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Ruling

Subject: Maintenance payments received from a foreign source

Question

Are spousal maintenance payments received by you from your ex-spouse while you are an Australian resident for taxation purposes assessable income?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 2010

Year ended 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

The scheme commenced on:

1 July 2009

Relevant facts and circumstances

You and your ex-husband divorced.

At the time you and your ex-husband lived in Country X.

The courts imposed a court order requiring your husband pay you a monthly maintenance payment.

You returned to Australia in the 2009-10 income year and your ex-husband continues to pay you a monthly maintenance payment.

You are an Australian resident for taxation purposes.

Your ex-husband is taxed on the money in Country X prior to making payments to you.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5,

Income Tax Assessment Act 1997 Section 6-15,

Income Tax Assessment Act 1997 Section 51-1,

Income Tax Assessment Act 1997 Section 51-30 and

Income Tax Assessment Act 1997 Section 51-50.

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

An amount will not be included in assessable income if the amount is exempt income (subsection 6-15(2) of the ITAA 1997).

Section 51-1 of the ITAA 1997 provides that certain listed amounts will be exempt from income tax. Item 5.1 of section 51-30 of the ITAA 1997 includes in the list periodic payments in the nature of maintenance that meet the requirements of section 51-50 of the ITAA 1997.

Section 51-50 of the ITAA 1997 sets out the conditions on which a periodic payment to a spouse or child which is in the nature of maintenance is exempt from tax. That section provides that 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

· to an individual who is or has been the maintenance payer's spouse; or

· to or for the benefit of an individual who is or has been,

· a child of the maintenance payer; or

· a child who is or has been a child of an individual who is or has been a spouse of the maintenance payer.

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

Country X and Australia have signed a double tax agreement (the agreement).

While spousal maintenance payments are not specifically addressed in the agreement, the taxation of these payments is covered by Article 20 of the agreement under other income. Article 20 states that other income that is beneficially owned by a resident of a country to the agreement will be taxed in the resident's country regardless of where that income is sourced.

Your spousal maintenance payments will therefore be taxed according to Australian taxation law while you are an Australian resident for taxation purposes.

You receive regular maintenance payments, which are effectively attributable to payments made by your ex-spouse. The payments are therefore exempt from income tax in accordance with section 51-50 of the ITAA 1997 and are not assessable income under section 6-5 of the ITAA 1997 while you are an Australian resident for taxation purposes.