments made to you. You are entitled to a refund of the tax which has been withheld by the TAC.